M.R.A. Ansari, J.
(1) The Income Tax Appellate Tribunal (Delhi Bench 'B ) (hereinafter referred to as the Tribunal) has referred the following two questions to this Court under section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as the Act) :-
1. Whether on the facts and in the circumstances of the case, the sum of Rs. 95,851.00 representing the additional amount of tax payable by M/s. Bharat Ram Charat Ram & Co. Pvt. Ltd., which was not provided for in the P & L account and balance-sheet of the said company but which was actually levied on the company after the valuation date could be said to be a part of the total debt owed within the meaning of Section 2(m) of the Wealth-tax Act, 1957 while arriving at the market price of the shares of the said company within the meaning of Section 7(1) of the Act 2. Whether on the facts and in the circumstances of the case, the sum of Rs. 6,859.06 which was the income-tax and valuation date, was debt owed within the meaning of Section 2 of the Wealth-tax Act, 1957
(2) The facts relevant to the first question may be briefly stated: Smt. Sheela Bharat Ram (hereinafter referred to as the assessed) held 400 shares of M/s. Bharat Ram Charat Ram & Co. Pvt. Ltd. (hereinafter referred to as the company). The value of these shares had to be determined for the purpose of the wealth-tax assessment of the assessed for the year 1957-58, the relevant valuation date being 31st December, 1956. These shares were not quoted in the stock. exchange and, thereforee, the Wealth-tax Officer had to value these shares on the basis of their break-up value, i.e., in other words, on the basis of the assets and liabilities of the company appearing in the balance-sheet of the company on or about the valuation date. In the balance-sheet of the company, provision was made for tax liability of Rs. 6,34,169.00. The assessed claimed that in computing the value of the shares, the amount provided for tax liability should be deducted from the value of the total assets of the company. The Wealth-tax Officer did not accept the claim of the assessed and included this amount in the value of the assets of the company and determined the value of the shares held by the assessed in the said company at 424.20 paise per share.
(3) The assessed preferred an appeal before the Appellate Assistant Commissioner of Income-tax and the latter accepted the assessed's claim and directed the Wealth-tax Officer to re-compute the value of the shares after allowing a reduction of the actual taxes payable by the company on its book profits as per the balance-sheet of the company for the year. The assessed was, however, not satisfied with this direction of the Appellate Assistant Commissioner, as by that time, the assessment of the company has also been completed and it was found that the provision for taxation made by the company in its balance-sheet was short by Rs. 95,851.00 to its actual tax liability for the accounting year. thereforee, the assessed preferred a second appeal before the Tribunal and contended that this amount of Rs. 95,851.00 also may be deducted from the value of the assets of the company in addition to the amount of Rs. 6,34,169.00 which was provided in the balance-sheet or the company for meeting its tax liability The Tribunal accepted this additional claim of the assessed and directed that the said amount of Rs. 95,851.00 also should be deducted from the value of the assets of the company for the purpose of computing the value of the shares of the company held by the assessed. The Tribunal based its finding on the decision of the Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. v, Commisioner of Wealth-Tax, (1966) 6 I.T.R. 767, But at the instance of the Commissioner of Wealth-tax, the Tribunal has referred the question to this Court under section 27(1) of the Act.
(4) Shri A. N. Kirpal, learned counsel for the Revenue, did not dispute the claim of the assessed in respect of the amount of Rs. 6,34,169.00 representing the provision for taxation made by the company in its balance-sheet, but he contended that the further claim of the assessed in respect of Rs. 95,851.00 was not tenable. He sought to distinguish the decision of the Supreme Court in the case of Kesoram Industries from the facts of the present case on the ground that in the case of Kesoram Industries, the Supreme Court had allowed the assessed's claim only to the extent of the amount provided by the said assessed in its balance-sheet for payment of income-tax and super-tax. It has, thereforee, become necessary to examine the decision of the Supreme Court in that case in some detail.
(5) One of the questions for consideration before the Supreme Court in that case was- Whether, on the facts and in the circumstances of the case, in computing the net wealth of the assessed, the amount of the provision for payment of income-tax and super-tax in respect of the year of account was a debt owed within the meaning of section 2(m) of the Wealth-tax Act, 1957, and as such deductible in computing the net wealth of the assessed
(6) Subba Rao J., (as he then was), delivering the majority judgment in that case, answered this question in the affirmative. Both the question and answer by themselves may appear to support the contention urged by the learned counsel for the Revenue, but the reasoning in support of the answer given by the Supreme Court would make it clear that it is not the amount provided by the assessed in its balance-sheet for meeting its tax liability that is deductible in computing the net wealth of the assessed, but it is the amount which represents the actual tax liability of the assessed for the relevant accounting year that is deductible. The question which had been referred to the High Court under section 27(1) of the Act, no doubt, referred only to the amount of provision for payment of income-tax and super-tax, but the actual question that the Supreme Court posed for itself was-
(7) Whether a liability to pay income-tax and super-tax on the income of the accounting year is a debt within the mean- ing of section 2(m) of the Wealth-tax Act?
(8) This question, thereforee, is wider than the question referred to the High Court under section 27 of the Act. After examining the case law on the subject, both English and Indian, the Supreme Court summarised the position thus :-
'Adebt is a present obligation to pay in ascertainable sum of money, whether the amount is payable in praesenti or in fuuro: debitum in praesenti, solvendum in futuro. But a sum payable upon a contingency does not become a debt until the said contingency has happened. A liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data. There is a perfected debt at any rate on the last day of the accounting year and not a contingent liability. The rate is always easily ascertainable. 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 the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favorable to the assessed. All the ingredients of a 'debt' are present. It is a present liability of an ascertainable amount.'
(9) It is clear from the observations of the Supreme Court that it is the actual amount of income-tax which the assessed has to pay on its income during the relevant counting year, that amounts to a 'debt owed' within the meaning of section 2(m) of the Act irrespective of the amount which is provided by the assessed in its balance-sheet for meeting its tax liability.
(10) This was the interpretation put by the Supreme Court itself in a later case in H. H. Setu Parvati Bavi v. Commissioner of Wealth-tax : [1968]69ITR864(SC) . After referring to the rule laid down in the case of Kesoram Industries which has been reproduced above, the Supreme Court proceeded to make the following observations :-
'IT is manifest that the language of the charging section 3 of the Act is in pari materia with the language of the charging section 3 of the Income-tax Act, 1922. In the case of wealth-tax, the rates are prescribed in the Schedules to the Act itself and the liability to pay wealth-tax becomes crystalized on the valuation date, though the tax is levied and becomes payable in the relevant assessment year. We accordingly hold that the wealth-tax liability of the appellant on the valuation date, viz, on March 31 for the assessment year April I following was a 'debt owed' within the meaning of section 2(m) of the Act and should be deducted from the estimated value of the assets as on the valuation date. To put it differently, so far as assessment year 1958-59 is concerned, there was a liability imposed on the appellant to pay the wealth-tax on March 31, 1958, which was the valuation date and so the amount of wealth-tax should be deducted from the estimated value of the assets as on that date in determining the assets taxable for the assessment year 1958-59.' We hold accordingly.
(11) As observed by Subba Rao J. (as he then was) in the case of Kesoram Industries, the problem has to be looked from the standpoint of a businessman or from a commonsense view. Supposing an assessed claims provision in its balance-sheet far in excess of its actual tax liability, can it be said that the rule laid down by the Supreme Court in the Kesoram Industries' case would enable the assessed to claim deduction of the entire amount so provided by him The answer obviously is in the negative. It would, thereforee, follow that if the amount provided by the assessed in its balance-sheet falls short of its actual tax liability, the asse ssec's claim for deduction of the amount of tax payable by him, cannot be restricted to the amount provided in its balance-sheet. It is the actual amount of tax payable by the assessed that is deductible in computing the value of the net wealth of the assessed. The Tribunal was, thereforee, right in allowing the assessed's claim for the deduction of the further amount of Rs. 95,851.00 and we answer the first question referred to us in the affirmative, i.e., for the assessed and against the Revenue.
(12) The facts relevant to the second question referred to us may now be stated:
(13) The total Income-tax and Wealth-tax liability of the assessed herself for the assessment year 1957-58 amounted to Rs. 6,059.06 paise.
(14) This amount included the amount of Rs. 1,885.00 paid by the assesses as advance tax under section 18A of the Indian Income-tax Act, 1922. In computing the value of the net wealth of the assessed, the Wealth- tax Officer did not deduct any portion of this amount. The Appellate Assistant Commissioner, however, allowed the assessed's claim to the. extent of the advance tax of Rs. 1,885.00 only. The Tribunal, however, allowed the entire claim of the assessed, but has referred the second question to this Court at the instance of the Revenue. It may be pointed out that there is a mistake in the amount mentioned in the question referred to us. The question referred to the amount of Rs. 6,859.06 paise. This is obviously a mistake for Rs. 6,059.06 paise. The two decisions of the Supreme Court in the case of Kesoram Industries and H. H. Hetu Parvati Bavi, already referred to above, are decisions directly on this point and in view of these decisions, the learned counsel for the Revenue conceded that the assessed was entitled to deduction of the whole amount of Rs. 6,059.06 paise and that the Tribunal was right in allowing the entire claim of the assessed. We, thereforee, answer the second question also in the affirmative, i.e., in favor of the assessed and against the Revenue. The assessed will get the costs of this reference from the Commissioner of Wealth-tax. Counsel's fee is fixed at Rs. 250.00.