Existing tax liability as a present debt was deductible in net wealth computation despite pending assessment.

A provision in the balance-sheet for an existing tax liability was treated as deductible in computing net wealth because the liability arose when the income was earned and was not contingent merely due to pending assessment. The court held that such a provision represents a present debt on the valuation date and falls within deductible liabilities unless specifically excluded by the Wealth-tax Act, 1957. The retrospective amendment in section 2(m)(iii) was read as applying only to tax, penalty, or interest payable pursuant to an order already passed under the relevant enactments, and not to a liability where no assessment order had yet been made. The deduction was therefore allowed.

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Issues: Whether amounts provided in the balance-sheet for taxation liability were deductible in computing the assessee company's net wealth under the Wealth-tax Act, 1957.

Analysis: The liability to pay tax arises when the income is earned and is not contingent merely because the assessment has not yet been completed. The relevant inquiry is whether the liability is a present debt on the valuation date. A provision made in the balance-sheet for an existing tax liability represents an amount set apart to discharge a debt in praesenti. The retrospective amendment in section 2(m)(iii) of the Wealth-tax Act, 1957 was held to apply only to tax, penalty, or interest payable in consequence of an order already passed under the Act or corresponding income-tax and allied enactments, and not to a liability where no assessment order had yet been made.

Conclusion: The provision for taxation was deductible in determining the assessee's net wealth, and the question was answered in the affirmative in favour of the assessee.

Final Conclusion: Amounts retained in the accounts against an existing tax liability were treated as deductible debts for wealth-tax computation, and the reference was resolved for the assessee.

Ratio Decidendi: A tax liability arising from earned income is an existing debt and not a contingent liability merely because assessment is pending; consequently, a provision made in the accounts for such liability is deductible in computing net wealth unless specifically excluded by the statute.

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