- (1.) For the assessment year 1957-58 the appellant Company claimed, in proceedings for assessment of wealth-tax, that the following four amounts be deducted in the computation of its net wealth : (1) Rs. 29,44,421 in respect of income-tax liability relating to the assessment year 1957-58. This amount included Rs. 2,95,869 representing the last instalment of advance tax under S. 18A in respect of which a notice of demand had been issued. (2) Rs. 3, 70,083 in respect of business profits tax liability. (3) Rs. 20,23,500 in respect of proposed dividend. (4) Rs. 25,02,675 on account of accrued liability for gratuity to workmen and staff as per the award of Industrial Court and Labour Appellate Tribunal. The claim was rejected by the Wealth-tax Officer. The Appellate Assistant Commissioner accepted the claim of the appellant Company in respect of the last instalment of the advance tax for which a notice of demand had been issued, and rejected the claim in respect of the rest. The Income-tax Appellate Tribunal upheld the claim of the appellant Company in respect of the 1st, 2nd and the 4th items and rejected the claim in respect of the 3rd item.
(2.) At the instance of the Commissioner, the following four questions were referred to the High Court of Judicature at Bombay under S. 27 (1) of the Wealth-tax Act 27 of 1957: "(1) Whether on the facts and circumstances of this case the last instalment of advance tax in the sum of Rs. 2,95,869 paid by the assessee after the valuation date in accordance with the notice of demand, dated 20th October 1956 is an admissible deduction under Ss. 7 (2) and 2 (m) of the Wealth-tax Act for the purpose of computation of the net wealth of the assessee for the assessment year 1957-58 (2) Whether on the facts and circumstances of the case in computing the net wealth of the assessee under S. 7 (2) read with S. 2 (m) of the Wealth-tax Act the liability for income-tax and business profits tax could be allowed as a dedication (3) Whether on the facts and circumstances of the case the liability in the sum of Rs. 25,02,675 which arose as a result of the awards, dated 28th October 1948, 28th November 1956 and 17th October 1954 before the valuation date or any part thereof is allowable as a deduction in determining the net wealth of the assessee under S. 7 (2) read with S. 2 (m) of the Wealth-tax Act (4) Whether on the facts and circumstances of the case the sum of Rs. 20, 23,500 being the provision made for dividends and shown as a liability in the balance sheet of the assessee company could be allowed as a deduction in computing the net wealth of the assessee company - At the hearing before the High Court, the fourth question was not pressed by the appellant Company. The High Court answered the first question in the affirmative, the second question in the affirmative insofar as it related to the estimated liability of business profits tax subject to verification by the Wealth-tax Officer, and in the negative insofar as it related to the estimated liability of income-tax. The third question was answered in the negative. In this appeal the Company challenges the correctness of the answers to the second part of the second question and the third question.
(3.) The second question insofar as it relates to estimated liability for payment of income-tax needs no detailed consideration, for the answer thereto will be governed by the judgment of this Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax (Central), Calcutta, (1966) 59 ITR 767: (AIR 1966 SC 1370). It was held by this Court in that case that liability to pay income-tax was a present liability though the tax because payable after it was quantified in accordance with ascertainable data: there was, therefore, a perfected debt at any rate on the last day of the accounting year and not a contingency liability, and the amount of the provision for payment of income-tax in respect of the veal of account was a "debt owed" within the meaning of S. 2 (m) on the valuation date and was as such deductible in computing the net wealth. The view expressed by the High Court on the second question insofar as it relates to provision for income-tax cannot, therefore, be sustained and that part of the question should be answered in the affirmative.;