Retrospective wealth-tax exclusion barred deduction of disputed income-tax liability from net wealth calculations.

A retrospectively inserted exclusion in section 2(m)(iii)(a) of the Wealth-tax Act applied to income-tax liability outstanding on the valuation date, even though the assessee had disputed the demand in appeal. Because the amendment was expressly deemed to have been part of the Act from 1 April 1957, the tax liability fell within the statutory exclusion from deductible debts and could not be deducted in computing net wealth. The assessee's challenge to the assessment did not alter the character of the liability for wealth-tax purposes once the retrospective amendment was applied.

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Issues: Whether the income-tax liability of Rs. 5,53,370, which had been assessed and was under appeal on the valuation date, was a debt deductible in computing the assessee's net wealth under section 2(m)(iii)(a) of the Wealth-tax Act, 1957.

Analysis: The relevant exclusion in clause (iii)(a) of section 2(m) was inserted by section 20 of the Finance Act, 1959, and was expressly given retrospective effect so as to be deemed always to have been part of the Wealth-tax Act, 1957 from 1 April 1957. On that footing, a tax liability outstanding on the valuation date and challenged in appeal as not payable by the assessee fell within the statutory exclusion from deductible debts. The fact that the assessee had contested the demand did not make the liability a deductible debt once the retrospective amendment was applied.

Conclusion: The amount of Rs. 5,53,370 was not allowable as a deduction in computing the assessee's net wealth; the question was answered in the negative, against the assessee and in favour of the Revenue.

Ratio Decidendi: Where a taxing provision is retrospectively inserted with express deeming effect, liabilities falling within its terms must be excluded in computing net wealth even if the assessee had disputed them in appeal on the valuation date.

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