COMMISSIONER OF WEALTH TAX? KANPUR v. M/S. J.K. COTTON MANUFACTURERS LTD.

February 28, 1984 W•alth Tax Aci. 1967. Sections 2(m), 4(3), 5 and 6-W1a/th tax-Deduc· tions-Sett,ement allowing payment in instalments-Instalments unpaid and showed i~ balance sheet,as "debt"' owed by assessees-- Whether allawable dedifc- · ct ion-Whether 'debt owed and outstanding' . . Words & Phrases : "al/ the debts .owed by th1 assessee"-M,aning of- •C S. 2 (m) Wealth ·Tax Act, 1957. As a result of proceedings taken and 'settlement arrived at in 1952 · under the Taxation on Income (lnvestigiltion COmmission) Act, 1947 certain sums were determinecl as payable by 'the respondents·assessee-ccimpii.nies on its secreted profits, and schemes for the payment of the said liability l!y instalments were I;iid dowh. . . The assessee:-companies claimed th3.t the balance of the demand that had remained unpaid was a debt owed by it and should be "allowed as a deduc~ion.. while computing its D.et..wealth for t~e concerned year of assessment (1957-58). The Wealth-tax Officer computed the net-wealth. of each company by adopting the figures of assets and liabilities as shown ih their balance-sheets E as on their respective valuation dates after making sucQ 4<lj_u_:ttpie'nts _as considered necessary but in both the cases he disallowed the aforesaid claim for deduction on the ground that the liability was outstandina for more than 12 mon!Hs on the valuation dates. · · The Appellate Assistant Commissioner confirmed the disallowancc. He took the view that the tax liabilities assessed by the Income-tax Investi- ~F ga\ion Commission had no relatjon to .the assets or the declared wealth of assesseC<ompan_ies, which were the basis of the wealth.tax assessment and r. since the assets_ on which. the said liability.was aSscssedJ namely, the secret profits, were not included in the declared assets the disallowance was . justified. ' . . In further appeals ,by the- assessee-co111panies to the Tribunal, the . G Tribunal conJirmed the !lisallo,..aoce .011 the ground that sections 2 <m) (i), 2 (ml (ii), 5, (!)and S (21. inpicated a scheme of the Act which ~u&gested that !lebts which qualified for deduction in .c<!lll.lluta.tion of the net-wealtq w.ere only those which were incurred in. relation to the assets declared by tho · assessee, that is to say, In, COD)P,Utlpg. ~he netcfealth the principle to be adopted was that when an)' assets were included the i:orresponding!lebts should be allowed, but that when such assets· were e~cluded or were liable to · H be excluded from the net'wealth the"eotresponding debts should also be ogluded.

riot fall within the exclusionary part containe.d in section 2 (in).' (iji) of the Act. [48H-49Al . . . .

Per Tulzapurka r, J. Tlte scheme emerging frotn the keY- provisiolls ot the Act, sections ' .. ·z' (m), :r and-4 clearly show th~t barring those . debts which fa 11. \vithi.n/l)e exclusionary part of section 2 (m) all other debts owed by the assesSee ·11ave ·to be deducted from the aggregate value _of the assets .belongiag·to him ori the ·:P :valualion date; In order to get disqualified for the purposes of tleduc'tion ·a· debt Jnust fail withi~ _tlte .exclusionary part and there is nothing, ,in.Jhe ~;eJ:clusionary part -which suggest~ -tb{lt_ the debt-must- "either by- re1~_tap1~,-:to :· any· iissei-~at all oJ: if it is relatable to any ass>!t; such asset ~ust, Pe i~.clu. :-· .d.ed iq the book$ of accounts Or the Palance s:heet ,Of Sfte asses·~ee bef9re.a ·depuction in respeet thereof is allowed. [450D]

I~· the· instant_ cases, the ~ecret profits ·admittedly_- ecirne'd by the. assessee-compnie·s related _to an aSsess·ment year prior- to September, 1948 • (as proceedings under TaxatiOn on lncOme' (InyC~tig~t~ol! _·CommiS_sion) _Act,

1947. could be taken only in respect of lhe asses.sment Yaar prior to 1.9°;1948) and the ta~ liability in respect thereof was determined. in 1952, bqt the valuation d~tes are 30.6.1956 and ·31.12.1956, [47D] ' H Annamma .Paul Perlncherry v.- Commissio_nei~ of Weal/h-Tax,. Ke/14/a +· 88 I.T.R. 204 and Conimlssio.ner of Wealth-Ta~, Kanpur v. J.K.: Jute Mills Co. Ltd., 120 I.T.R. ISO, approved .

• , d.w :r. v J.K. corroN (Tulzapurkar, f.) [Per Sabyasachi Mukharji J.] A There is no evidence to show whether the profits had remained wi~h the 'assessee-companies either in the form of assets in the Balance sheet or . otherwise.· The re1~vant valuation dates-were n1uch later. Had there be~n .any finding that these profits, in some form, .either as assets in the BalanCe

. Sheet or· otherwfse were with the' assessee. It could have perhaps been examtn~d whether ' so long as the assessee does not brii1g those profits in the B computation of the wealth, the assessee would be dis~ntitled to the deductions of Jiabilities in respect of the same. These should have been· examined by the Wealth-tax Officer. with the aid of the principles of section 106 and section 114 of t~e Eviden~e Act. Had that been done) it could have, perhaps· been examined whether by the principle of purposive interpretaion, in orrler ·the giVe effect to the intentiori of the legislature in enacting the Wealt.h Tax and evolving the scheme of settlement under .Taxation [On Income (lnvcstig~tion CommissjOn c· ACt, 1947, whether the assessee was entitled to the deduction Of these two tax liabilities. [50 A-DJ -. ciimmissionq of Wealth-Tax, West Bengal Ill v. Bana.rashi Prashad iediQ, ., 77 I.T.R. 159 and Commissioner of Wealth-Tax, U.P. and Others v, Padampat Singhania, 84 l.T.R. 799, approved. D CIVIL APPELLATE ·JuRISDICTION: Civil Appeals Nos.1179-1180 (NT) of 1973. •

Appeals by Special leave from the judgment and Order dated the 29th Aprif, 1970 of the Allahabad High Court in W. T. R. Nos. E 327 & 330 of 1964.

T. A. _Ramachandran, Mrs. Janki Ramachandran, Miss A, Subhashini and Mrs. Sarla Chandra for the Appellant.

S.T. Desai, B. P. Maheshwari and B.P. Singh.for the'Respon• p dents. The following Jlidgments· were delivered

' " TuLZAPURKAR J, The only question raised in these appeals is whether the two sums of Rs. 5,49,041' (in the case of M/s J. K. G Cotton Ltd.) and Rs. 21,61,788 (in the case of J.K. Jute Ltd.) being the balance of the demands payable as a result oft.he findings .· and orders of the Income-tax Investigation Commission in the settle- ments made under the Taxatio.n on Income (Investigation Commls• sion) Act (30of1947) are dedu9tible as debts owed by them in determining the net-wealth of these companies ? H

The question arises in these circumstances :

SuPREME COuRT REPoRTS li 9S4] 3 s.c.R. A . M/s, J. K. Cotton Manufacturrs Ltd., the assessee, is a limited company engaged in the manufacture of cotton textiles,. etc. and the assessment involved is the wealth-tax assess!iient for the year 1957- 58 based on the valuation date 30.9.1956. It appears that as a result of proceedings taken and a settlement arrived at in 19S2 under " the Taxation on Income (Investigation Commission) Act·1947, a sum B of Rs. 15,99,041 was determined as payable by the assessee company 1~

on its secreted profits and a scheme fqr the payment of the said liability by instalments was laid down. Out of this, a sum of Rs: J0,50,000 had been paid before the valuation date (30.9.1956) and · Rs. 5,49,041 .remained .unpaid on that date. The assessee company .., claimed that the balance of the demand that had remained unpaid c . was a debt owed b/ it and she>uld be allowed as a deduction while computing its netwealth for the concerned year of assessment (1957· 58).

. In the case of Mis. J. K. Jute Mills Co. Ltd. the assessmePt . i11;v,ol~ed under the Wealth-tax Act is also for the assessment year • 1957-58 but the valuation date is 31.12.1956. In the case oft\lis company also as a result of proceeding taken and a settlement . arrived .at irt7 1952 under the Taxation on. Income (Investigation Commi~sion) Act 1947 a sum of Rs. 112,93,392 was determined as 'p~yable by it on its secreted profits and a .scheme for the paymeht of the said liability by instalments was laid down. Out of tlils; a sum.of Rs. 21, 31, 604 had bean paid before ·the valuation date '(3L12.t956) aild Rs. 21,61,788 remained unpaid on that date. The assessee comj>any claimed that the balance of the demand that liad remained unpaid was a debt owed by it and should be allowed as a ll~ductioh while computing its net-wealth for the concerned year of assessment (1957-58). . - . . . The Wealth-Tax Officer.computed the net-wealth of ea6h com- ;oony by adopting the figures of assets and liabHities a.s shown in their balance-sheets as on· their respective valuation dates after Jn\lldPg such adjustments as he considered necessary but in both the ca~es he disallowed the aforesaid claim for deductiOn on tne ground that the.liability was outstanding for more than 12 nionths o\'t the valuation dates. The Appellate Assis.tant Commissioner confirmed ,,... the disaUowance of the amounts but for different a reason, Hetbok the view that the tax llabilities. assessed by the Incoine-tn I.nvesti· H . gation Commission had no relation to the iis~ets ·or the \iecfar'ed ·wealth of the assesse,e compal\ies, whic~ '!'(ere tre basis of the. wea Ith t~x assessment and since the assets on which tlie ~aid liability was

c.w.±. v 1.K. corroN (T~lzapurkar J.) 41 assessed, namely, the secret profits were not included iu the declared assets the disallowance was justified. In further appeals preferred ·by the assessee:companies to the Tdbunal, the reasons ·given by the Wealth-Tax Officer as well as the Appellate Assistant Commissioner were assailed but without ex.pressing any view on the validity or otherwise of the reason given by the Wealth-tax Officer, the Tribunal confirmed.the disallowance by substantially agreeing l)'ith the view expressed by the Appellate Assistant Commissioner. The Tribunal ·pointed out that in s.2 (m', which defines·'net wealth', sub-s. (i). excludes debts located outside India in the case of certain class(IB of assessees, in w.hose case assets located out side India are e~cluded; that s.2 (m) (ii) bars the deduction of debts secured on or incurred c jn relation to exempted assets mentioned ins. 5 (l) and 5 (2); that s.4 (3) permits the deduction of debts relating to assets, which do not stand in the name of the assessee, but. which are nevertheless to be incjuded in the net wealth of the assessee by virtue of the provi· sion in s. 4 (I) ; tliat s.6 (I) repeats 'the provision in s. 2 (m) (i) ' excluding the . debts located outside · India .where corresponding · assets are excluded; and according to the Tribunal these provisions indicated a scheme of the Act which suggested that debts which · qualified for deduC!ion in computation of the net-wealth w~r~ only 0 those which were incurred in relati!n to the assets declared by the assessee, that is to say, in computing the net-wealth the principle to be adopted was that when any assets were· included the correspond- ing debts should be allowed but that when such assets were excluded or were li(lble to be excluded from the .net-wealth the corresponding . debts should also be excluded. Th e Tribunal further observed that . since in the case of the tw6 companies it was· not disputed on their behalf that the tax demands made by the Investigation Commission were in respect' of secret profits which were not disclosed in their - books of atcounts and since it was also conceded that the assets , 'Shown in the balance sheets did not includJl any assets acquired out :of such secret profits the balance of tax demand (Rs. 5,49,041 in '.one case and Rs. Zl ,61,788 in the other case) was not deductible.

fa the References that were made at the instance of the asses~ ""see-companies, the High Court took a contrary view. It over-ruled :·the Tribunal's conclusion that the provisions relied"upon by it indica• .· te,d any scheme leading to the principle that only such debts as were ''rncurred in relation to the asset declared ~r disclosed in the books -r •'.9ualified for deduction because the concerned provisions merely ''dealt with typical situations or special categories of assets and no ,

SUPREME COURT REPORTS [1984 J 3 s.c.i.

general pattern or scheme as suggested· could be inferr'ed therefrom. The High Court therefore opined that the deductions claimed were allowable in computing the net wealth of the assessee-companies. The revenue has .come up in appeals to this Court.

.... In support of these appeals Counsel for the revenue r~ised. two contentiqns before us. In the fir'st place the counsel canvassed for · ·the acceptance by us of the Tribunal's view that the scheme of the Wealth Tax Act shows that where a liability is incurred in relation to anJi asset, that liability is not deductible if the asset is, for any rea- son,. not included in the net-wealth and in this behaif p'rovistons · ..C contained in sections 2 (m) (i) and (ii), 4 (3), 5 and 6 of the Act were relied upon. ·By way of elaboration it was further urged that since under the settlements made under the Taxation on Income (Investigation . Gommission) Act, 1947 certain tax liabilities were .deter.. mi.ned as payable by the assessee-compariies, the assessees inust be taken to have ad'mitted having made secret profits and as Euch only the assessees could.know about the use OP destination thereof and it was for them to show that became of the secret profits and in the absence of any explanation from them in that behalf the secret profits must be presumed to be with them as on the valuation dates and when. such was the ·position•if such secret profits or other assets . acquired out of them were not brought into or Were ·not refl~cted in the Balance Sheets the tax liabilities in relation ther.eto could not be allowed to be deducted. Counsel pointed out that the ·presumption which he is seeking to raise against the· assessees as above was only a different facet of the same rule w\lich obtains in Income-tax cases that once a sum is found credited in ihe assessee's bOoks then it is for hiin to prove the nature and source thereof failing which the r cash credit is ·regarded as his income from undisclosed source (a rule previously enunciated by judicial decisions which now finds a statu· tory recognition in s:68 of the Income.Tax Act, 1961). Secondly, counse I contended that since the deductions claimed were in respect of tax liabilities which were outstanding for a period of more than 1.2 months on the_ valuation dates the deductions could not be allowed under .s.2 (m) (iii) of the Act. On the other hand counsel for the assessee-companies supported the view taken by the High Court on the first contenti.oti and as regards the secop.d 'it was urged that since the same did not find favour either with the A.A.C. or with the Tribunal and was not even urged before the High Court the Revenue :·a · must be taken to have given it up as being without any substance, · Jn any event the tax liabilities herein do not fall within the exclu• sionary provision contained in sec. 2 (m) (iii). '

c.w.t. v i.K. COTION (Tuizapurkar, i.) In order to examine, the first contention it will be necessary to A est out the concerned provisi;ns includillg the charging provision contained in .sec. 3 of the Act. Section 3 provides that there shall be charged for every assessment year. commencing from 1.4.1957 a tax, called Wealth-tax, in respect of the net-wealth on the correspon- ding valuation date of every individual, Hindu Undivided Family B and Company at the rate or rates specifiedin the Schedule I. "Net· wealth" is defined in s.2 (m) whiCh runs thus : 2 (m) "net wealth means the amount by which the aggregate value.computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the .assessee on tire valuation date, including assets required tel c be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than- (i) debts which under section 6 are not to be taken into account ;

(ii) debts which are secured on or which have been in- curred in relation to any property in respect of which wealth-tax is not chargeable under this Act ; .(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in E pursuance of this Act or any law relating to taxa- tion of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure Tax Act, 1957 (29 of 1957), on the Gift-tax Act, 1958 (18 of 1958),-

(a) which is outstanding on the valuation date and • is claimed by the assessee in appeal, revision or other proceeding as not being payab.le by him; or

(b) which, although not claimed by the assessee as G not being payable by him, is nevertheless out- . · standing for a period of· more than tewelve months on the valuation date;" Section 4 (1) provides for inclusion of certain assets in computing the net-wealth of an individual-assets which on the valuation date .B are held not by that individual but by the spouse or by a minoo child.of such individual to whom they have been tvansferred by such

SUPREME COURT REPORTS [1984] 3s.c.lt. • individual directly or i.ndirectly, otherwise than for adequate consi- " deration, etc; in otherwol'lls such assets held by the spouse or the minor are deemed to be the assets of such individual; and in respect of such deemed assets sub-sec. (3) provides :

"'(3) Where the· value of any assets is to be included in the net wealth of an assessee in accordance with clause (a) o'f subsection (1) or sub-section (IA)

(a) they shall be deducted from such value.any debts owing on the valuation date by the transferee mentioned in C that clause in so far as such debts are referable to such assets, and

(b) the provisions of section 5 shall apply in relation to such assets as if such assets were assets b.elonging to the assessee." <; D Secti.on 5 exempts certain assets held by an assessee from being . inCiudedin his net-wealth and provides that Wealth-tax shall not be payable l)y him in respect of those assets and then follows a list of a large number of such exempted assets. ·Section 6 deals with exclusion of assets and debts outside India and provides that in computing the net-wealth of an individual who is not a citizen of India or of an individual or a Hindu Undivided Family not resid.ent of India or resident but not ordinarily resi<lent in India, or of a company not resident in India during the year ending on the valua• tion date, the value of assets and debts located. outside India and il F the value of assets in India of the types specified in cl. (ii) shall not be taken into account. The question is whether the aforesaid provisions of the Act on which reliance has been placed by counsel for the revenue indi- .;;> G cate a scheme of the Act sugges9ve of the principle that only such debts as are incurred in relation to the assets declared or disclosed in the books qualify for deduction in computing the net-wealth of an assessee ? In other words, do these provisions show that in com• puling the net-wealth the rule to be ~dopted is that when any assets ~. are included while aggregating the total assets the corresponding U H '" debJs should be allowed but when such assets are excluded or iire ·.. liable to· be excluded the corresponding debts sho1Jld also be .. excluded ? ·

• C.W.T. v J.K. COTTON (Tu/zapurkar, J.) 4S,.

A · On·a careful analysis of the aforesaid 'provisions it seems to us c~ar that the key provisions are the charging section and the defini~ tion of the net-wealth giv~n in sec. 2 (m). Under se'c. 3 wealth-tax is· chargeable on the net-wealth held by every assessee on the valua· tion date and 'net-wealth' under sec. 2 (ml means the excess of the aggregate value of all his assets wherever located (computed in B ~ccordance with the Act) over the aggregate value of all the debts . owed by him on the valuation date other than the debts which fall within the exclusionery part· of sec. 2 (m). The scheme emerging from the key provisions clearly shows that barring those debts which fall within the exclusionery part of sec. 2 (m) all other debts owed by the assessee hav.e to be deducted from the aggregate value of the c assets belonging to him on the valuation date. In other words, in order to get disqualified for ihe purposes of deduction a debt must fall within the exclusionary part and there is nothing in the exclu- ..,. sionary part which suggests th'llt the debt must either be relatableto anY asset at all or if it is relatable to any asset such asset must be ·· Included in the books of accounts or the balance-sheet of the asses• . D see before a deduction in respect thereof is allowed. If such were a the intention of the Legislature the exclusionary part of sec. 2 (m) would have made a specific provision in that behalf by adding · an 11ppropriate sub-clause therein. ·In the absence of such a provision beiq.g found in the exclusienary part of sec. 2 (m) it would be diffi-' cult to accept ~he contentiOn of counsel for the revenue which in E i substance requires a restricted meaning being given to the expression 'all debts' occurring therein in the context of its deductibility under the Act and the acceptance of such ·a contention would lead to anomalous results which could .be demonstrated. For instance, where an assessee has taken an over-draft from the bank for the purpose o~ carrying on his day to day business and the· over'draft F Is not utilised for acquisition of any tangible asset for the business then on the argument of counsel for the Revenue such overdraft --. woulcl become disallowable beause the liaoility is not referable to any asset reflected in his books but obviously under the scheme of sec. 3 read with the definition of net-wealth und.er sec. 4 (m) such a liability will have to be allowed as a debt owed by the assessee in .computing his wealth-tax. Similarly, if a limited company after earning a certain amount of profits in a year were to distribute the whole of it to its share-holders by way of dividends, it would ~e absurd to suggest that the income-tax payable on such .profits would not be allowable as a debt .owed by the assessee in the computation ff of its net-wealth simply jlecause such profits are lio longer available · _ fOI! bein~ r-efiect~ in its,J?oo~ w~le awegatitig its total ~ssets. lPi . fl

46 SUPREME COURT REPORTS (1984] 3 S.C.R. A, ;- ' the ~ bsence of an appropriate provision in the exclusionery part of sec. 2 (m) therefqre, it is difficult to accept the counsel's contention that a restricted meaning as suggested should be given to the expres- sion 'all debts' occurring in sec. 2 (m). •

High Court's view that these prnvisions deal with typical si!uations or special categories of assets. 'Section 4, for instance, deals with certain assets which are deemed assets of an individual for computing his net-wealth"assets held by his or her spouse or minor child, etc . . under a transfer made by him to them otherwise than for adequate c consideration. and when such assets, though held by the transferee, are to be included as if belonging to t!Mt individual it is but natural 'and fair that debts owed by the transferee on the valuation date in relation to such assets should be deducted while computing the value of such asset in the hands of the individual and this is precisely what sec. 4 (3) provides ; it is clearly a typical case dealing with deemed assets. Section 5 has to be read with sec. 2 (m) (ii) and so read the provision is that debts in relation to exempted assets. i.e. as~ets which are not chargeable to wealth-tax at all 'should 1).0t be ~llowed to be deducted ; similarly sec. 6 has to be read with sec. 2 (m) (j) and so read the. effect is that both the. assets and debts located· outside India of a non-citizen or of an assessee who is non-resident or is a resident but' not ordinarily a resident in India.during the yee.t ending on the valuation date shall not be taken into account in ~omputing the net-wealth of the assessee. From. these particular or special provisions it will.be illogical to deduce any general principle that only such debts as are incurred in relation to the assets declared or reflected in the books qualify for deduction in computing the net' V:.ealth of an assessee, especially as in the definition of 'net-wealth' , given in sec. 2. (m) there is no warrant for it.

As regards the- elaboration of the contention based on a presumption sought to be raised by counsel for the revenue against · the asses see-companies from the analogy. of the presumption arising G in income-tax cases under se.c. 68 of the Income-tax Act, 1961, the c<>11tention is fallacious for two reasons. ·It is true that by reason- ' of the settlement made under the Taxation on Income (Investigation Commission) Act, 1947 the assessee companies must be .taken to ,j,." . have· admitted that they had made secret profits which were kept out of the books of accounts and it is also true that no explanation was (<1rthcoming from the assessee companies as to ~hat became of snch

• .. c.w.r.. vJ.K: COTTON (Tulzapurkar, J.) 41• secret profits but the question is whether from £uch absence o( explanation any presumption can. be raised that such secret profits were still retained by them on the valuation date'in the circumstances of the case? In the first place the analogy of the rule applicable in income-tax cases would be inapplicable in wealth-tax cases inasmuch • as In the fonner case the unexplained cash credit item is regarded B as income of1he assessee from undisclo~.ed source having accrued to:· Wm during the accounting year while in the latter case only the valuation date is relevant on which date the assets (secret profits) must be held· by the assessee and it will not do that such .asset . was held byhimsometlmeduringthe.concerned year. Secondly, after · a lapse of sufficiently long period no presumption can be raised that C' · · a secret profit earned some time during the concerned year has conti- nued to be held by the astessee on the valuation date. In tlie instant case the secret profits admittedly earned by the assessee companies related to assessment years prior to September, 1948 (as procee· dings under Taxation ·on Income (Investigation Commission) Act1947 could be taken only in respect of assessment years prio~ to 1.9. 1948) D and the tax liability in respect thereof was determined.in 1952 but. we o;: are concerned.with the valuation dates 30.6. 1956 and 31.12.1956 and, therefore, the presumption. as suggested by ·the counsel cannot· be drawn against the assessee companies after a lapse of 8 long years. In .Annamma Paul Perincherry v. Commissioner of Wealth-Tax, Kera/a(') and Commissioner of Wealth-Tax. Kanpur v. J.K. Jute Mills Co. E Ltd(')., the Kerala High Court as well as the Allahabad High Court · have taken a similar view that no such presumption can be raised after a lapse of sufficiently long period and we approve of the said view. In any case, as stated above, the deductibility :or the two tax liabilities in question 'does not depend upon whether the assets, in respect whereof such liability has been determined, are available F .. or not while aggregating the assets of the assessee companies. The • contention of the counsel for revenue, therefore, must fail. --, Coming to the second 'contention the question i~ whether the de- ductions claimed fall within the exclusionery part of sec. 2(m) (iii) of Jhe Act, that is whether the two. sums of tax liabilities were outstan- ding for more than 12 months on the respective valuation dates ? According to counsel the expression "outstanding" means. remailling unpaid after becoming due and since the Iiabil)ty to pay income-tax . . for any assessment year crystallses on the last day of the previous . •t (I) 88 I.T.R. 204 \2) 120 l.T.R, !SQ

4$ • SUPREMBCOURT REPORTS (1984] 3 S.C.R. year and becomes payable for that assessment year even before it gets quanti~ed, the two tax liabilities in question which pertained to • assessment years prior to 1948; must be regarded as having become due by the last day of the concerned previous years arid since these were not cleared soon thereafter these were outstanding since at least 1948 and .thus became disallowable. In the alternative counsel urged that if payability is made to depend upon the date of a,n order · passed quantifying the same then at least in 19)2 these became payable when the order of the Investigation Commission was passed · and more than 12 months had pas~ed since then. Counsel urged that granting of instalments under· the settlement merely amounted to showing some conc·essions to the. assessee-companies.and did not affect the payability in 1952 of t.he arrears of tax. Jn our view, there is no force in any of these submissions made by counsel. The· aspect that the liability to pay income:tax for· any assessment year crysta!ises on theJast day of the previous year and,· therefore, be· comes payable on the expiry of the last day irrespective of quantifica· tlon of the dues would be irrelevant having regard to the express language of sec. 2 (m) (iii). Sub-cl. (iii) requires that the tax liability must be one which is "payab!e in consequence of any order passed" under any law relating to taxation on income or profits, etc .. such liability so payable under an order passed must remain "outstanding for a period of more than I) months on th-e valuation date." The alternative submission that the tax liabilities in the instant case must b~ taken to have become payable in 1952 under the Investigation Commission's order and must be regarded as having remained ·out· standing since 1952 is. equally of no avail for the payability of the dues must depend upon the terms of the Commission's order and admittedly a scheme for payment of t)le dues by instalments was F•. provided in the order imd each instalment would- become payable on the date on which it is directed to be paid. in our view, the expres· sion 'outstanding' in sec. 2 (m) (iii) (a) and (bl will have to be construed in the background of the phrase "amount of tax ...... · payable in consequence of an order" and in· that context it must mean remaining unpaid after the obligation to pay is inourred. We G are informed that similar construction has been placed on the expression 'outstanding' occurring in sec. 2 (ml (iii) of the Act by. the Calcultta High Court in Commissioner of Wealth-tax, West Bengal · Ill v. Banarshi Prasad Kedia(') and by the Allah'abad High Court in Commissioner. of Wealth-Tax, U.P., ~nd Others v. Padampat . Singhania(') and we ailiirm the same. Jn the instant qise it was an • (1) 771. T. R. 159. (2) 84 I. T. R. 799,

. ' 49 c.w.T. v J.K. COTl'ON (S. Mukharji; !J admitted position before the Tribunal that under the scheme of ins- A talments sanctioned in the settlements the two sums, in respect where- of deductions were claimed, had not become due 'for payment before the valuation dates. It is therefore, clear that the deductions clai- med· do not falJ within the exclusionary part contained in sec. 2 (m) (ill) of the Act · B In the result the High Court's view is confirmed and the appe- als.are dismissed. There will be no order as to costs. · SABYASACHt MUKHARJI, J. On the second aspect, namely whe· ther the deductions of two sums of Rs. 5, 49, 041 and Rs .. 21,61, 788 being the outstanding liabilities as a result of the determination un- der settlement arrived at in 1952 under the Taxation on Income c (Investigation Co~mission) Act, 1947 ,I respectfully .agree with the views expressed by my learned brother. I adhere to the opinion I expressed on the experession 'outstanding' in Commissioner of Wea- lth-Tax, W.es~ Bengal III v. Banarashi Prasad Kedia(') which is in consonance with the views experessed by the Allahabad High Court D in Commissioner of Wealth-Tax, U. P. and Others V. Padampal Singhania('). I am, therefore, of the opinion that these deductions do not fall within the exclusiontry part contained in Section 2 (m) (iii) of the Wealth Tax Act, 1957. On the first contention urged on behalf of the revenue I would, however, if I may, express my views. I respectfully agree with my E learned brother thatfrom the relevant provisions of the W,ealth Tax Act to which my learned brother has referred, in the facts ::ind cir- cumstances ava,iiable in this case, the deductibility of the two tax liabi- lities. in question does not depend upon whether the . assets in respect whereof such liability has been determined are available or not :while aggregating the assets of the assessee companies. In the facts of this case, it appears that in the case· of M/s J. K. Cotton Manufac•. • turers Ltd., proceedings were taken under the Taxation on income (Investigation Commission) Act, 1947 and a settlement was arrived. in 1952 and a sum of Rs.15,99, 041 was determined as payable by the·assessee on its secreted profits and a scheme of payments of such liability by instalments was agreed upon. Similarly in the case of G M/s J. K. Jute ·Mills Co. I!td., a· settlement was arrived at in 1952 under the aforesaid Act and a sum of Rs. 42,93,392 was determined as payable by it on its secreted profits and a scheme of liquidation of such, liability was agreed upon. It is true that as a result of the admission made by the assessee, the assessee made profits, which H (I) 77 I.T.R. 159' (2) 84 1.T.R. 799,

50 SUPREME COURT REPORTS [1984] 3 s.c.R.

A year and when we have no material though the income tax liabilities for the same had been settled in 1952. · There is no evidence to show whether thesf} profits had remained with the assessee either in the form of assets in ~he Balat)ce Sheet or othe~wise. The relevant valua- tion dates were much later, 30. 9. 1956 and 31. 12. 1956 respectively in the case of the two companies. Had there 15een any finding B that these profits, in some form either as asssets in. the Balance Sheet or otherwise, were with the assessee, it could have perhaps J,een exa- >· mined whether so long as the a:ssessee does not bring those profits in.the computation of .the wealth, the assessee would be disen· titled to the deductions of liabilities in respect of the same. These should have been examined by the Wealth-tax Officer with .the aid c of the principles of Section 106 and Section 114 of the Evidence Act. But these were· not done. It is unfortunate. Had that been done, it could have, perhaps, been examined whether by the principle of purposive interpretation in otder to gjve effect to the intention of legislature in enacting the Wealth Tax Act and evolving the scheme of settlement under Taxation on Income (Investigation ·commission) Act, 1947 whether the assessee was entitled to the deduction of these two tax liabilities. On the materials on record, I respectfully agree with the conclusion arrived at by my learned brother on the first· contention urged on behalf of the revenue ..

E N.V.K. Appeals disrnissd.