Tax provision as debt owed for wealth-tax purposes where advance tax demand existed before the valuation date

A provision made for tax liability may constitute a debt owed for wealth-tax purposes where it reflects a present obligation rather than a mere contingent liability. Applying the distinction between a liability and a debt, the Supreme Court treated the amount attributable to the last instalment of advance tax, for which demand had already been made before the valuation date, as an existing obligation. It was therefore deductible in computing net wealth, and the provision for tax liability, after excluding that instalment, was held to be a debt owed on the relevant valuation date.

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Issues: Whether the provision made by the assessee for tax liability, after reducing the outstanding last instalment of advance tax, constituted a debt owed by the assessee within the meaning of section 2(m) of the Wealth-tax Act on the relevant valuation date.

Analysis: The question turned on the distinction between a mere liability and a debt owed. Applying the governing principle that a debt is a sum presently payable or payable in future by reason of a present obligation, the Court held that a provision for taxation liability can amount to a debt for wealth-tax purposes. The amount covered by the last instalment of advance tax, for which demand had already been made before the valuation date, was treated as an existing obligation and therefore deductible in computing net wealth.

Conclusion: The question was answered in favour of the assessee. The provision for tax liability, after excluding the last instalment of advance tax, was held to be a debt owed on the valuation date.

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