Holding

The decree amount is not a debt owed by the assessee as he had no personal liability, and consequently Section 17 of the Wealth Tax Act does not apply.

Summary

The appellant, Commissioner of Wealth Tax, challenged the High Court's order that allowed a deduction of a Rs 30 lakh decree amount as a debt owed by the assessee, Raja Vishwanath Pratap Singh, under the Wealth Tax Act. The decree arose from his father's debts under the U.P. Encumbered Estates Act; the father's estate was taken over by the Court of Wards, which invested savings in Government securities, the interest of which was collected by the son. The Special Judge and High Court held that the securities were not part of the deceased's estate and could not be attached, so the decree amount was treated as a debt owed by the son for wealth‑tax purposes. The Wealth Tax Officer later contended that the son had no personal liability and that the decree amount could not be deducted, invoking Section 17 of the Wealth Tax Act. The Supreme Court held that the son was not personally liable for the decree, that the amount could not be treated as a debt owed, and that Section 17 was inapplicable, thereby overturning the High Court. The appeal was allowed in favour of the Revenue.

Issues considered

Whether the decree amount of Rs 30 lakh constitutes a 'debt owed' by the assessee for deduction under Section 2(m) of the Wealth Tax Act, 1957.
Whether Section 17 of the Wealth Tax Act, 1957 applies to the assessment years 1957‑58, 1958‑59 and 1959‑60 in the present facts.

Legislation cited

Wealth Tax Act, 1957s. 17, s. 27, s. 2(m)

Subjects

Wealth TaxDebt owedDeductionPersonal liabilityPious obligationHindu lawGovernment securitiesEncumbered Estates ActSection 17Section 2(m)Valuation date

Judgment

)

A COMMISSIONER OF WEALTH TAX, LUCKNOW
v.
RA.TA VISHWANATH PRATAP SINGH

APRIL 3, 1996

B . IJ.S. VERMA AND SUHAS C. SEN JJ.]

Wealth Tax Act 1957-Sections 2(111) and I-Net wea/t/,,-Deduc-
tio11s-Debts owed-Personal liability-Application for liquidation of debts by
assessee's father-On his death, estate taken over by cowt of ward, savings
C invested in Govenunent securities, interest eanzed thereon collected by the
assessee--Decree passed in the nanie of the assessee--Decree holder's clabn
against an1ount held in Govenunent seciuities opposed by assessee as the
amount was not pa1t of estate of his fathei-Proceedings under Section 17 of
Wealth Tax Act-Amount held in Govemment securities is 11et wealth of the
D assessee and there can not be any deduction of a11y decretal dues since as-
sessee is not personally Liability for the debt-Plea of pious obliga-
tio1t-Rejected--011 the relevant valuation date the assessee was not saddled
with a decretal debt-Having successfully thwaited the attempts of the decree
holders to proceed against the aforesaid Govemment secwities and the in-
conie arising therefroni, the assessee can not clabn that the decretal dues are
E his debts which are personally payable by him.

Hindu Law-Pious obligation-The obligation of the son to pay off the
debts contracted by his fathe1~Limited to the prope1ties inherited by the son
from his father.

F The Respondent's rather, a Zamindar, tiled an application fur liqui-
dation of his debts under section 4 of U.P. Encumbered Estates Act 1934
and he died during the pendency of the application and the respondent
was brought on record as his "Legal representative. The court of Wards
took over the estate and a sum of Rs. 6,11,324 secured out of savings of
G the estate was invested by it in Grwernment securities. The interest accrued
thereof was collected by the respondent.

The proceedings under U.P. Encumbered Estates Act was decreed in
the name of the respondent for R•. 30,00,000. Decree-holder's claim against
the amount held in Government securities was opposed by the respondent.
H The special Judge held that the decree-holders could not proceed against
1150
C.W.T. v. R.V. PRATAP SINGH 1151

the amount which did not form part of estate of the deceased. The High A
Court upheld the order of the special Judge.

The Wealth Tax assess1nent of the asst:ssee \\'as con1pleted for the
assessment years 1957-58, 1958-59, 1959-60, during the peudency of the
application for li11uidation of debts. And, the decretal amount of Rs.
30,00,000 was treated as 'debt owed' by the respondent and it was held that B
respondent was not liable to pay tax under the \\'ealth tax Act. But,
proceedings under Section 17 of wealth tax Act were initiated against the
respondent after the High Court order. The Wealth Tax Ollicer concluded
that the amount held in Government securities constituted the net wealth
of the respondent against which the decretal amount could not be set off, C
and that since the decretal amount of Rs. 30,00,000 could not be recovered
from the respondent personally it was not a debt owed by the respondent.

In an appeal to the Appellate Assistant Commissioner, plea of pious
obligation was taken up which was dismissed holding that under the Hindu
Law the creditors could not proceed against the assets of the assessee for D
fulfilling his pious obligation to pay the decretal dues of his l"ather. Appeal
preferred against this order was dismissed by the Tribunal.

At the instance of the assessee, the following two questions of law
were referred to the High Court under Section 27 of the Wealth Tax Act :
E
"1. Whether on the facts and in the circumstances of the case the
debts amounting to Rs. 30 Lacs and odd, more or less for each of the
assessment years under appeal, were rightly not allowed as a deduction in
calculating the net wealth of the assessee ?

2. Whether on the facts and under the circu1nstances of the case the F
provisions of Section 17 of the Wealth Tax Act were applicable so far as
the assessment years 1957-58, 1958-59 and 1959-60 are concerned ?
'
The High Court answered the first question by holding that the debt
amount to Rs. 30,00,000 and odd should have been allowed as a deduction G
in calculating the net wealth of the assessee. As a "conse<1uence of the
answer given to the first question, the second question was answered by
saying that Section 17 of the The Wealth Tax Act could not be applied for
.~ the assessment years 1957-58, 1958-59, 1959-60. Hence this appeal;

Allowing the appeal, this court H
)
1152 SUPREME COURT REPORTS l1996J 3 S.C.R.

A HELD : I.I. It is not the case of the assessee that he had a personal
liability to pay the dccrdal amount of Rs. 30,00,000 and that was payable
by him ultimately. The decree-holders have been unable to proceed against
his assets" (the Government securities of Rs. 6,87,000) for the realization
of their decretal dues. It is not the case of the assessee that on the relevant
valuation date the assessee was saddled with a dccretal debt and the
B assessee was under a legal obligation to pay that a1nount sooner or later.
Having successfully thwarted the attempts of the decree-holders to proceed
against the aforesaid Government Securities and the income arising there-
from, the assessee cannot now claim that the decretal dues are his debts
which are personally payable by him. (1157-B-C]
c
Kesoram lndust1ies and Cotton Mills Ltd. v. Commissioner of Wealth
Tax (Central), Calcutta (1969) 59 ITR 767, referred to.

2. The obligation of the son to pay off the debts contracted by his
father is limited to the properties inherited by the son from his father. It
D / is not the case of the assessee that he has inherited the amount of Rs.
6,87,000 held in Government securities from his father. In any event, it was
held by the High Court in its order dated March 25, 1961 that a decree
obtained by the creditors could not be executed against these Government
securities. (1157-E-FJ
E Mu/la's Hindu Law, 12th Edition P-426, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1364·68
of 1974.

F From the Judgment and Order dated 22.6.71 of the Allahabad High
Court in W.T.R. No. 284 of 1965.

T.L. Viswantha Iyer, S. Rajappa and S.N. Terdol, Advs. for the
Appellants.

G Shivpujan Singh for the Respondents.

The .Judgment of the Court was delivered by

SEN, J. The a>Sessee Raja Vishwanath Pratap Singh is the son of late
Captain Ra.ia Bahadur Ram Gopal Singh, who was the owner of extensive
H zamindari and other properties. Ram Gopal Singh ran debts. He applied
C.W.T. v. R.V. PRATAP SINGH [SEN, J.] 1153

under Section 4 of the U.P. Encumbered Estates Act, 1934 for the liqui- A
dation of his debts. While his application under Section 4 was pending,
Ram Gopal Singh passed away and his estate was taken over by the Court
of Wards on September 16, 1941. The estate was released on February 16,
1953. All the proceedings pursuant to the application before the Special
Judge after the death of Ram Gopal Singh went on in the name of the
asse5see.
B

Out of the savings of the estate, the Court of Wards invested an
. amount of Rs. 6,11,324 in Government securities. The investment fetched
an income of Rs. 76,000 per annum by way of interest. The amount of
interest used to be collected by the assessee. C
In the proceedings under the U.P. Encumbered Estates Acl, the
Special Judge passed a simple money decree for Rs. 30,00,000 and odd
add. Since the as;essee had been substituted in the place of his father, the
decree was passed against the assessee. When some of the decree-holders
wanted to proceed against the amount of Rs. 6,87,000 held in Government D
securities, the assessee opposed the claim of the decree-holders. The
Special Judge held that the decree-holders could not proceed against this
amount which did not form part of the estate of the deceased Ram Gopal
Singh. The decree-holders went on appeal lo the High Court which upheld
the order of the Special Judge by an order passed on March 25, 1961. E
While all these proceedings were going on under the U.P. Encum-
bered Estates Act, Wealth Tax Assessment of the assessee was completed
for the assessment years 1957-58, 1958-59, 1959-60. However, the proceed-
ings for the assessment years 1960-61 and 1961-62 were pending. In the
wealth Tax Assessments proceeding upto the asscssincnl year 1959-60, the F
decretal amount of Rs. 30,00,000 an odd had been treated as 'debt owed'
by the assessee. Taking this debt into consideration, it was held that the
assessee was not liable to tax under the Wealth Tax Act. But, when the
judgment of the High Court dated March 25, 1961 came to the knowledge
of the Department that the decree-holders could not proceed against the G
amount of Rs. Rs. 6,87,000 and odd held by the assessee in his own name
for recovery of the decretal debt, the Wealth Tax Officer initiated proceed-
ings under Section 17 of the Wealth Tax Act against the assessee for the
assessment years 1957-58, 1958- 59 and 1959-60.

After giving a hearing to the assessee, the assessments were com- H
)

1154 SUPREME COURT REPORTS [1996) 3 S.C.R.

A pleted by the Wealth Tax Officer for the aforesaid years of assessment
holding that since the decretal amount of Rs. 30,00,000 could not be
recovered from the assessee personally, it was not a debt owed by the
assessee. The sum of Rs. 6,78,000 constituted the net wealth of the assessec
against which the decretal amount could not be set off. Similar orders were
passed for the a"essmenl years 1960-61 and 1961-62.
B
The asscssce appealed to the Assistant Appellate Commissioner who
examined the facts of the case in depth and dismissed the appeals by a
consolidated order disposing of all the five cases.

C One of the points taken before the Appellate Assistant Commis-
sioner was that the assessee had a pious obligation lo discharge the debts
contracted by his father and, therefore, the decretal dues of Rs. 30,00,000
should be treated as 'debt owed' by the assessee. The Appellate Assistant
Commissioner, however, held that under the Hindu Law the creditors
could not proceed against the assets of the assessee for fulfilling his pious
D obligation to pay the decretal dues of his father.

There was a further appeal to the Tribunal. Before the Tribunal the
point of pious obligation of the son to pay the debts contracted by the
father under Hindu Law was given up. It was contended that the aggregate
•
value of the debts of the assessee was more than Rs. 30,00,000. If this was
E deducted from the assets held by the assessee, the resultant figure would
be negative. Therefore, no Wealth Tax was needed to be paid by the
assessee. It was pointed out that Section 2(m) of the Wealth Tax Act
enjoined deduction of debts owed by the assessee. The decrees passed
under the U.P. Encumbered Estates Act were personal decrees against the
F assessee and, therefore, the amount had to be deducted from the assets of
the assessee as 'debts owed' by the assessee. The payability of the debt was
not very material for this purpose. For this proposition, reliance was placed
upon the judgment of this Court in the case of Kesoram lndustlies a11d
Cotto/! Mills Ltd. v. Commissioner of Wealth Tax (Ce11tral), Calcutta, (1969)
G 59 !TR 767. It was further argued that a decree could not be passed against
a dead person. The decree in question was actually passed against the
assessee. Therefore, it could not be said that no decree was passed against .1t.

the assessee personally.

The Tribunal rejected all these arguments. The Tribunal held that in
H order to get any deduction of any amount on 'debt owed' by the assessee,
C.W.T. v. R.V. PRATAP SINGH !SEN. J.] 1155

it will have to be shown that he was personally liable to pay the debts. Jn A
a case where a person was liable to pay debts only to the extent of property
which he had received from another person, there could be no personal
liability to pay the tax. The creditors could proceed against the assets and
recover their dues from the assets of the deceased. But the creditors could
not enforce their claim against the assessee personally or against the B
personal assets of the assessee. Since the creditors could not proceed
against the assessee personally for recovery of their dccretal dues, it could
not be said that the assessee owed any debt which had to be deducted from
his assets for. the purpose of computation of net wealth. The Tribunai
therefore, dismissed the appeal.

At the instance of the assessee, two following questions of law were
c
referred to the High Court under Section 27 of the Wealth Tax Act :-

"1. Whether on the facts and in the circumstances of the case
the debts amounting to Rs. 30 lacs and odd, more or less for
each of the assessment years under appeal, were rightly not D
allowed as a deduction in calculating the net wealth of the
assessee ?

2. Whether on the facts and under the circumstances of the case
the provisions of Section 17 of the Wealth Tax Act were
applicable so far as the assessment years for 1957-58, 1958-59, E
1959-60 are concerned ?"

The High Court took the view that the Tribunal had misconstrued
the expression 'debts owed by the assessee' in Section 2(m) of the Wealth
Tax Act. The Tribunal had also misunderstood the true nature of the F
obligation of heir of the deceased debtor to pay his debts. The High Court
referred to Mulla's Hindu Law, 12th Edition, p.426 and observed that the
assessee was liable to pay the debts incurred by his d~ceased father. But
his liability was restricted to the extent of the property inherited by him
from his deceased father. So his father's debts which may be satisfied from
the property which he had inherited from his father were 'debts owed by G
the assessee'. The High Court, therefore, answered the first question by
holding that the debt amount to Rs. 30,00,000 and odd should have been
allowed as a deduction in calculating the net wealth of the assessee. As a
consequence of the answer given to the first question, the second question
was answered by saying that Section 17 of the Wealth Tax Act could not H
)

1156 SUPREME COURT REPORTS [1996] 3 S.C.R.

A be applied for the assessment years 1957-58, 1958-59 and 1959-60.
We fail lo sec how the High Court went to the question of pious
obligation of the HinJu son for payment of his father's debt. This question
was given up before the Tribunal and no argument \Vas advanced on this
point. Moreover, the High Court noted that the asscssce's liability to pay
B his father's debt was restricted to the properties which he had inherited
from his father. The amounts invested in the Government securities were
investments made by the Court of Wards out of savings from the income
of the estate in its hands. It was held by the Special Judge that this property
was not available for payment of the decretal dues obtained by the
c creditors in the proceedings under the U.P. Encumbered Estates Act. The
High Court in appeal had affirmed that view. Therefore, the creditors of
the deceased Ram Gopal Singh could not proceed against these Govern-
ment securities to recover the decretal dues. The reference Court obviously
overlooked these facts in coming to the conclusion that the assessee had a
pious obligation to pay his father's debts even out of these Government
D securities.

In the case of Kesoram Indus/lies and Cotton Mills Ltd. (supra), it
was held that 'debt owed' under Section 2(m) of the Wealth Tax Act could
be defined as the liability to pay in praesenti or in futuro an ascertainable
E sum of money. Debitum in praesenti solvendum in futuro. In that case, the
question was whether liability to pay income Tax which had not been
computed by an assessment order could be treated to be a present liability
and, therefore, a debt. This Court held that the liability to pay Income Tax
arose by virtue of the Income Tax Act. Al the end of the accounting period
there was a perfected debt. This was not a contingent liability. It was a
F present liability to pay an ascertainable amount in futuro. Therefore, it
•
came within the meaning of the phrase 'debts owed' in Section 2(m) of the
Wealth Tax Act on the Valuation date.

This decision does not come to the aid of the assessee in any way.
G Under the Wealth Tax Act, 'net wealth' has been defined as under :-
"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 the valuation
date, including assets required to be included in his net wealth as
H on that date under this Act, is in excess of the aggregate value of
C.W.T. v. R.V. PRATAP SINGH [SEN, J.] 1157

all the debts owed by the assessee on the valuation date which have A
been incurred in relation to the said assets."

It was not the case of the assessee that he had a personal liability to
pay the decretal amount of Rs. 30,00,000 and that it was payable by him
ultimately. The decree-holders have been unable to proceed against his
assets (the Government securities of Rs. 6,87,000) for the realisation of B
their decretal dues. It is not the case of the assessee that on the relevant
valuation date the assessee was saddelcd with a decretal debt and the
assessee was under a legal obligation to pay that amount sooner or later.
Having successfully thwarted the att_empts of the the decree-holders to
proceed against the aforesaid Government securities and the income aris- C
ing therefrom, the assessee cannot now be heard to say that the decretal
dues are his debts which are personally payable by him. We are of the view
that the Tribunal had given good reasons for its decision and the decision
of the Tribunal should have been upheld by the High Court.

On behalf of the assessee our attention was invited to the provisions D
of the U.P. Encumbered Estates Act and also the judgment of the High
Court passed on March 25, 1961. It was argued that the judgment must be
understood in the context of the provisions of that Act. It was emphasised
that there was a pious obligation of the assessee to pay off the debts
incurred by his father. This argument had been advanced before the E
Appellate Assistant Commissioner, but was not pressed before the
Tribunal. Moreover, the obligation of the son to pay off the debts con-
tracted by his father is limited to the properties inherited by the son from
his father. It is not the case of the assessee that he has inherited the amount
of Rs. 6,87,000 held in Government securities from his father. In any event,
it was held by the High Court in its order dated March 25, 1961 that a F
decree obtained by the creditors could not be executed against these
Government securities.

In view of the aforesaid, we answer both the questions in the affirm-
ative and in favour of the Revenue. The appeals are allowed. Each party G
will bear its own costs.

Mrs. M.K. Appeals allowed.

H