TaxTMI 
TaxTMI 
TaxTMI 
1962 (10) TMI 70
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.... company to pay a sum of ₹ 3,59,549 in four instalments, the instalments being payable on the 15th June, 1956, the 15th September, 1956, the 15th December, 1956, and the 15th March, 1957. Prior to the valuation date, the assessee paid the three instalments payable on the 15th June, 1956, the 15th September, 1956, and the 15th December, 1956. On 31st December, 1956, the fourth instalment of ₹ 89,889 had remained unpaid, the same being payable on the 15th March, 1957. On 13th February, 1957, a revised demand was made under section 18A requiring the assessee to pay a sum of ₹ 4,02,068 instead of ₹ 89,889 on the 15th March, 1957. This amount of ₹ 4,02,068 was, duly paid by the assessee. The assessee submitted its wealth-tax return for the year 1957-58. On 26th September, 1957, a demand notice was issued against the assessee under section 23B of the Indian Income-tax Act, 1922, for a sum of ₹ 8,28,576 on the basis of the assessee's return of income after adjusting the advance payments of tax made by the assessee. The Wealth-tax Officer computed the net wealth of the assessee as stated in his assessment order dated 31st January, 1958. The paid up c....
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....under the different asset heads and deducted in arriving at the value of fixed assets." In view of these provisions the assessee appropriated ₹ 58,29,794 out of the depreciation fund of ₹ 60,39,883 as against different assets and after taking into account depreciation for the year ended 31st December, 1956, showed the depreciated value of the block at ₹ 37,32,148. The assessee transferred the balance sum of ₹ 2,10,089 from depreciation fund to development and rehabilitation reserve which it created. From the current profit of the year 1956, it transferred a sum of ₹ 89,911 to the development and rehabilitation reserve, making a total of ₹ 3,00,000. In the balance-sheet this sum of ₹ 3,00,000 has been shown by way of development and rehabilitation reserve. The assessee claimed that this sum of ₹ 3,00,000 representing development and rehabilitation reserve should be the amount which the assessee should be held entitled to deduct. The assessee contended before the Wealth-tax Officer that this sum represented the difference between the written down value of the fixed assets as found in the income-tax records and the value of the fix....
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.... as follows: The fourth instalment of advance payment of tax paid by the assessee on 15th March, 1957, was ₹ 4,02,068. As against this sum of ₹ 4,02,068, the Appellate Assistant Commissioner had allowed a deduction of ₹ 89,889 leaving the balance of ₹ 3,12,179. To this sum was added the amount of tax paid under section 23B in accordance with the demand made on 26th September, 1957, amounting to ₹ 8,28,576. The total of these sums came to ₹ 11,40,755. A further sum of ₹ 54,693 was also claimed on account of the wealth-tax for the assessment year 1957-58. That claim for ₹ 54,693 is not pressed before us. The Tribunal came to the conclusion that the sum of ₹ 11,40,755 was liable to be allowed. The Tribunal has stated that just as income accrued from day to day, the tax liability also accrued simultaneously and that no computation of net wealth was possible without taking into account the liability of taxation on the income which increased the wealth. As regards the question relating to the assets of the assessee being valued at the written down value as on 31st December, 1956, for the purpose of the Income-tax Act, the Tribunal too....
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....ing demand as on the valuation date though payable on March 15, 1957, is not liable to be allowed as a deduction in computation of the net wealth under section 2(m) of the Wealth-tax Act ? and (3) Whether, on the facts and in the circumstances of the case, when the net value of the assets is determined, under the provisions of section 7(2)(a), the value of depreciable assets as shown in the balance-sheet of the company is liable to be adjusted with reference to the written down value of such assets as per income-tax records?" The Commissioner of Wealth-tax has filed an application before us for re-framing the questions on the ground that the questions framed by the Tribunal were vague and did not bring out clearly the points in issue in this reference. The Commissioner desires that we should frame the questions in the following form : "(1) Whether, on the facts and in the circumstances of the case, the provision for income-tax which may become due on the profits of the previous year ending on the relevant valuation date is a debt owed by the assessee on the valuation date within the meaning of section 2(m) of the Wealth-tax Act, 1957 (as amended in 1959) ? (2) Whet....
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....r this Act ; and (iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure-tax Act, 1957 (29 of 1957), or the Gift-tax Act, 1958 (18 of 1958)- (a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him ; or (b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date." The expression "assets" appearing in section 2(m ) has been defined by section 2(e) as follows : "(e) 'assets' includes property of every description, movable or immovable, but does not include- (i) agricultural land and growing crops, grass or standing trees on such land ; (ii) any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land : Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver....
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....educted from such value any debts owing on the valuation date by the transferee mentioned in that sub-section in so far as such debts are referable to the assets." There are certain other provisions Contained in section 4 to which it is not necessary to refer. There is another section of the Act where under certain assets are exempt from inclusion while ascertaining the net wealth of an individual. That section is section 5. Twenty-one categories of assets have been there set out which are not liable to be included in the net wealth of an assessee. We will have to advert to the same later on. By section 6 a provision is made for exclusion of certain assets and debts. Under the scheme of the Act out of the assets which are liable to be included under section 2(m), a deduction has to be made in respect of "the aggregate value of all the debts owed by the assessee on the valuation date" other than the debts expressly excluded. It is clear from the aforesaid provisions that save as otherwise expressly provided, on the assets side all types of property including debts owing to the assessee and obligations which others owe to the assessee are liable to be taken into accou....
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....ay a sum of money. It may be that a person apprehending a rising spiral of prices may when advancing money bargain for a return to be made to him in terms of certain commodities like silver. Whether in such an event an obligation to pay a particular quantity of that article would constitute a debt or not is a question which it is not necessary for us in this case to consider. In the present case the claim for deduction relates only to a claim in respect of money. It would not be out of place to refer to some of the English cases where the expression has come up for consideration. The first case to which we would advert is Webb v. Stenton [1883] 11 QBD 518. It was a case arising under Order XLV, rule 2, of the Supreme Court Rules, in England concerning a garnishee. In that case the judgment debtor was entitled for his life to the income arising from a fund vested in trustees, payable half yearly in February and August. Upon application by the judgment creditor in the month of November for a garnishee order attaching the debtor's share of the income in the hands of the trustees, it appeared that the last half-yearly payment had been made, and that there was no money from the pro....
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....n that the meaning of "accruing debt" was "debitum in presenti, solvendum in futuro" . Lord Justice Lindley dealing with the matter has observed that a debt legal or equitable can be attached whether it be a debt owing or accruing ; but it must be a debt, and a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in presenti, solvendum in futuro. An accruing debt, therefore, is a debt not yet actually payable, but a debt which is represented by an existing obligation. Lord Justice Fry, at page 529, observes as under : "I have further no doubt that the word 'indebted' describes the condition of a person when there is a present debt, whether it be payable in presenti or in futuro, and I think that the words 'all debts owing or accruing' mean the same thing. They describe all debita in presenti, whether solvenda in futuro, or solvenda in presenti. The material question which has been argued before us is this : does the meaning go further, and does it include debts which may hereafter arise ? If they may hereafter arise, it is possible also they may not hereafter arise, and....
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....m from debts which form part of the assets of the assessee, namely, "debts owing to the assessee". The legislature has not used the word "owed" with a view to qualify or limit the meaning borne by the word "debts" in ordinary English. The word "owe" has been defined in the Shorter Oxford English Dictionary as meaning "to have to pay, to be under obligation to pay or repay, to be indebted in, or to the amount of". The legislature has in section 4, sub-section (3), also used the words "debts owing on the valuation date". Those words have been used in the following context : "Where the value of any assets is to be included in the net wealth of an assessee in accordance with clause (a) of sub-section (1), there shall be deducted from such value any debts owing on the valuation date by the transferee mentioned in that sub-section in so far as such debts are referable to the assets". This section provides that where the value of any assets in the hands of the transferee is to be taken into account as therein provided, the value of any debts owing on the valuation date by the transferee in so far as such debts are re....
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....ets, or debts which have been secured for repayment on such assets should not be included in annexures V and VI. Liabilities which are purely in the nature of contingent liabilities should not be included in these statements." When we turn to Form B which relates to the form of return of net wealth to be submitted by companies, we have again sections A and B relating to immovable property and movable property respectively. Section C, which relates to all assets, after providing for the total value of all assets located in India, i.e., total of sections A and B, provides as under : "Deduct.-Total value of debts in India owing by the company-as per annexure III." When we turn to annexure III which relates to "statement of debts located in India owing by the company", we have under the heading "description of debts"- "I. Secured Loans.-(a) Debentures, (b) Loans and advances from banks, (c) Loans and advances from subsidiaries, and (d) Other loans and advances. II. Unsecured Loans.-(a) Fixed Deposits, (b) Loans and advances from subsidiaries, (c) Short term loans and advances, and (d) Other loans and advances. III. Current liabilities.-(....
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....ctor of his right to payment on the figures being finally adjusted. Even though the contractual liability to pay out of that fund was incapable of being ascertained until some future date, there was a debt owing or accruing and the same could be attached. At page 512, he observes as follows : "It is contended, however, that there cannot be a 'debt' until the amount has been ascertained, and in support of this contention cases have been cited to us where it was attempted to attach unliquidated damages. But in such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given. Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the Insurance Committee. Therefore, there was a 'debt' at the material date, though it was not presently payable and the amount was not ascertained. It is not like a case where there is a mere probability of a debt, as, for instance, where a person has to serve for a fixed period before being entitled to any salary, and he has served part of that period at the time the garnishee order nisi is served ..." Lord Justice....
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....tificate granted under the Succession Certificate Act. Mookerjee J. in that case has observed that the debt was no less a debt because it had not yet matured, if it would certainly become payable in the future. He relied upon the judgment of the Supreme Court of California in People v. Arguello [1869] 37 Calif. 524, where it has been observed as under : "Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds : Solvendum in presenti and Solvendum in futuro. Whether a claim or demand is a debt or not, is in no respect determined by a reference to the time of payment. A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt, or does not become a debt, until the contingency has happened." These words clearly show that a debt is owing even though it is payable at a future ti....
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....ds clearly indicate that the expression "debt" is sufficiently wide to cover a mere liability. It is only in the context of the Act in; question that it was held that it represented "an ascertained sum", and that as there was no such ascertained sum on the relevant date, there was no debt within the meaning of the Act. There is no discussion showing the reason why it was held in the context of the Act in question that the word "debt" was used in the Act in a limited sense. Both sides have sought to show, after making reference to the Finance Act of 1939, the reason why the word "debt" in the context in which the same was used had that particular meaning. It is not necessary for us for the purpose of this case to solve that question. We shall next deal with the case of E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax [1954] 26 ITR 27 . The Supreme Court in that case had to deal with the question about the point of time when managing agency commission became payable to the managing agents of a company. In dealing with the question Bhagwati J. has observed that it was clear having regard to the authorities referred to by him that income ma....
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....o-provided that it constituted debitum in presenti, viz., a sum of money the obligation to pay which was in existence at the date when the garnishee order was sought. The case of O'Driscoll's case (Supra) was relied upon in that case by the counsel for the judgment creditor. In dealing with that case the learned judge observed that it was an authority which was binding on him, for the proposition that "where a debt is established in presenti, it is not sufficient objection to say that the exact amount of the debt will be the subject of a calculation which has not yet been made and, it may be, cannot yet be made." After examining the authorities on the subject, the learned judge thereafter proceeded to observe as follows : "The question I have to ask myself on the facts of this case is whether, although its payment might be deferred and its amount might not have been calculated and might, at that time, be incapable of calculation, there was, on February 22, any existing debt from the receiver to the company." He observed that it was not correct to say that a receiver for debenture-holders was a debtor to the company from time to time of such sum as may....
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....ntil some calculations or taxations were gone through. Ormerod J., in the course of his judgment, observes as under Dawson v. Preston (Law Society) , Garnishee [1955] 3 All ER 314, 318 : "The argument of counsel for the judgment debtor, as I understand it, is this, that an existing debt may be attached even although the payment of the debt is deferred to some future date. He says that a debt which is not ascertainable at the particular time when the garnishee order is made cannot be an existing debt unless all the factors are present at that time which enable the debt to be ascertained. Counsel says that in this case those factors could not be present, because the Law Society, by virtue of the Act and certain regulations made there under, had the power of exercising their discretion in various ways and of exercising it solely at some future time, and counsel says that in those circumstances this cannot be an existing debt. I cannot agree with that submission .... It appears to be clear that, under the regulation, there is in such circumstances an existing debt, because there is a liability on the Law Society having received that money, to pay it over to the assisted person. ....
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.... to consider the nature of the liability in respect of tax under the provisions of the Income-tax Act, 1922. Section 3 of the Act provides as under : "Charge of income-tax.-Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually." It has been strongly urged by the learned Advocate-General on behalf of the revenue that unless and until a Central Act like the Finance Act enacts that income-tax shall be charged for any year at any rate or rates therein specified, there is no liability which accrues under section 3. In his submission it was only when the Finance Act, 1957, was passed that liability for payment of tax for the assessment year 1957-58 arose. He urges that what we have to ascertain is the net wealth of the assessee on 31st December, 1956, i.e., a da....
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....erved that although income-tax may be popularly described as due for a certain year, it was not in law so due. It is calculated and assessed by reference to the income of the assessee for a given year, but it is due when demand is made under section 29 and section 45. It then becomes a debt due to the Crown, but not for any particular period. These observations were made when dealing with a question relating to the invalidity of a certificate on the ground that it did not mention the period for which the demand was due. These observations cannot be relied upon for the purpose of ascertaining when it could be said that a debt was owing within the meaning of section 2(m) of the Wealth-tax Act. In this connection it would not be out of place to refer to a decision of the House of Lords in the case of Whitney v. Commissioners of Inland Revenue [1926] AC 37. No doubt that was a case which arose under the provisions relating to income-tax then prevailing in England. But the observations therein made can be said equally to apply to the Indian Income-tax Act, 1922, which to a large extent has drawn its inspiration from the provisions of the English statute. Lord Dunedin, in the course of ....
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....ssessee contended that the assessment was ultra vires, inasmuch as the Indian Finance Act, 1939, was not in operation at the date of the assessment and that the validating Regulations passed by the Bihar Governor were ultra vires. In dealing with this situation, the Patna High Court expressed itself in the words following Raja Bahadur Kamakshya Narain Singh v. CIT [1946] 14 ITR 683, 693 : "The contention of Dr. Mitter that there is no liability to tax unless the Finance Act has been passed is perfectly correct. In the case of Western India Turf Club [1927] 2 ITC 490 (PC) the Lord Chancellor in delivering the judgment of the Privy Council observed at page 495 : 'The argument which has been used in favour of the appeal seems to involve the fallacy that liability to tax attached to the income in the previous year. This is not so. No liability to tax attached to the income of this company until the passing of the Act of 1925, and it was then to be taxed at the rate appropriate to a company.' The same view was taken by their Lordships of the Judicial Committee in Maharajah of Pithapuram v. Commissioner of Income-tax [1945] 13 ITR 221 (PC). Lord Thankerton in deliveri....
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....anna but at the much higher rate applicable to association of persons. The contention was that as the income in respect whereof the limited liability company was sought to be charged was the income of the unregistered association, the rate applicable was the rate applicable in respect of unregistered association. The Lord Chancellor in dealing with the question as regards the rate at which supertax was payable, observed as under Western India Turf Club [1927] 2 ITC 490, 495 (PC) : "The argument which has been used in favour of the appeal seems to involve the fallacy that liability to tax attached to the income in the previous year. That is not so. No liability to tax attached to the income of this company until the passing of the Act of 1925, and it was then to be taxed at the rate appropriate to a company." These observations were made with a view to show that the tax was payable by the company in respect of the income of the unregistered association and that the liability did not attach to the income in the hands of the unregistered association as the Finance Act 13 of 1925 under which the liability was to be assessed was not in existence at the time when the income ....
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..... They enable the liability to be quantified, and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately'. ... In India these well-considered pronouncements are accepted without reservation as laying down the true principles of taxation under the Income-tax Act." In the case of Wallace Brothers & Co. Ltd. v. Commissioner of Income-tax [1948] 16 ITR 240 244, (PC), the Privy Council in construing the provisions of the Indian Income-tax Act, 1922, has observed as follows : "... the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed." These observations of the Privy Council completely support the argument of Mr. Palkhivala that the liability arises by virtue of the charging section and it arises at the close of the previous ....
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.... for the assessment year in question at the end of 31st December, 1956. The liability to tax did not for the first time arise only when the Finance Act, 1957, was passed. In order to repel the argument that liability to tax in this case attached only when the Finance Act, 1957, applicable to assessment year 1957-58 was passed, one has only to refer to the scheme of the Act. Section 18 of the Act which relates to payment of tax by deduction at source provides by sub-section (2) that any person responsible for paying any income chargeable under the head "salaries" shall, at the time of payment, deduct income-tax and super-tax on the amount payable at a rate representing the average of the rates applicable to the estimated total income of the assessee under that head. Where a deduction has been made in respect of salaries during the accounting year 1956, it could only be in respect of the tax payable for the assessment year 1957-58 and when salary is being paid during the year 1956, it would be at a time when the Finance Act applicable to the assessment year 1957-58 not merely would not be in operation but could not have been enacted. Sub-section (3) similarly provides that ....
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....gislature which sought to deprive him of the major portion of his income under the Income-tax Act would still be found willing to tax him in respect of the whole of that income for the purpose of the Wealth-tax Act. It is no doubt well established that there is no equity in a tax and a legislature may contemplate a piece of legislation which may be extremely ungenerous or harsh in its operation. What we have, however, to consider is whether in the case in question the legislature has intended to bring about such harsh result. When we turn to the provisions of the Wealth-tax Act we find that the legislature has been kind in exempting under section 5, twenty-one different species of property from the incidence of the wealth-tax. It has for instance exempted one house belonging to the assessee exclusively used by him for residential purposes and situate in any place with a population not exceeding ten thousand and which is more than five miles distant from any area for which there is a municipality the population whereof exceeds ten thousand. It has excluded rights under any patent or copyright belonging to the assessee. It has excluded the right or interest of the assessee in any pol....
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.... and we see no reason why this tax liability should not be regarded as a debt owing by the assessee on the valuation date within the meaning of section 2(m) of the Wealth-tax Act though the quantification thereof could only be made on or after the commencement of the relevant assessment year. It was argued that a generous legislature may enact for any particular assessment year that there would be no income-tax or super-tax for that assessment year and that so long as such a possibility remained, the liability for tax could only be regarded as contingent until the relevant Finance Act was passed. In law any liability which imposes a present obligation does not become a contingent liability merely because it is possible that as a result of any condition subsequent that liability may become extinct or may be deemed to be discharged. There is a difference between a condition which makes a liability contingent and a condition which makes an existing liability extinct. There may be a condition precedent to the attachment of any obligation and there may be a condition subsequent which may result in the discharge, defeasance or extinction of any existing obligation. If the legislature cou....
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....on as the equivalent of his available income. Indeed, save for the fact that in many cases-though by no, means in all cases-the tax only becomes payable after the money has been received, there is, I think, no element of remoteness or uncertainty about its incidence." The certainty of the tax is envisaged in provisions relating to deductions of tax at source and advance payment of tax, long before the coming into force of the Finance Act applicable to a particular assessment year. The only question that we have to consider is whether this certainty is merely a moral certainty or a legal certainty. In view of the observations made in various authorities quoted above, we are of the view that there is not merely a moral certainty but a legal certainty of tax and that the liability imposed under section 3 of the Income-tax Act is an obligation which attaches as soon as the accounting year ends and it can be said that the obligation at the end of the accounting year has ripened into a debt which is owing within the meaning of section 2(m). We shall now proceed to deal with a very important unreported judgment bearing on the question delivered by a Division Bench of the Calcutta H....
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....unt which may be found due by an arbitrator on taking accounts between the parties was not a promise to pay a debt within the meaning of section 25 of the Indian Contract Act, the amount not being a liquidated sum. The decision in that case depended on the language used in section 25 of the Indian Contract Act and it was held that unless the amount was a liquidated amount, there could not be a promise to pay a debt within the meaning of section 25. That decision cannot constitute an authority for the proposition that where there is no liquidated demand, there could be no debt. After referring to the decision reported in Banchharam Majumdar v. Adyanath Bhattacharjee [1909] ILR 36 Mad. 936 and the decision in Webb's case (Supra), to which we have already referred, Mr. Justice G.K. Mitter came to the following conclusion [1963] 48 ITR 31, 40 : "To merit deduction in the computation of net wealth the liability must not only be a debt but one solvendum in praesenti." There is no discussion of the subject as to why a debt which is not solvendum in praesenti but solvendum in futuro should not be regarded as a debt owing within the meaning of section 2(m). The learned judg....
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.... is no such decision which throws any light on the problem and in all probability there is some typographical error when a reference has been made to a decision in Subramanian Chettiar's case (Supra). With respect to the learned judge in our view there is nothing either in the word "debt" or in the word "owed" or in the two words put together, which would lead to the conclusion that the obligation must not be one which is payable in the future in order to constitute a debt which is owing. The learned judge at the end observes that the words "debt owed" have been intentionally used by the legislature, and that they meant ascertained or certain amount which is opposed to inchoate, contingent, future unascertained, uncertain or imperfect obligations. With respect to the learned judge we are unable to accept the conclusion to which they have arrived at on this point. This is sufficient to dispose of the first question. We shall next deal with another aspect of the matter based on the provisions contained in section 7(2)(a). Section 7 provides as under : "7. Value of assets how to be determined.-(1) The value of any asset, other than cash, for t....
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....the value of each asset held by the assessee in such business, may determine the net value of assets of the business as a whole having regard to the balance sheet of such business as on the valuation date and is entitled to make such adjustments therein as the circumstances of the case may require. It is strongly urged on behalf of the Commissioner that under the provisions of section 7(2) what is required to be done is that instead of valuing each asset separately, the Wealth-tax Officer has to determine the value of the totality of the assets of the business. It is urged that the word "net" is tautologous, that this section should be read as if the word "net" had been absent and that what is only provided is that the value of the assets of the business as a whole has to be ascertained, as the subsequent words require this value to be ascertained having regard to the balance-sheet of such business. It is urged that the words "as a whole" govern the word "assets" and what is required to be determined is the value of the assets as a whole. Mr. Palkhi-vala, on the other hand, says that the method of valuation laid down in subsection (2) is enti....
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....defined with reference to the aggregate value of all the assets minus debts owed by the assessee. He urged that what section 7(2) contemplated was not the ascertainment of the net wealth but, as the marginal note itself indicates, the value of the assets of the business and that what was provided by section 7(2)(a) was a method for finding the value of the assets which would not include the value of the debts owed by the assessee which are required to be deducted in order to ascertain the net wealth. The learned Advocate-General's contention ' would have had some force if the word "net" had not been used and if the words "as a whole" were not used in connection with "business". When the words "net value of the assets of the business as a whole" are used together, they can only convey that what is required to be ascertained is the net value of the assets of the business considered as a whole, i.e., what is required to be ascertained is the value of the assets of the business considered as a whole after taking into account the liabilities of the business. What is sought to be provided by section 7(a)(1) is what is known as the global me....
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....ances admit. Part I of Schedule VI on the liabilities side refers to- (1) Share capital ; (2) Reserves and surplus ; (3) Secured loans ; (4) Unsecured loans ; (5) Current liabilities and provisions. Amongst the provisions mentioned is "Provision for Taxation". Part II of Schedule VI which deals with "Requirements as to Profit and Loss Account" provides by rule 3 as under : "The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads ; and in particular, shall disclose the following information in respect of the period covered by the account :.......... (vi) The amount of charge for Indian income-tax and other Indian taxation on profits, including, where practicable, with Indian income-tax any taxation imposed elsewhere to the extent of the relief, if any, from Indian income-tax and distinguishing, where practicable, between income-tax and other taxation." The balance in profit and loss account after providing for proposed allocations, namely, dividends, bonus or reserves, is liable to be shown under the head "Reserves and surplus" on....
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....ity of which the amount cannot be determined with substantial accuracy which in the opinion of the directors is reasonably necessary for the purpose. It is strongly urged that even if such liability did not amount to a debt owed within the meaning of section 2(m) of the Act, it was a liability which has to be taken into account when proceeding under section 7(2). In dealing with this argument we have to bear in mind the fact that section 7(2) is applicable not merely to companies governed by the provisions of the Companies Act, 1956, which have to prepare balance-sheets in accordance with the provisions of the Act but is also applicable to individuals who are assessees and who carry on a business. In the case of a company which carries on a business and has a balance-sheet prepared in connection with that business, the net value of the assets of such business as a whole will have to be determined as provided in section 7(2) and in such a case, on a plain reading of section 7(2), the liability in respect of tax would be a liability which will have to be taken into account in ascertaining the net value of the assets of such business. It would be somewhat anomalous if in the case of ....
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....written down value represents the price of that asset in the open market. There are numerous assets prices of which have either increased or decreased and it cannot invariably be the rule that the written down value should be the value which the Wealth-tax Officer is under obligation to take in determining the value of an asset. We shall next deal with a case falling under section 7(2). Under section 7(2) when the net value of assets of a business as a whole has to be determined regard should be had to the balance-sheet of such business. In numerous balance-sheets it is found that several assets are shown at cost. The price at which the same are shown could not possibly be in such circumstances the price which such asset would fetch if sold in the open market on the valuation date. No doubt there is a power given to the Income-tax Officer to make such adjustments as the circumstances of the case may require. It is urged that this power has to be exercised in order that the price of assets as shown in the balance-sheet may equate with the written down value of such assets as appearing in the records of the income-tax department. There is no warrant for such a conclusion. The writte....
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.... pay, he may send to the Income-tax Officer an estimate of the tax payable by him calculated in the manner laid down in sub-section (1) on that part of his income for such period, and shall pay such amount as accords with his estimate in equal instalments on such of the dates specified in sub-section (1)(a) as have not expired or in one sum if only the last of such dates has not expired : Provided that the assessee may send a revised estimate of the tax payable by him before any one of the dates specified in sub-section (1)(a) and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments." It is urged that where a notice has been issued under section 18A for advance payment of tax, the liability for payment of the same is not absolute and that it is open to an assessee who estimates that a lesser amount would be payable by him to proceed as laid down in sub-section (2). The mere fact that it is open to an assessee to proceed under sub-section (2) would not result in the amount which he is required to pay under the notice served upon him under section 18A(1) not becoming a debt owing by him, unless and u....