Income-tax demand remains a non-deductible debt for wealth-tax purposes, and the vires issue fell outside reference jurisdiction.

An income-tax demand pursued through the certificate procedure and the Public Demands Recovery Act retained its character as a tax liability, so it remained excluded from deduction as a debt under section 2(m)(iii)(b) of the Wealth-tax Act despite being outstanding beyond twelve months. The Court also held that the computation provision in section 2(m)(iii) fell within Parliament's legislative competence under Entry 86 of List I, since deductions and exclusions are part of determining net wealth and do not make the provision ultra vires. The constitutional vires question was treated as outside the scope of the reference because a Tribunal cannot decide constitutional validity.

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Issues: (i) Whether an income-tax demand, though pursued under the Public Demands Recovery Act and outstanding for more than twelve months, is deductible as a debt in computing net wealth under section 2(m)(iii) of the Wealth-tax Act, 1957. (ii) Whether section 2(m)(iii) of the Wealth-tax Act, 1957 is ultra vires on the ground that Parliament can levy wealth-tax only on assets and not on debts. (iii) Whether the vires question could be decided in the reference.

Issue (i): Whether an income-tax demand, though pursued under the Public Demands Recovery Act and outstanding for more than twelve months, is deductible as a debt in computing net wealth under section 2(m)(iii) of the Wealth-tax Act, 1957.

Analysis: The demand retained its original character as tax payable in consequence of an order under a law relating to taxation of income. Recovery through the certificate procedure under section 46(2) of the Indian Income-tax Act, 1961 and the Public Demands Recovery Act did not convert the liability into a different kind of debt. The statutory exclusion in section 2(m)(iii)(b) therefore applied to a tax demand that remained outstanding beyond the prescribed period.

Conclusion: The amount was not deductible and the issue was answered against the assessee.

Issue (ii): Whether section 2(m)(iii) of the Wealth-tax Act, 1957 is ultra vires on the ground that Parliament can levy wealth-tax only on assets and not on debts.

Analysis: The power under Entry 86 of List I extends to taxation on the capital value of assets, and the allowance or disallowance of deductions is a matter within legislative competence. The provision merely regulates the computation of net wealth and does not transgress the constitutional field of taxation.

Conclusion: Section 2(m)(iii) was held to be within legislative competence and not ultra vires.

Issue (iii): Whether the vires question could be decided in the reference.

Analysis: A Tribunal, being a creature of statute, cannot decide constitutional vires; at most, such a question can be rejected as beyond its jurisdiction. In advisory reference proceedings, the court proceeded on the footing of the Tribunal's jurisdiction and treated the vires question as not properly arising for decision.

Conclusion: The vires question did not arise for decision in the reference.

Final Conclusion: The tax demand remained a disallowable debt for wealth-tax purposes, and the constitutional objection was not open for adjudication in the reference, so the revenue succeeded on the substantive question.

Ratio Decidendi: Recovery of an income-tax liability under the certificate procedure does not change its essential character as a tax debt, and a constitutional challenge to the validity of a provision is not adjudicable in reference jurisdiction where the Tribunal lacks competence to decide vires.

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