TaxTMI 
TaxTMI 
1966 (10) TMI 40
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.... claim of the appellant-company in respect of the last instalment of the advance tax for which a notice of demand had been issued, and rejected the claim in respect of the rest. The Income-tax Appellate Tribunal upheld the claim of the appellant-company in respect of the first, the second and the fourth items and rejected the claim in respect of the third item. At the instance of the Commissioner, the following four questions were referred to the High Court of Judicature at Bombay under section 27(1) of the Wealth-tax Act, 1957 (27 of 1957) : " (1) Whether, on the facts and circumstances of this case, the last instalment of advance tax in the sum of Rs. 2,95,869 paid by the assessee after the valuation date in accordance with the notice of demand dated 20th October, 1956, is an admissible deduction under sections 7(2) and 2(m) of the Wealth-tax Act, for the purpose of computation of the net wealth of the assessee for the assessment year 1957-58 ? (2) Whether, on the facts and circumstances of the case, in computing the net wealth of the assessee under section 7(2) read with section 2(m) of the Wealth-tax Act, the liability for income-tax and business profits tax could be a....
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.... before the High Court that the liability to pay gratuity to the employees whose services were not terminated in the relevant year of account was merely contingent, since it arose on the happening of certain events such as death, physical incapacity, voluntary retirement or resignation and was on that account not a debt within the meaning of section 2(m) of the Act. But it was contended before the High Court that the present value of the liability for payment of gratuity was a permissible deduction in valuing the assets of the business of the assessee under section 7(2)(a) of the Act. The High Court rejected that contention. Counsel for the company has in this appeal contended that no such concession as is recorded in the judgment of the High Court was made, and, in any event, the concession being on a question of law was not binding upon the appellant-company. Section 2(m), at the material time, provided : " 'Net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging-to the assessee on the valuation date, including assets required to be included in his net wealth as on that d....
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....nt and not before. The liability does not exist in praesenti : it is contingent upon the determination of employment. This court pointed out in Kesoram Industries & Cotton Mills' case : " ...the following definition is unanimously accepted : ' a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation : debitum in praesenti, solvendum in futuro. ' The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of section 2(m) of the Wealth-tax Act can be defined as a liability to pay in praesenti or in futuro an ascertainable sum of money. " Observations made by the High Court of Gujarat in Commissioner of Wealth-tax v. Ajit Mills Ltd. that deduction for an amount claimed on account of liability for gratuity for workers and employees based on awards of the labour courts and agreements w....
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....me subsequent year, may properly deduct, not only the immediate payment, but the present value of the future payment, provided such present value can be satisfactorily determined or fairly estimated. " Similar observations were made in the judgment of Lord Radcliffe. But the House in that case was concerned to determine the deductibility of the present value of a liability which may arise in future in the computation of taxable profits for the relevant year under the Income-tax Act. The same considerations cannot, however, apply to a case under the Wealth-tax Act, where the liability to pay wealth-tax is charged upon the net wealth of an assessee. In Commissioner of Wealth-tax v. New Rajpur Mills Ltd. the assessee company claimed to deduct gratuity payable to employees under an agreement entered into with the labour associations before the valuation date. The court in that case observed that the liability was not a debt owed by the assessee on the valuation date since the gratuity was not payable on the valuation date, but was payable only on the fulfilment of the contingencies set out in those agreements. But the court proceeded to observe that, since contingent liabilities ....
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....regard to the balance-sheet of such business as on the valuation date and make such adjustments therein as the circumstances of the case may require. But the power conferred upon the tax officer by section 7(2) is to arrive at a valuation of the assets, and not to arrive at the net wealth of the assessee. Section 7(2) merely provides a machinery in certain special cases for valuation of assets, and it is from the aggregate valuation of assets that the net wealth chargeable to tax may be ascertained. The power conferred upon the tax officer to make adjustments as the circumstances of the case may require is also for the purpose of arriving at the true value of the assets of the business. Sub-section (2)(a) of section 7 contemplates the determination of the net value of the assets having regard to the balance-sheet and after making such adjustments as the circumstances of the case may require. It does not contemplate determination of the net wealth, because net wealth can only be determined from the net value of the assets by making appropriate deductions for debts owed by the assessee... The argument raised by counsel for the assessee is that substantially section 7(2) is a defin....