Wealth-tax deduction principles: accrued expenditure-tax and gift-tax are deductible, but wealth-tax payable on the same net wealth is not.

Expenditure-tax and gift-tax liabilities incurred during the accounting year were treated as debts owed on the valuation date because the charging provisions created a present, ascertainable obligation even though assessment and demand followed later; those liabilities were deductible under section 2(m) of the Wealth-tax Act. Wealth-tax payable for the relevant year was not deductible, because wealth-tax is levied on net wealth as on the valuation date and allowing its deduction would make the statutory computation circular and indeterminate. The guiding principle stated is that only a present and ascertainable tax liability can qualify as a debt owed for net wealth purposes.

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Issues: (i) Whether liability to expenditure-tax and gift-tax incurred during the accounting year was a "debt owed" on the valuation date and deductible in computing net wealth under section 2(m) of the Wealth-tax Act, 1957; (ii) whether wealth-tax payable for the relevant year could itself be deducted while computing net wealth.

Issue (i): Whether liability to expenditure-tax and gift-tax incurred during the accounting year was a "debt owed" on the valuation date and deductible in computing net wealth under section 2(m) of the Wealth-tax Act, 1957.

Analysis: The liability under the charging provisions of the Expenditure-tax Act and the Gift-tax Act arose when the expenditure was incurred or the gift was made, and the amount was ascertainable by reference to the statutory schedules. The fact that assessment and demand followed later did not make the liability contingent. Applying the principle that a debt is a present obligation to pay an ascertainable sum, the Court treated such liabilities as debts owed on the valuation date.

Conclusion: Yes. Expenditure-tax and gift-tax liabilities were deductible as debts owed by the assessee.

Issue (ii): Whether wealth-tax payable for the relevant year could itself be deducted while computing net wealth.

Analysis: Wealth-tax is levied on net wealth as on the valuation date. If the same wealth-tax were deducted in arriving at net wealth, the computation would become self-referential and indeterminate. Unlike income-tax, expenditure-tax, and gift-tax, the liability to wealth-tax is not a prior accrued debt against the assets on the valuation date in the sense required by section 2(m).

Conclusion: No. Wealth-tax payable for the relevant year was not deductible in computing net wealth.

Final Conclusion: The assessee succeeded only to the extent of deductions for expenditure-tax and gift-tax, while the claim for deduction of wealth-tax failed.

Ratio Decidendi: A tax liability is deductible as a debt owed under the wealth-tax definition only when it is a present, ascertainable liability arising on the valuation date; however, wealth-tax payable on the very net wealth being computed cannot be deducted because it would make the statutory computation circular and unworkable.

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