S. Grover, Judicial Member - (1.) IN this second appeal the only contention is that the learned Commissioner (Appeals), New Delhi was in error in not directing deduction for liabilities on account of wealth-tax and income-tax, which were due on valuation date but which were precisely determined afterwards.
(2.) The Commissioner (Appeals) declined the assessee's claim by observing1 that the liabilities outstanding on the valuation date, which was 31-10-1978, was in connection with the wealth-tax payable on the wealth returned and since the assessee's representative agreed that payments were outstanding for a period of more than 12 months as on" the valuation date, constraints of Section 2(m)(iii)(ft) of the Wealth-tax Act, 1957 ('the Act') came into play. Before us Shri P.S. Khanna, the learned chartered accountant appearing for the assessee, submitted that apparently neither the WTO nor the first appellate authority appreciated the facts. With the help of chart at page 2 of the paper book, he submitted that what was sought to be deducted was income-tax liabilities in respect of the assessment years 1976-77, 1978-79 and 1979-80 and wealth-tax liabilities in relation to the assessment years 1972-73 to 1978-79 and since assessments for the said years for income-tax and wealth-tax were completed after the valuation date, there was no question of the provisions of Section 2(m)(m)(&) coming into operation. He pointed out that the deduction was not being claimed in respect of taxes which became payable or had been paid before the valuation date but the liability of which accrued afterwards. The following graphical chart would project outstanding liabilities, which are claimed as deduction : JUDGEMENT_2106_TLIT0_19870.htm Income-tax on annulled assessment, the effect of winch is not given by the department, since their reference has been accepted : JUDGEMENT_2106_TLIT0_19871.htm
(3.) IN respect of the assessment year 1979-80 income-tax assessment order was passed on 24-3-1982 and income assessed at Rs. 1,81,200, on which demand of Rs. 1,20,230 was raised. Since the assessee had paid Rs. 29,000 before 31-10-1978 the balance of Rs. 91,230 is claimed as liability. Similarly vin respect of the assessment year 1978-79 the demand created vide order dated 31-3-1984 amounted to Rs. 35,246 and in relation to which the assessee paid. Rs. 16,120 only on 27-4-1981. Therefore, the entire demand was outstanding liability. Similar is the pattern in relation to wealth-tax outstanding, detail of which is given at page 2 of the paper book. As far as income-tax demand of Rs. 8,61,072, as per the assessee's own version, the assessments have been annulled and, accordingly, irrespective of the department's attitude of non-adjustment, the said amount could not be considered as outstanding liability as it was in the nature of deposit with the INcome-tax Department. Therefore, on the facts of the case, the assessee's claim for deduction of liabilities to the tune of Rs. 2,70,805 is allowed, subject to the rider that if these are modified the necessary adjustment shall be carried out by the tax authorities. This we are holding in view of the judgment of the Hon'ble Supreme Court in the case of CWT v. K.S.N. Bhatt [1984] 145 ITR 1, in which it has been held that though tax liabilities are to be deducted even though assessment orders are finalized after the valuation date, but it is the quantification by the ultimate judicial authority which will determine the amount of the debt owed on the valuation date. And if it is found on such ultimate determination that there was no liability or it was a modified figure it cannot be said that merely because originally a particular figure was determined, which stood existing on the valuation date, the ultimate liability could not be substituted.;