Holding

The deduction for tax liabilities in computing net wealth must be calculated on the basis of the tax as finally quantified on assessment, even if the assessment order is passed after the valuation date.

Summary

The assessee, while computing his net wealth for the assessment year 1962-63, claimed deductions for debts representing estimated liabilities of income tax, wealth tax and gift tax. The Wealth Tax Officer rejected the claim, stating that estimated liabilities could not be treated as debts on the valuation date. The Appellate Assistant Commissioner allowed part of the deduction, but the Revenue appealed to the Appellate Tribunal, which dismissed the appeal. The Gujarat High Court held that deductions must be based on the tax finally quantified on assessment, even if the assessment order was passed after the valuation date. The Supreme Court affirmed this view, holding that a tax liability becomes a perfected debt on the last day of the previous year (or valuation date for wealth tax) and that the final assessment supersedes the return for the purpose of computing net wealth. Consequently, the appeals filed by the Revenue were dismissed.

Issues considered

Whether, for the purpose of computing net wealth under sec. 2(m) of the Wealth Tax Act, the amount deductible for income tax, wealth tax and gift tax liabilities should be based on the final assessment (even if made after the valuation date) or on the estimated amounts in the returns filed at the valuation date?

Legislation cited

Wealth Tax Act, 1957s. 2(m)

Subjects

wealth taxnet wealthtax liabilitydeductionvaluation dateassessmentincome taxgift taxcrystallization of debtfinal assessment

Judgment

485

COMMISSIONER OF WEALTH TAX; '
GUJARAT, AHMEDABAD
.
A

v.
,. Vl\DILAL LALLUBHAI ETC.
·B
October !11, 1983

[R.S. PATHAK AND E.S. VBNKATARAM!AH, 11.I

Wealth Tax Act, 1957-sec. 2(n-1)-D!finition of 'net wealth'-ln~er·
pretation of. Income tax, wealth tax and gift ·tax liabilities are debts on the
ltaluation .date and deductions in respect of those· liabilities are to be allowed "n the
c
basis of their final quantification on assenmtnt. ~
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·The assessee while computing his net we_alth claimed a deduction in
respect of debts which included amounts representing estimated liabilities on
account of income tax, wealth tax and gift tax'. The Wealth -Tax Officer rejec-
ted the claim on the ground that as those Habilities wei:e claimed on the basis
of an estimate they could not be regarded as debts oWed On the valuation dat~.,
In ~ppeal the Appellate Assistant Comil'l:issioner allowed part of the deductions
•
claimed. · Th~ Revenue's appeal to the Appellate Tribunal. was dismissed. On
-.,,-, a reference being.made the; High Court held against the Revenue. I~ this Court ·
the Revenue contended that on a true construction of sec. 2 (m) of the Wealth
. Tax Act defining the expr~ssion "net wealth" the tax liability disclosed by the E
assessee in·~his returns should be taken as representing the debts· owed by the
~assessee on the valu~tion date.

Dismissing the .appeals,
!
HELD : It is settled law that an income tax liability becomes crystalli-
zed on the last day of the previous year corresp9nding to the particular
assessment year, and a wealth tax liability becomes crystallized on the valua..
tion. date corresponding to the particular assessment year. In each case the
'
liabilities ate prcfect-ed debts on the last day of the previous ytar or the valua-
tion date, as the case may be. LikellYiSe, a gift tax liability beci>mes crystallized,
and therefore a perfected debt, on the last day of the previous year relevant to
the particular assessment y_ear. (487 P-G; 488 A) .
a
Kesoram Industries and Cotton Mills Ltd. v. ·commissioner of Wealth Tax
(Centrql), Calcutta, (1966) 59 J.T.R. 767; H.H. Setu Parvati Bay/ v. Commls•.
sioner of Wealth Tax, KeralB, (1968) 69 I.T.R. 864; and Commissioner of
Wealth Tax,·Madrasv. K.S.N. Bhatt, Civil Appeals Nos•. 384 to387 of1978,
• Judgment delivered on October 21, 1983 referred to. B
When~ in the course of a wealth tax assessment, the asscssee makes a
claim to de•uction on account of in~me tax, wealth tax and gift tax liabiliti.os
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.486 SUPREME ·COURT REPORTS [1984] 1 s.c.R.
subsisting as debts ·owed by· him on 'the valuation date, it is the final quantifi-
' cation of the particular tax liability . which must be taken into account. Where
,. the wealth tax assessment so made is carried in appea.1,, there is no doubt that
the appellate authority will take into account th!f ultimate quantification of the
tax liability even though such· ultimate quantification has been reached aft'er the
relevant valuation date and during the pendenqy of the Wealth tax appeal.
• [488 F-GJ

CIVIL APPELLATE JURISDICTION: .Civil Appeal Nos. 1524-47 of.
1973. . . . .
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From the Judgment and Order dated 13.12.1972 of the Gujarat·
·High Court in Wealth Tax References Nos. 6 to II, 13, 15, 17, 18,
2~. 24 and 25 of 1971, 34, 39, and 40 of 1970, 20 and 42 of 1971, 22,
35; 41, 42, 4~ & .38of1970. ·

S;C. Manchanda, B.B. Ahuja and Miss A.· Subhashini for the .+.
Appellant.

F.S. Nariman, Mrs. A.K. Verma and K.J. John for the
Respondents. •
The udgment of the .Court was delivered by

PATHAK, J : These appeals are directed against the judgment of
the Gujarat High Court disposing of a number of wealth tax referen·
ces and answering the following question against the Revenue in each
E reference:-

"Whether in computing the net wealth of the assessee,
the amount deductible in respect of liabihty of tax for any
year for which the assessment is the completed after the
valuation date is the liability as ascertainable on the valua,
tion daie or th~ actual amount of tax subsequently
J
· assessed ?" ·
•
The faets are substantially similar for.different appeals and ·therefore
it will be sufficient to set forth the facts in one of them alone. In Civil
Appeal No. 1524. of 197 3 the facts are these.
G ' .

In the computation of his net wealth for the assessment year
l962-63, the corresponding valuation date being March 31, 1962, the
assessee claimed a deduction in respect of debts which included
amounts representing estimated liabilities on account of income tax
B ....
and wealth tax for the assessmeut year 1962-63. The Wealth Tax
()ffieer rejected the claim on the ground that as those liabilities were
"claiined on the basis of an estimate they could not be l'egarded as
C. W. T. v. VADILAL (Pathak, J.) 487
debts owed on the valuation dates. In appeal before the Appellate
Assistant Commissioner of Wealth Tax the assessee claimed the· de· A
duction of a larger sum on account of income tax, wealth ta.x and gift
~ · tax liabilities. The Appellate Assistant Commissioner scrutinised the
data placed before him and allowed part of the deductio11.s claimed.
\ The Revenue now appealed to the App·enate Tribunal, and contended
that the deductions on account-of income tax, weath tax and gift tax. B
.· · liabilities for the assessment year 1962-63 should. have been allowed
on the basis of the respective returns filed hy the assessee and not on
the basis of the final assessment as the assessment orders were made
after the valuation date. The Appellate Tribunal rejected the con·
tention and dismissed the appeal. At the. instance of the Revenue, the
Appellate Tribunal referred the case to the Gujarat High Court for
+ its opinion on the question of law set forth earlier. Similar references
were made in other cases, and all of them were disposed of by a
common judgment of the High Court dated December 13, 1972. The
High Court, relying on its earlier judgment in Commissioner of
Wealth Tax v. Kantilal Manila!(') held that the deduction admissible
in computing the net wealth of the assessee must be calculated on
the basis of the tax as firnilly determined on assessment though the
assessment may have been made subsequent to the valuation date, and
not on the baSIS of tax computed in accordance with thereturns filed
by the asseesse~. .

In these appeals, it is contended on behalf of the Revenue that
the High Court has erred, and thai on a true construction of s. 2 (m)
of the Wealth Tax Act defi.ning the expression "net wealth" the tax
liability disclosed by the assessee in bis returns should -be taken as
representing the debt owed by the assessee on the valuatio~ date.
Now, it is settled law that an income tax liability becomes crystal·
lized on the last day of the previous y0ar corresponding to the
..particular assessment year, and a wealth tax liability becomes crys·

~
I
.
tallized on the valuation date. cqrrespon:ding to the particular
. assess-·
ment year. In each case the liabilities are perfected debts on the
last day of previou's year or the valuation date, as the case may be. G,
See Kesoram Industries and Cotton Mills Ltd. v. Commissioner of
Wealth Tax (Central), Calcutta(') and H.H. Setu Parvati Bayi v.
Commissioner of Wealth Tax, Kera/a.(') Likewise, we think a gift

H
(1) (1973) 88 I.T.R. 125.
(2) (1966) 59 I.T.R. 767.
(3) (1968) 69 I.T.R. 864.
488 SUPl.UlME COtiRT REPORTs (1984} I s.c.a.

tax liability becomes crystallized, and therefore a ,perfected debt,
on the. last .day of the previous year relevant to the. particular
assessement · year. See Commissioner of Wealth' Tax, Madras v.
K.S.N. Bhatt(') The object and purpose of the· assessment proce- ' '\
dure presclibed by the releval).t tax statute, be it the Income Tax Act,
the Wealth Tax Act or the Gift Tax Act, is to ,quantify the preci1·e
B amount of the tax .liability. The process is initiated ordinarily by
the assessee filing a tax return, and thereupon the asssessment machi'
nery swings ·into ·motion. The tax return is scrutinised by the
assessing authority and in accordance with the procedure detailed
in the relevant statute the assessfog autho~ity proceeds to determine
'the true figure, in its opinion, of the asseessee's. taxable income .
G or taxable wealth or total value of the taxable gifts, depending
on whether it is a case of income tax,. wealth tax or gift tax. The +
assessment order made by the assessing authority specifies the asses-
sed. income, .wealth or value of the gifts, and on that the correspon-
ding tax liability is computed followed by a notice of demand. The
• D a~sessment order may be subjected to consideration in appeal before
the Appellate Assistant Commissioner and thereafter .the case may be
carried in second appeal to the Appellate Tribunal, in reference to
the High Court artcf ultimately in appeal before this Court. At every
stage, the endeavour of the authority, tribunal or court is to adjudi-
. cate on questions which will lead in the final result to a true deter-
lil mination of the tax liability. There may be cases where the assessment
finally made may be reopened in accordance with the procedure and
subject to the .conditions stated in the relevant statute.· There may
also be cases where a rectification of apparent. errors is effected
purs~ant to jurisdiction granted by the relevant statute. Both these
proceddings are similarly intended for the true quantification of the
tax liability. When, in the course of a wealth tax assessment, the
· ·assessee miikes a claim. to deduction on account of income tax, wealth
tax and gift tax liabilities subsisting as debts owed by him on the
valuation date, it is the final quantification ·of the par.ticular tax l
liability which must be taken into accouni. . Wh~re the wealth tax ·.JI&
G assessment so made is carried in appeal, we have no doubt that the
'
appellate authority will take into account the ultima:l'e quantification
of the tax · liability, even though ·such ultimate quantification has
been · reached after the relevant valuation date and during the
pendency of the wealth tax appeal.
H
(I) Civil Appeals Nos. 384 to 387 of 1978, Judgment delivered on October
. 21, 1983. . . . ' . • ..
489
Upon the aforesaid considerations, we are of opinion that the
High Court has acted rightly in holding that in computing the net
wealth of the assessee the deduction admissble must be calculated
on the basis of the tax as finally quantified on assessment, even
though the assessment may have bee!\. made subsequent to the
, valuation date. , Once an assessement orcler is passed, the .data dis-
closed by the assesiee in his return is no longer determinative of the
~ssessee's tax liability becomes in law it stands superseded by the.
assessment brde; .
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The appeals are dimissed ,with costs.
•
H.S.K. · Appeals dismissed.
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