Holding

Tax paid under Section 68 of the Finance Act 1965 is a liability on the valuation date and therefore deductible as a "debt owed" under Section 2(m) of the Wealth‑Tax Act, 1957.

Summary

The assessee, Ahmed Ibrahim Sahigra Dhoraji, possessed concealed income of Rs 7 lakhs earned between 1957‑58 and 1964‑65. He made a voluntary disclosure under Section 68 of the Finance Act 1965 and paid tax at the prescribed rate. He claimed that the tax paid could be deducted as a "debt owed" under Section 2(m) of the Wealth‑Tax Act, 1957, when computing his net wealth for the relevant years. The Wealth‑Tax Officer disallowed the deduction; the Tribunal allowed it, the Gujarat High Court reversed, and the Supreme Court restored the Tribunal’s view. The Court held that the tax under Section 68 is a liability on the valuation date, i.e., a debt owed, and therefore deductible under Section 2(m) of the Wealth‑Tax Act. The appeal was allowed and the High Court judgment set aside.

Issues considered

Whether tax paid under Section 68 of the Finance Act 1965 on voluntarily disclosed concealed income constitutes a "debt owed" deductible under Section 2(m) of the Wealth‑Tax Act, 1957.
Whether the liability for tax under Section 68 arises under the Income‑Tax Acts (section 3 of the 1922 Act or section 4 of the 1961 Act) and is not a fresh liability created by the Finance Act.

Legislation cited

Finance Act, 1965s. 68
Income Tax Act, 1922s. 3
Income Tax Act, 1961s. 4
Wealth Tax Act, 1957s. 17, s. 27, s. 29(1), s. 2(m)

Subjects

wealth taxvoluntary disclosuresection 68deductiondebt owednet wealthincome taxFinance Act 1965concealed incomeassessment

Judgment

402

A

AHMED IBRAHIM SAHIGRA DHORAJI
B v.
COMMISSIONER OF WEALTH TAX, GUJARAT

April 7, 1981

( R. S. PATHAK AND E.S. VENKATARAMIAH, JJ.]
c
Wealth Tax Act, 1957-Section 2(m)-Finance Act, 1965 gave incentives for
voluntary disclosute of concealed income·-Assessee declared large amount of such
income and paid tax as provided by Finance Act-Tax so paid-Whether an
allowable deduction as "debt owed" under the Wealth Tax Act.

As part of a measure to mop up unaccountt!d money on which no income tax
D had been paid, an incentive scheme was prepared by the Government under
which a person disclosing such income was required to pay a specified rate of tax
without attracting the penal provisions of the Income Tax Act. Section 68 of the
Finance Act, 1965 provided that a person making a voluntary disclosure of his
income in accordance with the provisions of the section would be charged income
tax at a specified rate notwithstanding anything contained in the Income Tax
. Act.
E
The assessee had a large sum of such unaccounted money in his possession.
Without allocating the total sum amongst the different assessment years, he
declared that he had a sum of Rs. 7 lakhs in his possession which was earned by
him during the assessment years 1957-58 to 1964-65. Income Tax in respect of
this income computed in accordance with section 68 of the Finance Act was
paid by him .
.F
In the wealth tax returns filed by him in response to the notice issued by the
Wealth Tax Officer for re-assessment consequent on the disclosure of his wealth
the assessee claimed deductions of income-tax paid under section 68 of the
Finance Act. But the Wealth Tax Officer disallowed the claim holding that since
the assessee had not shown the liability to pay income tax in his balance
sheets for the respective years the deductions claimed by him could not be allowed
G in any of the assessment years.

The Appellate Assistant Commissioner dismissed the assessee's appeal. The
Tribunal, on the other hand, held that the liability constituted a "debt owed"
because in truth and substance, it was a liability under the Income Tax Act, 1922
or 1961 and not a new liability created by the Finance Act, 1965.
H
On reference the High Court held in favour of the Revenue on the ground
that section 68 of the Finance Act enacted a new charge of tax on an ad hoc
A.l.S. DHORAJI v. C.W.T. 403

basis on disclosed income and, therefore, it was not a "debt owed" which could A
be allowed as a deduction under the Wealth Tax Act.

On behalf of the Revenue it was contended that since the tax paid by the
assessee under the voluntary disclosure scheme was in discharge of a liability
created for the first time by the Finance Act, 1965 it was not an allowable
deduction under the Wealth Tax Act.
8
Allowing the appeal,

HELD : The assessee was entitled to claim deduction of income tax paid
on the amounts added to his total wealth under section 2 (m) of the Wealth
Tax Act in the course of the assessment proceedings. (418 BJ C
I. Merely because the amounts were disclosed in a declaration under
section 68 of the Finance Act, they did not cease to be incomes not already
charged to income tax. Although the Finance Act merely I evied a fixed rate of
tax in respect of all the income disclosed without allowing deductions, exemptions
and such other allowances which are allowable under the Income Tax Acts, its
function was no more than that of an an nu a 1 Finance Act despite the fact that
it made certain alterations in regard to the filing of declaration and computation D
of taxable income. (414 G-H]

2. The nature of the declaration which was dependent on the volition of
the declarant and the fact that the liability to tax the amount was contingent
upon the willingness of the declaranl to disclose the amount would not make a
difference because such voluntary disclosure, even in the absence of section 68,
would have exposed the assesseee lo assessment or reassessment. The voluntary E
character of the declaration cannot alter the character of the tax. [415 A-BJ

3. The true position is that the amount declared has the liability to pay
income tax embeded in it on the valuation date but only the ascertainment of
that liability is postponed to a future date. (417 CJ

Jn the instant case its determination was allowed to be done in accordance F
with the provisions of section 68. Even though this section was a complete code
in itself it was only a scheme which provided a method for the liquidation of an
ltlready existing income tax liability which was present on the relevant valuation
date. [417D]

4. Nor did the absence of allocation of the amount disclosed amongst G
different assessment years detract the tax from being called a tax
on income because such allocation would not achieve any additional
purpose in the scheme of section 68. This section is in the nature of a
package deal. The net result achieved was that the declarant was treated as
having discharged all his liability in respect of such income under the income tax
Jaw. (415 El ff
404 SUPREME COURT REPORTS [1981] 3 s.c.R.
A 5. The finding of the High Court that section 68 created a fresh charge is
incompatible with the foundation of the very reassessment proceedings under
section 17 of the Wealth Tax Act. (415 HJ .

6. Moreover section 68, at more than one place slated that what was pay-
able was income tax which clearly showed that what was p;iyable under the section
B was income tax. [ 412 B-C] ·

C.I.T. v. Kha/au Makanji Spinning and Weaving Co. Ltd., 40 LT.R. 189;
Madurai District Central Cooperative Bank Ltd. v. Third I.T.O., IOI I.T.R. 24,
distingu ishcd.

C. K. Babu Naidu v. Wealth Tax Officer, 112 ITR 34; C.W.T. v. GirdhariLal,
c 99 ITR 79; C. W.T. v. BX Sharma, 110 LT.R. 902; C. W.T. v. Bansidhar Poddar,
112ITR 957; D. C. Shah v. C.W.T., 117 ITR 348; Bhagwandas Jain v. Addi.
C.W.T. 116 !TR 347 and Bhagwanidas Binani v. C.W.T., 124 ITR 783, approved.

CivIL APPELLATE JURISDICTION : Civil Appeal Nos. 1217-
1
1222 of 1973.

D Appeals by certificate from the Judgment and Order dated
21.12.1972 of the Gujarat High Court in Wealth Tax Reference
No. 2 of 1969.

V. S. Desai, Shardul S. ShroJ!' and H. S. Parihar for the
Appellant.
E
S. T. Desai, P. A. Francis and Miss A. Subhashini for the
Respondent.

The Judgment of the Court was delivered by

VENKATARAMIAH, J. On the basis of a certificate granted
F
under section 29(1) of the Wealth-tax Act, 1957 (hereinafter referred
to as 'the Act'), the appellant has filed these appeals against the
judgment and order dated December 21, 1972 of the High Court of
Gujarat in Wealth-tax Reference No. ·2 of 1969. The questions
referred to the High Court under section 27 of the Act by the In-
come·tax Appellate Tribunal, Ahmedabad Bench read thus:
G
"(I). Whether on the facts and in the circumstances of the
case the liability in respect of income-tax payable on
the concealed income disclosed by the assessee pursu-
ant to section 68 of the Finance Act, 1965 is deductible
H
under section 2(m) of the Wealth-tax Act, 1957, in
computing the net wealth of the assessee for the
A.I.S. DHORAJI v. C.W.T. (Venkataramiah. J.) 405

assessment years 1959-60, 1960-61, 1961-62, 1962-63, A
I 963-64 and 1964-65.

(2) Whether the Tribunal was right in holding that the
liability to pay tax on the amount disclosed under
section 68 of the Finance Act J 965, arose not under
that Finance Act but under section 3 of the Indian B
Income-tax Act, J 922."

Having regard to the assessment years in question, the second
question should be read as including within its scope also the ques-
tion whether the Tribunal was right in holding that the liability to
pay tax on the amount disclosed under section 68 of the Finance c
Act, 1965 arose not under that Finance Act but under section 4 of
) the Income-tax Act, 1961.

The assessee, who is the appellant in these appeals, had been
assessed on the basis of his returns of net wealth and the statements
filed therewith in the status of an. individual to wealth-tax under D
section 16(3) of the Act during the assessment years 1957-58 to,
1964-65 on various dates between January 15, 1960 and July 14
1964. Subsequently the assessee made a disclosure under section
68 of the Finance Act, 1965 (hereinafter referred to as 'the Finance
Act') of Rs. 7,00,COO which had been shown as having been covered
by some hundi transactions with a concern known as M/s Abdul E
Razack & Co. in his books of account at the Bombay branch of his
business. Alongwith the declaration the assessee filed a statement
that this concealed income had been earned by him during the
assessment years 1957-58 to 1964- 65. He, however, did not allocate
the total ~um disclosed amongst different assessment years but show-
ed it in a'.Jump sum. The amount of income-tax was computed at F
60% of the total concealed income and it was paid as contemplated
under sect~on 68 of the Finance Act. The Wealth-tax Officer there-
after reopened · the assessments of the assessee to wealth-tax for
assessment years 1957-58 to 1964-65 on the ground that he had
reason to believe that certain wealth of the assessee had escaped
assessment during the said years and that his belief was founded G
on the disclosure made by the assessee under section 68 of the
Finance Act. We are concerned in these appeals only with the
assessrr.ent years 1959-60 to 1964-65. On scrutiny it was found on
the basis of peak cash credits in each assessment year that the
amounts covered by hundies were as under : H
406 SUl.'REME COURT REPORTS [1981] 3 S.C.R.

A Assessment years Peak cash credits

1959-60 Rs. 4,57,465/-
1960-61 Rs. 5,59,823/-
1961-62 Rs. 6,38,325/-
1962-63 Rs. 6,82,974/-
B
1963-64 Rs. 7,01,578/-
1964-65 Rs. 7,01,578/-

As can be seen from the above statement, the assessee had
substantial sums with him in the years in question which had not
c been disclosed earlier. Since these amounts constituted the wealth
which was liable to tax on the respective valuation dates, the
assessee filed returns of wealth for the above mentioned years in
compliance with the notices issued to him and in the course of the
assessment proceedings he claimed the deduction for income-
tax payable by him in respect of the sums which had been
D progressively earned by him from year to year and which were
liable to income tax under the relevant income tax law in force
during the years relying upon the decision of this Court in
Kesoram Industries and Cot/on Mills Ltd v. Commissioner
of Wealth-tax (Central), Calcutla.(1) The Wealth-tax Officer, how-
ever, held that since in his balance sheets the assessee had not
shown the liability to pay income-tax, the deduction of the amounts
claimed could not be allowed in any of the assessment years and
accordingly the orders of reassessment were passed by him after
disallowing the claim made by the assessee. He, however, in-
cluded the sums mentioned in the above statement in the net
wealth of the respective assessment years and ·determined the
F wealth-tax payable by the assessee. The appeals filed by the
assessee against the orders of the Wealth-tax Officer before the
Appellate Assistant Commissioner were dismissed. On further
appeal to the Income-tax Appellate-Tribunal, the Tribunal held
that the deduction claimed in respect of each assessment year
was in truth and substance a liability under the Indian Income-tax
G
Act, I 922 or the Income-tax Act, 1961, as the case may be, and
a
not new liability created. by the Finance Act, and, therefore, it
constituted a 'debt owed' by the assessee on the respective valuation
dates within the meaning of section 2(m) of the Act and that the
H deduction claimed should be allowed while computing the net wealth

(I) 59 I.T.R. 767.--(1966] 2 SCR 688.
A.l.s. DHORAJI v. C.W.T. (Venkataramiah. J.) 407

of the assessee. Accordingly the Tribunal allowed the appeals of A
the assessee. Thereafter at the instance of the Commissioner of
Wealth-tax, the Tribunal referred under section 27 of the Act the
two questions mentioned above to the High Court. After hearing
the parties, the High Court answered both the questions in the
negative and in favour of the Revenue by its judgment dated Decem-
ber 21, 1972. On a certificate granted by the High Court under B
section 29( l) of the Act, the assessee has come up in appeal to this
Court. '

The relevant part of section 2(m) of the Act reads :

"2. (m} "net wealth" means the amount by which the c
aggregate value computed in accordance with the
provisions of this Act of all the assets, wherever located
belonging to the assessee on the valuation date, includ-
ing assets required to 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 D
on the valuation date other than,,,,,, ... "

In the ~se of Kesoram Industries and Cotton Mills Ltd. (supra)
this Court has held that income-tax other than that falling under
clause (iii) of section 2(m} of the Act payable on the valuation date
is a debt owed by the assessee and hence is deductible from the total
E
wealth of the assessee while determining the net wealth for the
purpose of levying wealth-tax.

The principal question which arises for consideration in these
appeals relates to the true character of the tax. paid by the assessee F
in the proceedings under section 68 of the Finance Act and the
applicability of the ratio of the decision of this Court in the case of
Kesoram Industries and Cotton Mills Ltd. (supra). Since it is con-
tended by the assessee that the tax so paid was the tax which he
was liable to pay under the relevant income-tax law in force during
the assessment years in question and it is urged by tlie Department G
that the said payment was in discharge of a liability created for the
first time by the Finance Act, it is necessary to examine the pro-
visions of section 68 of the Finance Act in some detail, in so far as
they relate to the question involved in this case. The relevant part
of section 68 of the Finance Act which came into force on March I, H
1965 reads :
408 SUPREME COURT REPORTS ( 198 I] 3 S.C.R.

A "68. Voluntary disclosure of income -(I) Where any
person makes a declaration in accordance with sub-section
(2) in respect of the amount representing income-

(a) which he has failed to disclose in a return of
income for any assessment year filed by him
B before the first day of March, 1965, under the
lndian'Jncome-tax Act, 1922 (XI of 1922), or the
Income-tax Act, 1961 (XLIJI of 1961 ), or

(b) which has escaped assessment for any assessment
year for which an assessment has been made
c before the 1st day of March 1965, under either of
the said Acts, or

(c) for the assessmen_t of which no proceeding under
either of the said Acts has been taken before the
I st day of March, 1965,
))
he shall, notwithstanding anything contained in the said
Acts, be charged income-tax at the rat!! specified in sub-
section (3) in respect of the amount so declared if he,-

(i) pays the amount. of income-tax as 1computed
at the said rate, or
E
(ii) furnishes adequate security for the payment there-
of in accordance with sub-section (4) and under-
takes to pay such income-tax within a period, not
exceeding six months, from the date of the declara-
tion as may be specified by him therein, or
F
(iii) on or before the 31st day of May, 1965, pays such
amount as is not less than one-half of the amount
of income-tax as computed at the said rate or
furnishes adequate security for the payment there-
of in accordance with sub-section (4), and in
G 1
either case assigns any shares in, or debentures of,
a joint stcck company or mortagages any immov-
able property, in favour of the President of India
by way of security for the payment of the balance
and undertakes to pay such balance within the
H periodfreferred to in clause (ii).
A.LS. DHORAJI v. C.W.T. (Venkataramiah, J.} 409

(2) The declaration shall be made to the Commissioner,
A
and shall specify the period required to be specified
under clause (ii) of sub-section (I), contain the name,
address and signature of the person making the decla-
ration and also full information in respect of the
following matters, namely : - B
(a) Whether he was assessed to income-tax or not
and, if assessed, the ~ame of the Income-tax Circle
in which he was assessed.

(b) The amount of income declared, giving where
avPjlable, details of the. financial year or years in c
w.lich the income was earned and the amount per-
taining to each such year.

(c} Whether the amount declared is represented by
cash (including bank deposits), bullion, investments
in shares, debts due from other persons, commo- D
dities, or any other assets, and the name in which
it is held and location thereof :

Provided that the declaration shall be of no effect
unless it is made after the 28th day of February, 1965, and
before the 1st day of June, 1965. E

(3) The rate of income-tax chargeable in respect of the
amount referred to in sub-section (l) shall be sixty per
cent, of such amount :

Provided that if before the 1st day of April, 1965, the F
tax on the amount declared is paid by the declarant at the
rate of fifty seven per cent, of such amount, he shall not be
liable to pay any further tax on such amount.

(4) A person shall not be considered to have furnished
adequate security for the payment of the tax for the G
purposes of sub-section (l) unless the payment is
guaranteed by a scheduled bank or the person makes
an assignment, in favour of the President of India, of
any security of the Central or State Government.
H
Explanation-For the purposes of this sub-section,
where an assignment of Government securities is made in
410 SUPREME COURT REPORTS [1981] 3 S.C.R.

A favour of the President, the amount covered by such
assignment shall be the market value of the securities on
the date of the assignment.

(5) Any amount of income-tax paid in pursuance of a
declaration made under this section shall not be re-
B fundable in any circumstances, and no person who has
made the declaration shall be entitled, in respect of any
amount so declared or any amount of tax so paid, to
reopen any assessment or reassessment made under the
Indian Income-tax Act, 1922 (XI of 1922), or the
Income-tax Act, 1961 (XLIH of 1961 ), or the Excess
c Profits Tax Act, 194) (XV of l 940), or the Business
Profits Tax Act, 1947 (XXI of 1963), or the Compa-
nies (Profits) Surtax Act, l 954 (VII of 1964) or claim
any set-olf or relief in any appeal, reference, revision
or other proceeding in relation to any such assessment
or reassessment.
D
(6) (a)· Any amount declared by any person under this
section in respect of which the tax referred to in sub-
section (3) is paid shall not be included in his total
income for any assessment under any of the Acts men-
tioned in sub-section (SJ if he credits in the books of
E
account, if any, mainta:ned by him for any source of
income or in any other r~cord, the amount declared as
reduced by the tax paid thereon under this section ... "

Section 68( I) of the Finance Act provides that where any
person males a declaration in accordance with section 68(2) in
F
respect of any amount representii~g income which he has failed to
disclose in his return or which has escaped assessment for any assess-
ment year for which an assessment has been made before March I,
1965 under either of the two Acts namely the Indian Income-tax
Act, 1922 and the Income-tax Act, 1901 or for the assessment of
G which no proceeding is taken before March 1, 1965, he shall, not-
withstanding anything contained in the said Acts, be charged income-
tax at the rate specified in sub-section (3) thereof in respect of the
amount so declared. If he pays the amount of income-tax as com-
puted at the said rate or furnishes adequate security for the payment
H thereof in accordance with sub-section (4) thereof and undertakes
to pay such income-tax within the period specified in the section, he
would be absolved from the liability under the relevant law of in-
A.LS. DHORAJI v. C.W.T. (Venkatc,nmiah, J.) 411

come-tax. The declaration should, however, be filed with the parti- A
culars mentioned in section 68(2). Section 68(3) provides that the
y rate of income-tax chargeable in respect of the amount referred to
in the declaration shall be sixty percent of such amount provided
that if the tax is paid within April l, 1965, the tax payable would
be fifty seven percent. Sub-section ( 5) of section 68 of the Finance
Act provides that any amount of income-tax paid in pursuance of a B
declaration made under that section shall not be refundable in any
circumstances nor a declarant is entitled in respect of any amount
declared or tax paid thereon to reopen any assessme;it or reassess-
ment made under the Indian Income-tax Act 1922, or Income-tax
Act, 1961 or any other Act mentioned therein. He cannot also
claim any set-off or relief in any appeal, reference, revision or other c
proceeding in relation to any such assessment or reassessment.
Clause (a) of sub-section (6) of section 68 grants immunity from
proceedings under the Acts mentioned in section 68 (5) to the
assessee by providing that any amount declared by any person under
section 68, in respect of which the tax referred to in sub-section (3)
D
thereof is paid, shall not be included in his total income for any
assessment under any of the assessments made under any of the
Acts mentioned in section 68(5) if he credits in the books of account,
if any, maintained by him for any source of income or in any other
record, the amount declared as reduced by the tax paid thereon
under section 68. E
On an examination of the several provisions contained in
section 68 of the Finance Act it becomes clear that they had b~en
enacted as a part' of the measures adopted with a view to unearthing
unaccounted money in possession of the members of the public on
which income-tax had not been paid and also to create an incentive
to such persons to make· disclosure of their unaccounted incomes
F
and to pay tax thereon at the specified rate without the liability to
pay any interest thereon or penalities for non-compliance with the
law of income-tax. The declaration to be tiled by a person under
section 68 is about an aniount representing his income earned in an
earlier accounting period which has not been subjected to tax in the G
ordinary course although income-tax was payable in respect of it. If
the declarant pays tax at the rate specified in sub-section (3) of
section 68 he would be absolved from any further liability to tax on
such income. The declaration has to be made before the Com-
missioner of Income-tax and it should contain full information, H
namely whether he was a~sessed to income-tax or not and if assess-
ed, t1'e nanie of the Income-tax circle in which he was assessed, the
412 SUPREME COURT REPORTS [1981] 3 S.C.R.
A amount of income declared giving where avail able, details of the
financial year or years in which the income was earned and the
amount pertaining to each such year and whether the amount dec-
lared is represented by cash (including bank deposits), bullion,
investment in shares, debts due from other persons, commodities or
any other assets and the name in which it is held and the location
B thereof. Section 68 also states at more than one place that what
is payable pursuant to a declararion is income-tax. Section 68 (J)
contains words such as, "he shall, notwithstanding anything con-
tained in the said Acts be charged income tax at the rate specified
in sub-section (3)", "if he pays the amount of income-tax at the
said rate" a_nd "undertakes to pay such income-tax". Section 68(3)
c contains the words : "the rate of income-tax chargeable". Section
68(5) refers to : "(a) any amount of income-tax paid" and section
68(7) contains the words : "paid the income-tax under this section".
These words show that Parliament was ·of the view that what was
payable under section 68 was income-tax.
D The points of difference between any Finance Act, that may
be passed annually fixing the rates of income tax and section 68 of
~the Finance Act, however, relate to (i) the time within which and
the manner in which information in regard to the income is to be
furnished, (ii) the method of computation of taxable income and
(iii) the rate of tax payable on such income. The declaration which
E is equivalent to a return to be filed under the Indian Income-tax
Act, 1922 or Income-tax Act, 1961, need not contain all the parti·
culars that have to be furnished in such return. The declaration
can be filed during the period mentioned in proviso to section 68(2).
There is no provision to claim various deductions, exemptions, set
off etc. in respect of the income disclosed in the declaration as in
'F
the case of income shown in an ordinary return. Since the rate of ..,...-··
tax is a uniform one and does not vary with the quantum of the
income disclosed, there is no need to trace it to any specific assess-
ment year. Further the declaration is a voluntary one and it is not
pursuant to any notice issued by the Department.
G
The question is whether these distinguishing features make the
amount disclosed in a declaration anything different from the income
of an assessee and the tax paid under section 68, anything different
from a tax on income. In other words, does section 68 impose a
H new charge on the income of the declarant for the first time wholly
independent of the levy under section 3 of the Indian Income-tax
Act, 1922 or section 4· of the Income-tax Act, 1961 ? The High
A.LS. DHORAJl v. c.w.T. (Venkataramiah, J.) 413

Court has given the following reasons for holding that the tax p~id A
under section 68 is not tax on income payable under the Indian
Income-tax Act, 1922 and Income-tax Act, 1961 : (i) the charge
under the Income-tax Act is on the total income of the previous year
and not on any particular item of incJme but that is not so under
section 68, (ii) payment of tax under section 68 has no reference to
B
any assessment year and unless it is correlated to an assessment year
it can not be ordinary income-tax and (iii) the disclosed income is
chargeable to tax without allowing usual deductions and without
providing for any procedure for quantification.

The High Court proceeded to hold that section 68 enacted a
new charge of tax, on an ad hoc basis, on disclosed income irrespec-
tive of the assessment year in which it was earned. The disclosure of
c
concealed income coupled with the payment of tax as contemplated
in clause (i) of sub-section (I), according to the High Court, not
only created a charge of tax but also satisfied it. In its view, the
disclosure of concealed income coupled with furnishing of security
and undertaking as contemplated in clause (ii) created a new charge
of tax and when the undertaking was carried out by payment of tax,
D
the liability arising from the charge of tax was satisfied.

One basic fallacy underlying the conclusion of the High Court
that a new charge is being levied under section 68 appears to be the
assumption that the amount in question in respect of which tax is
E
payable under that provision was not liable to income-tax earlier.
It should be borne in mind that the declaration contemplated under
section 08 is a declaration in respect of income of earlier years,
which had been concealed and on which tax was payable during the
relevant assessment years in the ordinary course. Section 3 of the
Indian Income-tax Act, 1922 and section 4 of Income-tax Act, l 961
which are couched more or less in the same language state that
F
where any Central Act enacts that income-tax shall be charged for
any year at any rate or rates, income-tax at that rate or those
rates shall be charged for that year in accordance with and subject
to the provisions of the relevant Act in respect of the total income G
of the previous year or previous years, as the case may be, of every
person. Now it is well settled by a series of judicial decisions that
the liability to income-tax arises by virtue of the charging section in
the relevant
.
the prev10us year, even though the rate of tax for the year of
.
Income-tax Act and it arises not later than the close:~of
H
assessment may be fixed after the close of the previous year and the
assessment has necessarily to be made after the previous year.
414 SUPREME COURT REPORTS [ 1981] 3 S.C.R.

A The quality of chargeability of any income to tax is not dependent
upon the passing of the Finance Act though its quantification may
be governed by the provisions of the Finance Act in respect of any
assessment year vide Wallace Brothers and Co. Ltd. v. Commis-
sionfr of Jncome-tax(1), Messers Challuram Hori/ram Ltd. v. Com-
missioner of Income-lax and Ors.(2) and Kahva D1vadallom & Ors. v.
B The Union of India & Ors.(3) In the case of Kesoram Industries and
Cotton Mills Ltd. (supra) Subba Rao, J. (as he then was) summariz-
ed the legal position thus : -

"To summarize : A debt is a present obligation to
pay an ascertainable sum of money, whether the anhmnt is
c payable in praesenti or in juturo: dehitum in praesenti, sol-
vendum in ji1turo. But a sum payable upon a contingency
does not become a debt until the said contingency has
happened. A liability to pay income-lax is a present liabi-
lity though it becomes payable after it is quantified in
accordance with ascertainable data. There is a perfected
D debt at any rate on the last day of the accounting year and
not a contingent liability. The rate is always easily ascer-
tainable. If the Finance Act is passed, it is the rate fixed
by that Act; if the Finance Act has not yet been passed, it
is the rate proposed in Finance Bill pending before Parlia-
ment or the rate in force in the preceding year, whichever
E is more favourable to the assessee. All the ingredients of a
"debt" are present. It is a present liability of an ascertain-
able amount."

It is thus clear that if the assessee had brought to the notice
of the Department in the usual course the existence of incomes
F which were later on declared under 'ection 68, they would have been
taxed during the relevant assessment year. Hence merely because
they are disclosed in a declaration filed under section 68, they
cannot cease to be incomes not already charged for income tax.
It is true that the Finance Act in question merely levied a fixed rate
of tax in respect of all the income disclosed without allowing deduc-
G tions, exemptions and set-off under the relevant income-tax law yet
its function was no more than that of a Finance Act passed annually
even though it made certain alterations with regard to filing of
declaration and computation of taxable income

H (I) 16 l.T.R. 240. (P.C.)
(2) (1955]2 S.C.R. 290 : 27 l.T.R. 709 (S.C.)
(3) (1964] 3 S.C.R. 191 : 49 J.T.R. 165 (S.C.l
A.I.S. DHORAJI v. C.W.T. (Venkataramiah, J.) 415

It was, however, urged on behalf of the :oepartmen t that ~~the A
nature of the declaration which was dependent upon the volition of
the declarant and the fact that the liability to tax the amount men-
tioned therein was contingent upJn the willingness of the declarant
to disclose the amount ought to make a difference. We do not
think so because any such voluntary disclosure by an assessee even
in the absence 0f section 68 would have exposed him to an assess- B
ment or reassessment, as the case may be, being made in respect of
the sum disclosed as part of the income of the relevant assessment
year and of course with the additional liability to payment of interest
and levy of penalty and perhaps with the right to claim deductions,
if any, admissible in the 'circumstances of the case and the benefit
of other prccedural rights. The voluntary c:1aracter of the declara- c
tion cannot, therefore, alter the character of the tax. There is also
) no substance in the contention that in the absence of the allocation
of the amount disclosed amongst dil'i'erent assessment years the tax
payable under section 68 cannot be termed as a tax on income
because snch allocation would not ac'.1ieve any additional purpose
D
in the scheme of section 68. Irrespective of the other income which
may have been determined in an ordinary proceeding under the
relevant law of income-tax, a fixed rate of tax is payable under
section 68(3) and hence the amount disclosed being treated as the
income of any particular year would not make any difference re-
E
garding the quantum of tax. Nor is there any other purpose to be
served by such allocation. Section 68 is in the nature of a package
deal but the net result achieved is that the declarant is treated as
having discharged all his liability in respect of the said income under
the income-tax law.
F
There is one other circumstance which may be noticed here.
The tax levied under section 68 can be only a tax on income. If
we hold it otherwise it may become a tax on wealth itself. The basis
of tbe liability in this case is the admission made by the declarant
that the amount declared was his income earned in previous years
but concealed from the knowledge of the Department. In these G
circumstances it cannot be said that the amount declared under
section 68 is not income which was not taxable under the Indian
Income-tax Act, 1922 or the Income-tax Act, 1961, as the case may
be. The finding of the High Court that section 68 created a fresh
charge is incompatible with tbe foundation of the very reassessment
proceedings under section 17 of the Act. The basis of these pro- H
ceedings is the information which the Wealth-tax Officer acquired
416 SUPREME COURT REPORTS [1981] 3 S.C.R.

A from the declaration filed by the assessee, in this case that the
assessee was in possession of unaccounted funds represented by
the non-genuine hundis which had progressively reached the level of
Rs. 7,01,578 during the assessment year 1964-65 from the level of
Rs. 4,57,465 in 1959-60 by gradual accumulation of income. But
for this assumption, in the absence of any other material, reassess-
B ment under the Act would have been possible only in the last year
in which the .disclosure was made. That, however, is not the case
here.

The High~Court in support of its view has relied on the
decision of the Kerala High Court, though not the reason given in
c support of that decision in C. K. Babu Naidu v. Wealth-tax Officer.(1} ...,, .•--
That decision has since been reversed in appeal by a Division Bench
of that Court in C. K. Babu Naidu v. Wealth-tax Officer, 'A' Ward,
Calicut & anr.(2) in which the Kerala High Court has held that the
liability for tax arising under section 68 of the Finance Act was
nothing other than the liability under the Income-tax Act, 1961
D itself and accordingly has allowed the dedl1ction of tax paid under
section 68 as a 'debt owed' on the valuation date. In Commissioner
of Wealth-tax, Haryana, H.P. & Delhi-I/I v. Girdhari La/(3), Com-
missioner of Wealth-tax v. B. K. Sharma( 4 ), Commissioner of Wealth-
/ax, West Bengal-III, Calcutta v. Bansidhar Poddar,( 5) D. C. Shah v.
Commissioner of U'ealth-trx, Mysore( 6 ) and Shri Bhagwandas Jain v.
E Addi. Commissioner of Wealth-tax, M. P.(7), the High Courts of
Delhi, Allahabad, Calcutta, Karnataka and Madhya Pradesh have
accepted the view that the tax paid under section 68 of the Finance
Act should be treated as a 'debt owed' for purposes of determining
net wealth as defined in section 2(m) of the Act. The High Court
F of Bombay has also reached the same conclusion in Bhagwanidas
Binam· v. Commissioner of w, altl.-tax, Bombay City-Jll( 8 ) but in
doing so it observed that "it appears to us that although it is not
possible to ·say that the amount of income-tax paid under section
68 of the Finance Act, 1965 is income-tax under the charging sec-
G
(I) 82 I.T.R. 410 (Kerala)
(2) 112 l.T.R. 341 (Kerala)
(3) 99 I.T.R. 79 (Delhi)
(4) 110 J.T. R. 902 (All.)
(5) 112 I.TR. 957 (Cal.)
(6) 117 I.T.T. 348 (Karnataka)
H (7) J 16 l.T.R. 347 (Madhya Pradesh)
(8) 124 I.T.R. 783 (Born.)
A.I.S. DHORAJJ v. C.W.T. (Venkataramiah, J.) 417

tion 3 or section 4 of the LT. Acts, it must be regarded as income- A
tax paid in lieu of such income-tax and would be entitled to the
same considerations as lavished by the Supreme Court on the ordi-
nary charge of income-tax". The High Court of Bombay appears
to take the view as the High Court of Gujarat has done in the
decision under appeal that a new liability is created by section 68
but it however would not have any adverse effect on the right of the B
assessee to claim the deduction. While we approve of the conclu-
sion reached by the High Court of Bombay, we feel that the said
decision to the extent it attempts to follow the reason given by the
Gujarat High Court to hold that the liability under section 68 is a
fresh liability is not correct. The true position is that the amount
declared has the Jiability to pay income-tax imbedded in it on the c
valuation date but only the ascertainment of that liability is postpo-
ned to a future date. In the instant case, its determination is allowed
to be done in -accordance with the provisions of section 68. Even
though it may appear to be itself a complete code, it is only a scheme
which provides a method for the liquidation of an already existing
income-tax liability which was present on the relevant valuation D
date. The view does not in any way go counter to any observations
made by this Court in Commissioner of Income-tax, Bombay City Iv.
Khatau Makanji Spinning and Weaving Co. Ltd.(') In that case this
Court was concerned with the validity of a charge levied by the
Finance Act, 1951 in respect of dividends distributed in excess of
the specified limit under clause (ii) of the proviso to Paragraph B
E
of Part I of the First Schedule to that Act as applied to the assess-
ment year 1953-54 by the Finance Act, 1953. This Court held that
income-tax was a tax on income of the previous year and it would
not cover some thing which was not the income of the previous
year or made fictionally so and according to the scheme of that
provision it was impossible to say that the additional income-tax
F
was properly laid upon the total income because what was actually
taxed was never a part of the total income of the previous year.
This decision is clearly distinguishable from the present case where
what is taxed is the income which was ordinarily liable to tax but
which had not been included in the return of the assesssee, or which
had escaped assessment or which was still to be assessed to income-
G
tax under the relevant Income-tax Act. It was in fact a part of the
total income though not assessed till the declaration was made.
Merely because it is stated that the rate of tax charged on the

(I) 40 I.T.R. 189 (S.C.)~[1960] 3 SCR 873.
H
418 SUPREME COURT REPORTS [1981] 3 s.c.R.

A amount declared is sixty per cent or fifty-seven per cent as the case
may be it does not cease to be a part of the total income. This is
not a case where what was not in fact income had been converted
into income by section 68. For the same reason the Department
cannot derive any support from the observations made by this Court
in Madurai District Central Co-operative Bank Ltd. v. Third Income-
B tax Officer, Madurai.( 1) We are, therefore, of the view that the
assessee was entitled to claim deduction of income tax payable on
the amounts added to his total wealth under section 2(m) of the Act
in the course of the reassessment proceedings.

In the result these appeals are allowed, the judgment of the
High Court is set aside and the questions referred to it are answered
c in the affirmative and in favour of the assessee. The Department
will pay the costs of the appellant-assessee, Hearing fee one set.

P.B,R. Appeals allowed.

(I) 101 I.T.R. 24 (S.C.)