Wealth-tax debt test: accrued tax liabilities and advance tax are deductible, but section 23A super-tax is not.

Income-tax liabilities that had accrued as present obligations on the valuation date were held to be debts owed under the Wealth-tax Act, even if quantification occurred later or part of the demand was under appeal; the assessee could not bypass the statutory rectification route for the appeal-related component, but the liabilities themselves remained deductible. A provision for additional super-tax under section 23A of the Income-tax Act, 1922, was not deductible because liability arose only when the discretionary statutory order was passed, which had not happened by the valuation date. Advance tax payable under section 18A was likewise a present enforceable liability and therefore deductible, including where the amount was based on the assessee's own estimate.

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Issues: (i) Whether income-tax liabilities quantified after the valuation date, including amounts subject to appeal and amounts finally ascertained later, are deductible as debts owed under the Wealth-tax Act and whether the assessee must seek rectification separately under section 35(2); (ii) Whether a provision for additional super-tax under section 23A of the Income-tax Act, 1922, is an allowable deduction when no order under that section had been passed before the valuation date; (iii) Whether advance tax payable under section 18A of the Income-tax Act, 1922, including liability based on the assessee's own estimate, is a debt owed for wealth-tax purposes.

Issue (i): Whether income-tax liabilities quantified after the valuation date, including amounts subject to appeal and amounts finally ascertained later, are deductible as debts owed under the Wealth-tax Act and whether the assessee must seek rectification separately under section 35(2).

Analysis: A liability to income-tax in respect of the relevant accounting year is a present obligation on the valuation date, even though the amount may be quantified later, and is therefore a debt owed within section 2(m) of the Wealth-tax Act, 1957. The amount that remained pending in appeal and was paid within the statutory period answered the conditions of section 35(2), but the rectification contemplated by that provision is to be sought in the prescribed manner and not by treating the point as already open in the wealth-tax reference itself. The later quantified balance of tax for the earlier year was also outstanding on the valuation date and was not disputed by way of appeal or revision.

Conclusion: The first component is deductible as a debt owed, but the assessee must seek relief separately under section 35(2); the second component is also deductible. Both conclusions are in favour of the assessee.

Issue (ii): Whether a provision for additional super-tax under section 23A of the Income-tax Act, 1922, is an allowable deduction when no order under that section had been passed before the valuation date.

Analysis: Liability under section 23A does not arise automatically from the charging provisions applicable to total income. It depends upon an order of the Income-tax Officer made after examination of the statutory conditions governing accumulated profits, distribution policy, and reasonableness of dividend declaration. Since the liability originates only when such an order is passed, it cannot be treated as a debt owed on the valuation date before the order exists.

Conclusion: The provision for section 23A additional super-tax is not an allowable deduction and the answer is against the assessee.

Issue (iii): Whether advance tax payable under section 18A of the Income-tax Act, 1922, including liability based on the assessee's own estimate, is a debt owed for wealth-tax purposes.

Analysis: Advance tax liability is a present and enforceable obligation on the valuation date. It does not cease to be a debt merely because the assessee computes the balance on its own estimate rather than pursuant to a demand notice. The legal character of the obligation is the same whether the advance tax arises from a demand or from the statutory estimate mechanism.

Conclusion: The advance tax liability is a debt owed and is deductible. The answer is in favour of the assessee.

Final Conclusion: The reference is answered partly in favour of the assessee and partly against it, with the deductions allowed in respect of the income-tax liabilities and advance tax, but disallowed in respect of the section 23A provision.

Ratio Decidendi: A tax liability that has accrued as a present obligation on the valuation date is a debt owed for wealth-tax purposes, but a liability that arises only upon a discretionary statutory order is not a debt until that order is made.

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