R.K. DEO vs. COMMISSIONER OF WEALTH-TAX, ORISSA.

CIVIL APPEAL No. 788/1977Supreme Court[1992] 3 S.C.R. 20312 May 1992Bench: 2 JudgesAuthor: R.M. SAHAI, A.S. ANAND R.K. DEO A10 pages
AI SummaryDismissed

What were the facts?

The appellant-assessee claimed a deduction for income tax liability amounting to Rs. 6,69,766 in his wealth-tax assessments for the years 1962-63 to 1965-66. This tax liability arose from forest income, which was initially held not taxable by the High Court but later held taxable by the Supreme Court in 1958. The Income Tax Officer issued a fresh demand notice in October 1964, and the tax was paid in March 1965. The Wealth-Tax Officer disallowed the deduction, stating the tax remained outstanding for over twelve months on the valuation date. The Appellate Assistant Commissioner allowed the deduction, but the Tribunal set aside this order. The High Court affirmed the Tribunal's decision, leading to the present appeals.

What did the Supreme Court hold?

The Supreme Court held that the High Court was correct in disallowing the deduction of Rs. 6,69,766 for the assessment years 1962-63 to 1965-66. It was established law that an income tax liability is a debt under Section 2(m) of the Wealth Tax Act, 1957. In this case, the amount was a debt owed by the appellant on the valuation dates. However, the deduction is only permissible if the debt was not outstanding for more than 12 months on the valuation date. The Court reasoned that the appellant was obligated to pay the assessed tax irrespective of the pending reference under Section 66 of the Income Tax Act, 1922, as per sub-section (7) thereof. The tax remained unpaid during the pendency of the reference and the subsequent appeal to the Supreme Court. Consequently, the tax payable became outstanding by operation of law and remained so on the valuation dates for more than 12 months. Therefore, the bar under Section 2(m)(iii)(b) operated, preventing the deduction. The period of 12 months was to be calculated from the final determination of liability by the Supreme Court's order in 1958, or due to the operation of Section 66(7), and not from the fresh demand notice in October 1964. The appeals were dismissed.

What were the issues?

1. Whether the income tax liability of Rs. 6,69,766 is admissible as a deduction in computing the net wealth of the appellant under the Wealth Tax Act, 1957, for the assessment years 1962-63 to 1965-66, considering Section 2(m) and Section 66 of the Wealth Tax Act, 1957. Assessee's contentions: The appellant argued that the tax liability crystallized on the last day of the previous year and became a debt upon the Supreme Court's order in 1958. However, it was only quantified in October 1964 when a fresh demand notice was issued, and therefore, the 12-month period for deduction should be counted from that date. Reliance was placed on Commissioner of Wealth Tax v. Vadilal Lallubhai and Commissioner of Wealth Tax, Gujarat v. Vimlaben Vadilal Mehta. Revenue's contentions: The revenue contended that the tax remained outstanding for more than twelve months on the valuation date, thus disentitling the assessee to the deduction as per Section 2(m)(iii)(b) of the Wealth Tax Act. The revenue also relied on the provision of Section 66(7) of the Income Tax Act, 1922, which mandates payment of tax notwithstanding a reference pending. Reliance was placed on Commissioner of Wealth Tax, Madras v. K.S.N. Bhatt.

Which sections of the Income-tax Act were involved?

Section 2(m),Section 66,Section 66(7),Section 66A(4)

AI-generated summary — verify with the full judgment below

"'"( R.K. DEO A v. COMMISSIONER OF WEALTH-TAX, ORISSA.

May 12, 1992 [R.M. SAHAI AND A.S. ANAND, JJ.) B ~ Wealth Tax Act, 1957 : Sections 2(m), 66 : Income Tax liability as a deduction from wealth tax-Outstanding on the valuation date for more than 12 months-:-Whether c could be al/owed-Relevant date for purpose of calculating the period of 12 months-Wliat is-Pendency of reference/appeal before court-Effect of.

The appellant-assessee, in bis wealth-tax assessments, claimed r-- deduction towards tax liability which arose on account of bis income from forest brought to tax and upheld by this Court. The Wealth-Tax Officer D • disallowed the claims as the tax payable remained outstanding for more than tWelve months. on the valuation date. On appeal, the Appellate Assis- tant Commissioner held that the assessee was entitled to claim the said deduction in view of the fact that the liability was created by the judgment of the Court and discharged subsequently. However, on appeal the E Tribunal set aside the order or the appellate authority. The High Court affirmed the finding or the Tribunal. ~ The assessee has preferred the present appeals against the High Court'

The order continues below.

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