Dwivedi, J. - (1.) THIS is a reference under the Wealth-tax Act by the Income-tax Appellate Tribunal, Allahabad Circle, Allahabad, at the instance of the Commissioner of Wealth-tax, Lucknow. Along with the statement of the case the Tribunal has referred this question : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the unpaid income-tax liability was allowable as a debt within the provisions of the Wealth-tax Act ?"
(2.) THE assessment years are 1957-58, 1959-60, 1960-61, 1961-62 and 1962-63, THE assessee is an individual. During the war he earned certain income which was concealed from the income-tax authorities. A notice under Section 34(1A) of the Income-tax Act, 1922, was issued to him. THEreafter, there was a settlement under Section 34(1B) of the Income-tax Act. THE settlement was signed by the assessee and his two brothers on January 17, 1957. It appears from the first clause of the settlement that the assessee and the department settled the figure of the concealed income between 1940-41 and 1946-47 at Rs. 1,33,57,833. After making certain allowable deductions, it was agreed by Clause (5) that the income-tax payable by the assessee would be Rs. 31,92,353. Clause (6) provides that the said sum shall be paid by the assessee in five instalments. THE first four instalments are of six lakhs of rupees and the last instalment is of Rs. 7,92,353. It was agreed that the first instalment would be payable on February 28, 1957 ; the second instalment on February 28, 1958; the third instalment on February 28, 1959 ; the fourth instalment on February 28, I960, and the last instalment on December 31, 1960. It is not necessary to refer to the other clauses of the settlement. THE Central Board of Revenue passed an order in accordance with the settlement on May 1, 1957. In the preamble of the order it is stated : " And whereas the said terms of settlement have been considered by the Central Board of Revenue and approved by the Central Government; And whereas the Central Board of Revenue have, after such consideration and approval, accepted the said terms of settlement .... " Clause (iii) of the order provides that the amount of Rs. 31,92,353 shall be paid " in the manner and according to the instalments stipulated in the annexure " to the order. Clause (iv) of the order provides that the first instalment of Rs. 6,00,000 "which fell due on the 28th February, 1957 " shall be paid within one month of the receipt of the order by the assessee. As the settlement was between the assessee and his two brothers on the one side and the Central Board of Revenue on the other side, the assessee sought to deduct one-third of Rs. 31,92,353 from the gross wealth shown by him as debt owed by him. This was resisted by the department. But the Income-tax Appellate Tribunal allowed the deduction. Hence this reference.
(3.) DR. R. R. Misra, on behalf of the department, has urged two points for our consideration. Firstly, he has submitted that as the order of the Central Board of Revenue under Section 34(1B) of the Income-tax Act was passed on May 1, 1957, the amount of tax which the assessee asserts to be due by him on the valuation date for the assessment year 1957-58 was not at all due on the valuation date. According to him the liability was not in existence on the valuation date. It came into being only when the Central Board of Revenue passed the order under Section 34 (1B) on May 1, 1957. The other argument relates to the remaining assessment years. The argument is that as the total amount of tax had not been paid by the assessee for a period of more than twelve months on the valuation date, no deduction could be made. On both the questions the Tribunal held against the department. On the first question the Tribunal says : " According to us the fact of assessee's signing the terms and conditions proposed by the Board on January 17, 1957, has set art rest all controversies as to the nature, amount and years of income. It is interesting to note that the terms and conditions did not only settle the amount of escaped income but also the tax liability and the mode in which the same was sought to be paid. This, therefore, hardly leaves any scope for speculation suggested by the department. " The Tribunal went on to add : " The order in this ' case had admittedly been passed on May 1, 1957, i.e., after a month of the valuation date. In the premises we have no hesitation in holding that the income-tax liability in this case was ascertainable on January 17, 1957, i.e., before the valuation date. " ;