T.P. Mukerjee, J. - (1.) THE statement of the case in this reference raises the following three questions for our opinion : "1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,01,994, being provision for payment of income-tax and super-tax in respect of assessments not contemplated on the valuation date, was deductible in computing the net wealth of the assessee ?
(2.) WHETHER, on the facts and in the circumstances of the case, the provision for proposed dividend of Rs. 1,53,400 was deductible in computing the net wealth of the assessee ? Whether, on the facts and in the circumstances of the case, the sum of Rs. 5,49,041 being the balance of the demand payable as a result of the findings and orders of the Income-tax Investigation Commissioner was deductible in determining the net wealth of the company?" 2. The first two questions may be disposed of at once in view of the decision of the Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, 1966 59 ITR 767; [1966] 2 S.C.R. 688 (S.C.). That decision was pronounced on November 24, 1965, and it was not, evidently, before the Tribunal when it decided the appeal on August 5, 1963, It has been laid down by the Supreme Court that Section 3 of the Income-tax Act, 1922, is the charging section which gives rise to the liability to pay income-tax, although the tax would become payable only after the assessment has been made by the Income-tax Officer after the Finance Act became operative for the relevant assessment year. It has also been held that the liability created by the charging section was a present liability of an ascertainable amount which became a perfected debt, at any rate, on the last day of the accounting year. 3. In the present case, the sum of Rs. 1,01,994 represents the provision made by the assessee in its accounts for payment of income-tax and supertax in respect of pending assessments. There is no case that the provision for tax liability amounting to Rs. 1,01,994 was an over-estimate. The amount, in view of the dictum laid down by the Supreme Court in the above case, is allowable as "a debt owed by the assessee" within the meaning of Section 2(m) of the Wealth-tax Act, 1957. The Supreme Court also laid down in the same case that the dividend proposed by the directors of a limited company for distribution to its shareholders, before the general body meeting is held, does not give rise to any debt owed by the company to the shareholders and the amount of the proposed dividend is not, therefore, deductible in the computation of the net wealth as defined in Section 2(m) of the Wealth-tax Act. In the instant case, the sum of Rs. 1,53,400 represents the amount provided for by the assessee-company in its accounts on the valuation date, for payment of dividends to the shareholders, as recommended by its directors. It is common ground that the general body meeting for the relevant year was not held on or before the valuation date which is September 30, 1956. The amount of proposed dividend is not, therefore, deductible in computing the net wealth of the assessee.
(3.) THE result is that question No. 1 must be answered in the affirmative and in favour of the assessee, while question No. 2 must be answered in the negative and against the assessee. We are now left with question No. 3. The assessee is a limited company engaged in the manufacture of cotton textiles, etc. As a result of proceedings under the Taxation on Income (Investigation Commission) Act, a sum of Rs. 15,99,041 was determined as payable by the assessee. Out of this a sum of Rs. 10,50,000 had been paid before the valuation date and Rs. 5,49,041 remained outstanding on that date. The assessee claimed that the amount of the outstanding demand should be deducted in the wealth-tax assessment for the year 1957-58. The Wealth-tax Officer disallowed the claim and the Appellate Assistant Commissioner confirmed the disallowance. The view taken by the Appellate Assistant Commissioner was that before a debt can qualify for deduction in the computation of the net wealth, it must have relation to the assets declared by the assessee. As, in the opinion of the Appellate Assistant Commissioner, the tax liability in question was not referable to the assets declared by the assessee, the Income-tax Officer was justified in refusing the deduction claimed.;