Disclosure scheme for concealed income does not create a new tax charge; pre-existing income-tax liability remains deductible in wealth-tax.

A disclosure scheme for concealed income was explained as a special mode for payment of pre-existing income-tax liability, not a fresh tax charge. The note states that income disclosed under section 68 of the Finance Act, 1965 had already been taxable under the relevant income-tax law for the earlier assessment years, so the liability existed on the valuation date and could qualify as a debt owed under section 2(m) of the Wealth-tax Act, 1957. It also states that the scheme fixed the manner, rate and time of payment without changing the character of the levy, and that the tax paid on such concealed income was deductible in wealth-tax computation.

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Issues: (i) Whether income-tax payable on concealed income disclosed under section 68 of the Finance Act, 1965 is deductible as a debt owed under section 2(m) of the Wealth-tax Act, 1957 in computing net wealth. (ii) Whether the liability arising on such disclosure is a fresh charge created by section 68 of the Finance Act, 1965 or is liability to income-tax under the Income-tax Act, 1922 / Income-tax Act, 1961.

Issue (i): Whether income-tax payable on concealed income disclosed under section 68 of the Finance Act, 1965 is deductible as a debt owed under section 2(m) of the Wealth-tax Act, 1957 in computing net wealth.

Analysis: The amount disclosed under section 68 represented income earned in earlier years and already exposed to income-tax under the relevant income-tax law for those assessment years. The liability to income-tax existed on the valuation date, though its ascertainment and payment were later regularised through the disclosure scheme. Such liability answers the description of a present debt owed, and therefore falls within the deductible liabilities under section 2(m) of the Wealth-tax Act, 1957.

Conclusion: The deduction was admissible, and the assessee succeeded on this issue.

Issue (ii): Whether the liability arising on such disclosure is a fresh charge created by section 68 of the Finance Act, 1965 or is liability to income-tax under the Income-tax Act, 1922 / Income-tax Act, 1961.

Analysis: Section 68 was treated as a scheme for disclosure and liquidation of an already existing income-tax liability, not as an independent new tax charge. The words of the provision show that what was payable was income-tax, and the scheme merely fixed the mode, rate, and time of payment for concealed income that was already taxable under the earlier income-tax enactments. The absence of year-wise allocation or ordinary return procedure did not alter the character of the levy.

Conclusion: The liability was not a fresh charge under the Finance Act, 1965, but income-tax liability under the applicable Income-tax Act provisions, and this issue was answered in favour of the assessee.

Final Conclusion: The concealed income disclosed under the voluntary disclosure provision remained subject to pre-existing income-tax liability, so the tax paid thereon was deductible in wealth-tax computation as a debt owed, and the High Court's contrary view was set aside.

Ratio Decidendi: A disclosure scheme that provides a special mode for payment of tax on previously taxable concealed income does not create a new tax charge; the resulting income-tax liability subsists on the valuation date and is deductible as a debt owed for wealth-tax purposes.

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