Full Judgment
2. The first issue raised in this appeal relates to the determination of the value of jewellery.
3. We have heard the rival submissions in the light of the materials placed before us. The Commissioner (Appeals) allowed 15 per cent, discount towards the value of jewellery. The Department is in appeal against the deduction of Rs. 24,42,160 being 15 per cent, of the value of the gold jewellery. Learned counsel for the assessee fairly conceded that as per Rule 19 of Schedule III to the Wealth-tax Act, 1957, the value of any jewellery determined in accordance with Rule 18(3) for any assessment year shall be taken to be the value of such jewellery for the subsequent four assessment years. As such 15 per cent, deduction is not to be allowed. Having heard both the sides on the point we decide this issue in favour of the Revenue and against the assessee.
4. The next issue relates to the question whether the income-tax and wealth-tax liabilities could be said to be incurred by the assessee in relation to the jewellery and silverware and are deductible as debts due in relation to taxable assets.
5. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. As per the prescription of Section 2(m) of the Wealth-tax Act (hereinafter called "the Act") "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 which have been incurred in relation to the said assets.
6. It is pertinent to note that the words "on the valuation date which have been incurred in relation to the said assets" were substituted by the Finance Act, 1992, with effect from April 1, 1993. As such the amended definition is applicable in the context of the present case.
7. Our attention was invited to Circular No. 663 dated September 28,1993 (see [1993] 203 ITR (St.) 134). It is stated in the said circular that wealth-tax liability is not deductible from the assessment year 1993-94. The text of the circular is reproduced below : Subject : Disallowability of wealth-tax liability as a deduction for computing the net wealth under the Wealth-tax Act, 1957, consequent to amendment of Section 2(m) with effect from April 1, 1993. Section 2(m) of the Wealth-tax Act, 1957, has been amended with effect from April 1,1993. Under the amended Clause (m), in the computation of the net wealth, the assessee is to be allowed deduction only for debts owed by him on the valuation date which have been incurred in relation to the assets liable to wealth-tax. Up to the assessment year 1992-93, the assessee was to be allowed deduction for all the debts owed by him excluding certain debts such as those incurred in relation to or secured on any exempted asset or disputed tax liability. By virtue of this provision, deduction for wealth-tax liability on the net wealth computed on the valuation date was also being granted for the purpose of computing the taxable net wealth.
2. Consequent to the amendment of section 2(m) with effect from the assessment year 1993-94, a question has arisen regarding the admissibility of deduction of the wealth-tax liability for the purpose of computing the taxable net wealth. The Board has been advised that the liability under the Wealth-tax Act is not a debt owed by the assessee incurred in relation to the assets taxable under the Wealth-tax Act. The liability to wealth-tax is a personal liability of the assessee. Moreover, this liability is not a debt incurred by the assessee but is created by the statute. Therefore, no deduction is to be allowed for the wealth-tax liability in the computation of the taxable net wealth of the assessee from the assessment year 1993-94 onwards.
3. This clarification may be kept in consideration by the assessees while filing the wealth-tax returns.
8. Prior to the amendment the amount of tax, penalty or interest payable, etc., was deductible from the net wealth as per the scheme of the section. The Legislature in its wisdom deleted the words "the amount of tax, penalty, etc." and after the words "... in excess of the aggregate value of debts owed by the assessee" the words "on the valuation date which have been incurred in relation to the said assets" were substituted. Therefore the test for the liability of the debt depends on the fact whether that debt was incurred in relation to the said assets.
9. When the words of a section are clear, but its scope is sought to be curtailed by construction, the approach suggested by Lord Coke in Heydon's case [1584] 3 Co. Rep 7b yields better results: To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of the whole Act; to consider, according to Lord Coke : 1. What was the law before the Act was passed; 2. What was the mischief or defect for which the law had not provided; 3. What remedy Parliament has appointed; and 4.
The reason of the remedy.
10. As per the Memorandum explaining the provisions of the Finance Bill, 1992 (see [1992] 194 ITR (St.) 205), only those debts which have been secured on, or which have been incurred in relation to the assets will be allowed as a deduction in the computation of net wealth. It is explained in the Notes on Clauses to the Finance Bill, 1992 (see [1992] 194 ITR (St.) 160), that Clause (m), as now amended, provides that such deductions would be allowed only in respect of debts which are secured on, or which have been incurred in relation to, the said assets.
11. Now testing the provision on the touchstone of the Heydon's rule we find that amount of tax, penalty and interest payable were deductible prior to the amendment. For some reasons the Legislature in its wisdom thought to delete the provision of law apropos the allowability of tax liability. The remedy prescribed by Parliament pertains to the allowability of secured debts only or those debts which are incurred in relation to the assets in question.
12. In this case the assessee received birthday presents totalling to Rs. 2,00,17,474 in the form of jewellery and silverware as detailed below:----------------------------------------------------------------Assessment year Rs. Rs.---------------------------------------------------------------- Jewellery: 1990-91 59,78,607 1,18,10,624 Silverware: 1991-92 46,52,200 82,06,850---------------------------------------------------------------- 2,00,17,474 13. It was alleged that on these gifts income-tax was charged as such payment of tax is directly attributable to these assets, therefore it should be construed as "debt" owed by the assessee incurred in relation to the jewellery and silverware.
14. A debt is a present obligation to pay an ascertainable sum of money, whether the amount is payable in praesenti or in future : debitum in praesenti, solvendum in future. The condition precedent for allowability of such debt is that it must have been incurred in relation to the taxable asset. In the case of Smt. Padmavati Jaikrishna v. Addl. CIT [1987] 166 ITR 176, the hon'ble Supreme Court has held that payments of income-tax and wealth-tax are liabilities of personal nature.
15. We have considered the various precedents relied upon at the time of hearing. There is no dispute on the point that the deduction is permissible only if the debts owed could be said to be incurred in relation to the assets. In our opinion the liability to make payment of tax cannot be construed as debt owed in relation to assets. Liability to make payment of tax is a personal liability. The amount of tax is payable because of the mandate of the statute. Provision of law is the cause without which the occurrence of tax payment would not have happened, therefore, causa sine qua non for the payment of tax is the statutory liability. Payments of taxes are governed by the provisions of the relevant tax statute. Therefore liability for such payment is in relation to the statute and not in relation to the asset. Holding of assets is a nearest cause to the incidence of taxation. It is only causa causans. Therefore it cannot be said that the payment of taxes is directly in the context of the assets held by the assessee. Taking into consideration the entire conspectus of the case we are of the opinion that the income-tax and wealth-tax liabilities cannot be deducted as debts due in relation to taxable assets. We, therefore, decide this issue in favour of the Revenue and against the assessee.