Bhagwati, C.J.
1. These references raise a common question of law for determination and it would, therefore, be convenient to dispose them of by a single judgment. The question of law which arises for determination may be broadly stated as follows :
2. While determining the net wealth of an assessee for a particular assessment year, liability for income-tax, wealth-tax or gift-tax for that assessment year or any earlier assessment years is undoubtedly to be deducted as a debt owed by the assessee on the relevant valuation date, even though it is not assessed until after the relevant valuation date, but how is it to be computed Is it to be taken at the figure computed on the basis of the return submitted by the assessee or is it to be taken at the figure determined on assessment, where the assessment has taken place after the relevant valuation date but before the computation of net wealth in the wealth-tax assessment What would be the quantumn of the liability, where the assessment to income-tax, wealth-tax or gift-tax is rectified by the revenue authorities under section 35 of the India Income-tax Act, 1922, or section 154 of the Income-tax Act, 1961, before the assessment to wealth-tax is finalised Would the amount of the tax as rectified be deductible in computing the net wealth or the amount of the tax originally assessed or computed on the basis of the return So also, where assessment to income-tax, wealth-tax or gift-tax is reopened and fresh assessment is made under section 34 of the Indian Income-tax Act, 1922, or section 147 of the Income-tax Act, 1961, before the final completion of the wealth-tax assessed, what would be the amount of the tax deductible Would it be the amount of tax as reassessed or as originally assessed or according to the return These three different aspects of the question arose for consideration in the references before us : the first, in Wealth-tax References Nos. 3, 4, 20, 25, 32, 33 and 36 of 1970 and 1 of 1971; the second, in Wealth-tax Reference No. 29 of 1970; and the third, in Wealth-tax References Nos. 25, 32 and 33 of 1970. Each aspect involves a pure question of law and it is, therefore, not necessary to state the facts giving rise to any of these references. We may straightaway proceed to consider the question of law arising in each of these three groups of references.
3. There was at one time a serious cleavage of opinion amongst the different High Courts whether liability for income-tax which was not quantified by assessment could be said to be a 'debt' owed by the assessee on the relevant valuation date. This cleavage of opinion was resolved by the Supreme Court by its decision in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax. The Supreme Court pointed out in this case, after referring to various decisions, English as well as Indian, that these decisions unanimously accept the following definition of 'debt', namely :
'A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation, debitum in praesenti, solvendum in futuro.'
These decisions also establish, said the Supreme Court :
'.... that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happened. But, if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of section 2(m) of the Wealth-tax Act can be defined as a liability to pay in praesenti or in futuro an ascertainable sum of money.'
4. The Supreme Court then proceeded to apply this meaning of the world 'debt' to the case of income-tax liability and observed :
'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 the 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 favourable to the assessee. All the ingredients of a 'debt' are present. It is a present liability of an ascertainable amount.'
5. The liability for income-tax is thus a present liability on the last day of the accounting year and is a 'debt' owed by the assessee on the relevant valuation date, though it may not have been quantified by assessment and may be payable at a future date. So also, as held by the Supreme Court in H.H. Setu Parvati Bayi v. Commissioner of Wealth-tax, the liability for wealth-tax becomes crystallized on the valuation date and not on the first day of the assessment year, though the tax may be quantified by assessment and may become payable after the commencement of the assessment year and, therefore, wealth-tax liability of an assessee on the relevant valuation date for the assessment year begining on April 1 is a 'debt' owed by the assessee which is liable to be deducted in computing the net wealth of the assessee. The same position obtains a fortiori in regard to liability for gift-tax. It attaches as soon as the gift is made, though its quanti fication by assessment would necessarily take place after the close of the relevant accountin year, that is, after the relevant valuation date.
6. Each of these three liabilities for income-tax, wealth-tax and gift-tax is thus a 'debt' owed by the assessee on the relevant valuation date. The only controversy is as to how the quantum of the debt is to be determined. To answer this question, it is necessary to have a look at the defination of 'net-wealth' in section 2(m) of the Wealth-tax, 1957. That definition says : ''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 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 certain kinds of debts specifically enumerated in clauses (i), (ii) and (iii).' The value of all debts owed by the assessee other than the excepted debts is to be deducted from the value of all the assets belonging to the assessee on the relevant valuation date in order to arrive at the net wealth of the assessee chargeable to tax. The revenue authorities are, therefore, required to determine, in the course of the assessment of the assessee to wealth-tax, the value of the debts owed by the assessee on the relevant valuation date and, consequently, the value of the liability for income-tax, wealth-tax, and gift-tax owed by the assessee has to be ascertained by the revenue authorities making the assessment to wealth-tax. Now, if at the time of the assessment to wealth-tax the liability for income-tax, wealth-tax or gift-tax is not quantified by assessment, the revenue authorities cannot fold their hands and say that they are unable to value the liability. The revenue authorities would in that event have to value the liability on such material is available before them and they may either accept the amount provided by the assessee in his balance-sheet as the estimated value of the liability or, where the assessee has filed his return, compute the value of the liability on the basis of the return. This is precisely what was done by the revenue authorities in Kesoram Industries' case, Assam Oil Co. Ltd. v. Commissioner of Wealth-tax, and several other decide cases. The revenue authorities may also in a given case decline to accept the amount of the provision made by the assessee in his balance-sheet or the amount of tax calculated on the basis of the return as a proper estimate of the liability; they may find that it is an over-estimate and rejecting it, they may make their own estimate of the value of the liability. But, where the assessment of the liability for income-tax, wealth-tax or gift-tax is made and the quantum of the liability is ascertained before the wealth-tax assessment is completed, the precise value of the liability ascertained in accordance with the procedure prescribed by law would be known and there would be no need for making an estimate. The assessment made in accordance with the provisions of the relevant statute would quantify the liability, the quantum of the liability should be determined by the process of assessment and once the quantum of the liability is ascertained in the manner contemplated by law, it must displace any attempt at estimation. Then, what is stated by the assessee as his estimation of the liability either by making a provision in the balance-sheet or filing a return would become immaterial because what was an estimate made by the assessee would be superseded by the actual quantum determined by assessment. What the statute requires the revenue authorities to do is to ascertain the value of the liability and, the relevant statute having provided a mode for determination of the value of the liability, it is the actual value of the liability as determined in accordance with the provisions of t he relevant statute which must be taken into account in preference to an estimate made by the assessee in his balance-sheet or in his return.
7. The revenue, otherwise unable to assail the inexorable logic of this argument, tried to escape it by a rather disingenuous contention. The revenue urged that when it is found that the liability for income-tax, wealth-tax or gift-tax as determined on assessment is higher than that admitted by the assessee in his balance-sheet or in return, an additional liability arises which was a contingent liability and did not exist in praesenti on the relevant valuation date. There are, according to the revenue, two contingencies on which this additional liability depends : one is that the return might not be accepted without examination and the other is that on examination the return might be found to be incorrect. It is only if these two contingencies are satisfied that the additional liability would arise : otherwise, the liability would be determined as per the return and no additional liability would be imposed on the assessee. The additional liability thus not being a liability existing in praesenti on the relevant valuation date, but being a contingent liability, cannot be regarded as a debt owed by the assessee and, therefore, what must be deducted is only the liability as per the return and not the additional liability determined on assessment, This contention of the revenue is, in our opinion, wholly unfounded. It is based on a total misconception of the process of assessment. The liability which exists in praesenti on the relevant valuation date is the liability to pay tax on total Income as determined in accordance with the provisions of the Income-tax Act or tax on net wealth as determined in accordance with the provisions of the Wealth-tax Act or tax on gift as determined in accordance with the provisions of the Gift-tax Act. The quantum of this liability is not ascertained on the relevant valuation date and the liability has, therefore, to be quantified and for the purpose of quantification of the liability, a machinery of assessment is provided by each relevant statute. What the revenue claims to be contingencies are nothing but incidents in the process of assessment. The machinery of assessment provided by each relevant statute contemplates filing of a return by an assessee and the return may be accepted by the revenue authorities without demur or the revenue authorities may make further inquiry and find that the total income or net wealth or taxable gift of the assessee is more than what is shown in the return and the tax liability of the assessee is higher than what it would be if the return were accepted as correct. These are all steps in the process of assessment culminating in the quantification of the tax liability. The process of assessment is after all nothing but a process of quantification of tax liability and nothing that is done or may be done in the process of quantification of tax liability can be regarded as a contingency. When assessment is made in accordance with the provisions of the relevant statute the liability to tax which existed in praesenti on the relevant valuation date is quantified or, in other words, its quantum is ascertained by the process of assessment and the amount of tax determined on assessment thus represents the value of that liability. There is no additional liability created by the process of assessment which was not in existence on the relevant valuation date. The liability was always there on the relevant valuation date; its quantum is merely ascertained by the process of assessment. The liability as quantified must, therefore, be deducted in computing the net wealth of the assessee.
8. But, what would be the position if, after assessment of the liability for income-tax, wealth-tax or gift-tax is made, there is rectification of the assessment under section 35 of the Indian Income-tax Act, 1922, or section 154 of the Income-tax Act, 1961 Would the amount of tax as rectified be then liable to be deducted or the amount of tax as originally assessed or as computed in accordance with the return The answer to this question does not present any difficulty if we apply the same principle which we have discussed in the preceding paragraphs. When assessment is rectified because there is mistake apparent from the record, what happens is that an error in quantification of the liability to tax is corrected and what was an erroneous quantification is substituted by a corrected quantification. The corrected quantification is of the same liability which existed in praesenti on the relevant valuation date and which was quantified erroneously in the previous assessment. Where, therefore, the assessment is rectified before the completion of the wealth-tax assessment, the amount of tax as rectified, which represents the correct quantification of the tax liability existing in praesenti on the relevant valuation date, must be taken into account and not the erroneously quantified tax liability or tax liability according to the return.
9. So also where assessment of liability to time-tax, wealth-tax or gift tax is reopened and fresh assessment is made under section 34 of the Indian Income-tax Act, 1922, or section 147 of the Income-tax Act, 1961, the amount of tax as reassessed must be taken into account in computation of net wealth. When assessment is reopened and fresh assessment is made, it is still quantification of the same liability. It is not as if some new liability comes into existences as a result of reassessment which was not there. The liability was always there, namely, the liability to pay tax on total income or net wealth or taxable gift in accordance with the provisions of the relevant statute. That liability was not properly quantified because of non-disclosure of primary material facts by the assessee or because of some other reason and this wrong quantification is sought to be corrected by reopening the assessment and making fresh asssessment. The correct quantification made on reass essment is still quantification of the same liability which existed in praesenti on the relevant valuation date. The amount of tax determined on reassessment must, therefore, be deducted in computing the net wealth of the assessee, where the reassessment has taken place before the wealth-tax assessment is finally concluded.
10. It was contended, on behalf of the assessee, in the course of the arguments that even if the assessment of the liability for income-tax, wealth-tax or gift-tax is made or rectified or reopened after the wealth-tax assessment is closed, it would be competent to the assessee as well as the revenue to apply for rectification of the wealth-tax assessment for the purpose of correcting the amount of income-tax, wealth-tax or gift-tax liability deducted in arriving at the net wealth of the assessee under section 35 of the Wealth-tax Act, 1957. This contention would raise an interesting question as to whether the record of the assessment of income-tax, wealth-tax or gift-tax liability could be regarded as part of the record of the wealth-tax assessment, but we are not called upon to consider this question in the present references and we, therefore, do not propose to express any opinion upon it. So also we do not say anything on the question as to whether the amount of tax liability determined on an application of section 35, sub-section (10), or section 23A of the Indian Income-tax Act, 1922, or section 104 of the Income-tax Act, 1961, would be deductible or not in computing the net wealth of the assessee on the relevant valuation date. It is possible that different considerations may apply in those cases.
11. We, therefore, answer the question referred in each of the Wealth-tax References Nos. 3, 4 and 36 of 1970 and 1 of 1971 and the first question referred in each of Wealth-tax References Nos. 20, 25, 32 and 33 of 1970 by saying that the deduction admissible in computing the net wealth of the assessee is in respect of the tax as finally determined on assessment and not in respect of tax computed in accordance with the return filed by the assessee; we answer the question referred in Wealth-tax Reference No. 29 of 1970 in the affirmative and we answer the second question referred in Wealth-tax References Nos. 25, 32 and 33 of 1970 also in the affirmative.
12. But, that leaves one question to be answered in Wealth-tax Reference No. 20 of 1970. That is the second question in that reference and it is in the following terms :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of section 2(m)(iii)(a) were not applicable in respect of liabilities arising under the wealth-tax assessments of the assessee for the assessment years 1960-61 and 1961-62 ?'
13. It is necessary to state a few facts in order to appreciate this question. The wealth-tax liability of the assessee for the assessment year 1960-61 was assessed at Rs. 22,679 and though the order of assessment was made on 24th March, 1961, the notice of demand was not issued until 11th April, 1961. Similarly, the wealth-tax liability of the assessee for the assessment year 1961-62 was determined to be Rs. 39,692 by an order of assessment dated 23rd March, 1962, but the notice of demand was issued on 11th April, 1962. The assessee preferred appeals against both these order of assessment, one on 9th May, 1961, and the other on 9th May, 1962, and claimed in these appeals that the amount of the tax assessed for each assessment year was not payable by him. Now in the assessment of the assessee to wealth-tax for the assessment year 1961-62, the assessee claimed that the sum of Rs. 22,679 representing wealth-tax liability for the assessment year 1960-61 was deductible since it was a debt owed by the assessee on the relevant valuation date, namely 31st March, 1961. Similar claim for deduction of Rs. 39,692 representing wealth-tax liability for the assessment year 1961-62 was made in the assessment of the assessee to wealth-tax for the assessment year 1962-63. The revenue conceded that each of the two sums of Rs. 22,679 and Rs. 39,692 claimed by the assessee as a deduction represented a debt owed by the assessee on the relevant valuation date, but contended that neither of these two debts was deductible since they fell within the excepted category of debts set out in section 2(m)(iii)(a). The revenue urged that so far as the sum of Rs. 22,679 was concerned, it became payable in consequence of the order of assessment on 24th March, 1961, and it was, therefore, outstanding on 31st March, 1961, being the relevant valuation date : similarly, the sum of Rs. 39,692 became payable in consequence of the order of assessment on 25th March, 1962, and was consequently outstanding on the relevant valuation date, namely, 31st March, 1962. Moreover, both these amounts of tax were claimed by the assessee in the appeals as not being payable by him. The revenue contended that section 2(m)(iii)(a) was, therefore, attracted in the case of these two debts and they were not deductible in computing the net wealth of the assessee. This contention of the revenue did not find favour with the Tribunal and though the Tribunal accepted that the assessee did claim in the appeals preferred by him that the amount of wealth-tax assessed for each of the assessment years 1960-62 was not payable by him, the Tribunal took the view that the terms of section 2(m)(iii)(a) were not satisfied, because the amount of wealth-tax became payable only when the notice of demand was issued and since that happened in each case after the relevant valuation date, it could not be said that the amount of wealth-tax was outstanding on the relevant valuation dat e in case of either of the two assessment years. The Tribunal accordingly allowed the claim for deducttion made by the assessee. This view taken by the Tribunal is challenged in the above question referred at the instance of the Commissioner.
14. The problem which arises for consideration before us on this question is as to the proper construction of certain provisions of the Wealth-tax Act, 1957. Section 2(m) which defines 'net wealth' has already been reproduced by us without clauses (i),(ii) and (iii), but what we are here concerned with is clause (iii)(a) and we may, therefore, set out that provision in extenso :
'(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953, Expendiiture-tax Act, 1957, or the Gift-tax Act, 1958, -
(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him.'
15. If the amount of tax claimed as deduction falls within the description given in this clause, it would not be deductible though it is a debt owed by the assessee on the relevant valuation date. There are two requirements of this clause : one is that the amount of tax payable in consequence of any order passed under or in pursuance of any of the fiscal statutes there specified including the Wealth-tax Act, 1957, must be outstanding on the relevant valuation date and the other is that it must be claimed by the assessee in appeal, revision or other proceeding as not being payable by him. On a plain reading of the clause, it is obvious that to satisfy the second requirement, it is not necessary that the appeal, revision or other proceeding should have been filed before the relevant valuation date; it may be filed even after the relevant valuation date. What is required is that the assessee must dispute the amount of tax claimed from him by filing an appeal, revision or other legal proceeding and not that the appeal, revision or other legal proceeding should be instituted before any particular point of time. If the legislative intention had been otherwise, there is no doubt that the legislature would have added the words 'before the valuation date' at the end of sub-clause (a). Now this second requirement was obviously satisfied in the present case, since the assessee filed appeals against both orders of assessment disputing the amount of wealth-tax assessed for each assessment year 1960-61 and 1961-62. The question is whether the first requirement was satisfied Could it be said that the amount of wealth-tax for the assessment year 1960-61 was outstanding on 31st March, 1961 and the amount of wealth-tax for the assessment year 1961-62 was outstanding on 31st March, 1962
16. The word 'outstanding' is a plain simple word in the English language and, according to its ordinary connotation, it means 'though payable, not paid'. When the amount of tax is payable but is not paid, it would be outstanding. It stands unpaid though payable; in other words, it connotes default on the part of the debtor in carrying out his obligation to make payment of the amount due from him. The amount of tax can, therefore, be said to be outstanding on the relevant valuation date only if it can be shown that it has become payable prior to that date and is not paid till then. Consequently, it becomes necessary to inquire as to when the amount of tax becomes payable by the assessee. Here we are concerned with wealth-tax and, therefore, our inquiry will be confined to the question when the amount of wealth-tax can be said to become payable by the assessee so that, if not paid, it can be said to be outstanding on the relevant valuation date.
17. It is clear from the scheme of the Wealth-tax Act, 1957, that section 3 imposes the charge of wealth-tax on the net wealth of the assessee. The liability for payment of wealth-tax which arises on the relevant valuation date by imposition of the charge has to be quantified and a procedure of assessment for quantification of the liability is, therefore, provided in Chapter IV of the Act. Section 16 which occurs in Chapter IV empowers the Wealth-tax Officer to assess the determine the amount of wealth-tax payable by him. When, therefore, the Wealth-tax Officer makes an order of assessment, he quantifies the liability for payment of wealth-tax and determines the amount of wealth-tax payable by the assessee. The figure determined by the Wealth-tax Officer on assessment represents the amount of wealth-tax payable by the assessee, but this determination does not say when the amount of wealth-tax so determined shall be payable. That is done by section 30 and 31 which occur i n Chapter VII headed 'Payment and recovery of wealth-tax'. Section 30 provides that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Wealth-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. That is followed by section 31 which, as its marginal note shows, provides when the amount of wealth-tax shall be payable. That section has several sub-sections of which only three are material for our purpose, namely, sub-sections (1), (2) and (3). Sub-section (1) provides that any amount specified as payable in a notice of demand under section 30 shall be paid within thirty-five days of the service of the notice at place and to the person mentioned in the notice; and sub-section (2) then goes on to say that if the amount specified in any notice of demand under section 30 is not paid within the period limited under sub-section (1) the assessee shall be liable to pay simple interest at six per cent. per annum from the day commencing after the end of the period mentioned in sub-section (1) and the assessee is then deemed to be in default under sub-section (3). It will be seen from these provisions that though the amount of wealth-tax payable by the assessee is determined by the Wealth-tax Officer by making an order of assessment, it does not become immediately payable, so that if the assessee fails to pay it, he may be said to be in default. It is only when the notice of demand is issued that the amount of wealth-tax determined by the order of assessment becomes payable by the assessee and he is required to pay it within thirty-five days of the service of the notice of demand. If the assessee fails to make payment of the amount of wealth-tax within this period, he becomes liable to pay simple interest at the rate of six per cent. per annum and he is deemed to be in deault so that recovery proceedings can be adopted against him. The period of limitation for filing an appeal against the order of assessment also commences from the receipt of the notice of demand. The notice of demand is, therefore, an essential step which is required to be taken by the revenue authorities before the amount of wealth-tax determined by the order of assessment can become payable by the assessee. This view which we have taken is clearly supported by the observations of the Judicial Committee of the Privy Council in Doorga Prosad v. Secretary of State, where, dealing with the question as to when liability for income-tax can be said to become a 'debt due' to the Crown, Sir John Beaumont pointed out that though income-tax 'is calculated and assessed by reference to the income of the assessee for a given year.....it is due when demand is made under section 29 and section 45. It then becomes a debt due to the Crown....' These observation were interpreted by the Supreme Court in Kesoram Industries' case, as referring not to 'the question of liability to pay income-tax but only the payability.' It is, therefore, clear that according to the Judicial Committee of the Privy Council the amount of income-tax determined by the order of assessment becomes payable only when notice od demand is issued under section 29 or section 45 of the Indian Income-tax Act, 1922, or the corresponding section 156 or section 220 of the Income-tax Act, 1961. Now the scheme of the Wealth-tax Act is in material respects identical with that of the Income-tax Act so far as charge, assessment and levy of tax are concerned and what the Judicial Committee of the Privy Council has said in regard to payability of the amount of income-tax must apply equally in regard to payability of the amount of the wealth-tax. It must, therefore, be held that the amount of wealth-tax determined by the order of assessment does not become p ayable by the assessee until the notice of demand is issued under section 30 of the Wealth-tax Act. Now in the present case it was common ground between the parties that the notice of demand for wealth-tax for the assessment year 1960-61 was issued on 11th April, 1961, that is, after the relevant valuation date, namely, 31st March, 1961, and the notice of demand for wealth-tax for the assessment year 1961-62 was issued on 11th April, 1962, that is, after the relevant valuation date, namely, 31st March, 1962, and the amount of wealth-tax did not, therefore, become payable prior to the relevant valuation date in case of either of the two assessment years and could not be said to be outstanding on the relevant valuation date so as to attract the applicability of section 2(m)(iii)(a). The Tribunal was, therefore, clearly right in taking the view that the claim of the assessee for deduction of the wealth-tax liability for the assessment years 1960-62 and 1962-63 respectively did not fall within section 2(m)(iii)(a) and the amounts of wealth-tax liability were consequently deductible in computing the net wealth of the assessee for the assessment years 1961-62 and 1962-63.
18. We accordingly answer the second question in Wealth-tax Reference No. 20 of 1970 in the affirmative. Since the Commissioner has failed in each of the references before us, he must pay the costs of each reference to the assessee.