Deductibility of Income Tax in Wealth Calculation affirmed by Madras High Court

The High Court of Madras held that the tax payable under the Income-tax Act on the disclosed income should be deductible in computing the net wealth of the assessee for the relevant assessment years. The Court referred to precedents from various High Courts supporting this view and emphasized that the liability to pay income tax arises on the true income, including both disclosed and undisclosed income. The High Court concluded in favor of the assessee, allowing the deduction of the tax amount paid in determining the net wealth for the assessment years 1960-61 to 1965-66.

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Issues:
1. Whether the tax payable under the Income-tax Act, on the amount disclosed under section 68 of the Finance Act of 1965, is deductible in computing the net wealth for the assessment years 1960-61 to 1965-66Rs.

Analysis:

The judgment of the High Court of Madras, delivered by Justice V. Ramaswami, addressed the issue of whether the tax payable under the Income-tax Act, on the amount disclosed under section 68 of the Finance Act of 1965, is deductible in computing the net wealth for the assessment years 1960-61 to 1965-66. The case involved an assessee who voluntarily disclosed an income of Rs. 3 lakhs prior to the assessment year 1960-61 and paid tax at 60% amounting to Rs. 1,80,000. The assessee then included the balance of Rs. 1,20,000 in the revised wealth-tax returns for the relevant assessment years. However, the Wealth Tax Officer (WTO) did not allow the deduction of the tax amount paid in computing the wealth of the assessee and assessed the undisclosed wealth at Rs. 3 lakhs. The assessee appealed to the Appellate Assistant Commissioner (AAC) and the Tribunal, both of which upheld the decision of the WTO.

The High Court referred to various precedents, including decisions by the Punjab High Court, Delhi High Court, Bombay High Court, and Allahabad High Court, which held that the assessee is entitled to the deduction of income tax payable on concealed income in determining the net wealth. Additionally, a Division Bench of the Kerala High Court also supported this view. The High Court quoted a judgment from the Kerala High Court emphasizing that the liability to pay income tax arises on the true income, which includes both disclosed and undisclosed income. The High Court noted a dissenting view from the Gujarat High Court but decided to follow the majority opinion of other High Courts.

Based on the statutory construction and the principles laid down by the Supreme Court, the High Court concluded that the tax payable under the Income-tax Act on the disclosed income should be deductible in computing the net wealth of the assessee for the assessment years in question. Therefore, the High Court answered the referred question in the affirmative and in favor of the assessee, entitling the assessee to costs and counsel's fee.

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