COMMISSIONER OF WEALTH TAX Vs. GIRDHARI LAL

JUDGEMENT

(1.) IN WT. Ref. No. 2/71, the following question has been referred to this Court by the Tribunal, Delhi Bench (hereinafter referred to as "the Tribunal") under S. 27(1) of the WT Act, 1957 (hereinafter called "the Act") :

(2.) IN WT. Ref. No. 3/71, the following question has been referred by the Tribunal under S. 27(1) of the Act :

(3.) ON receiving information of the voluntary disclosure made by the firm, the WTO reopened the wealth -tax assessments of the assessees for the asst. yrs. 1959 -60 to 1964 -65, under S. 17 of the Act. The WTO then included a sum of Rs. 4,74,429 being one - half of the amount disclosed by the firm by its declaration dated 31st May, 1965, in the net wealth of each of the assessees for the asst. yrs. 1959 -60 to 1964 -65. The assessees claimed that the tax liability on the amount so included amounting to Rs. 2,84,658 should be deducted and that only the balance of the amount should be included in the net wealth of the assessees. The WTO rejected this claim of the assessees on the ground that the liability for the payment of tax did not arise before 1965 when the Finance Act was promulgated and the declarations were made by the firm thereunder and that during the asst. yrs. 1959 -60 to 1964 -65, the tax liability was only in the nature of a contingent liability. The assessees preferred appeals before the AAC, Wealth -tax, and claimed deduction of the tax liability. But the AAC agreed with the view taken by the WTO and confirmed the assessments made by the latter. The assessees thereupon preferred second appeal before the Tribunal and claimed deduction of the tax liability on the strength of the decisions of the Supreme Court in the cases of Kesoram Industries and Cotton Mills Ltd. vs. CWT (1966) 59 ITR 767 (SC) and H. H. Setu Parvati Bayi vs. CWT (1968) 69 ITR 864 (SC). The assessees' claim was opposed by the Department on the ground that in respect of the amount which was voluntarily declared by the firm under S. 68 of the Finance Act of 1965, the tax liability did not arise under the normal provisions of the IT Act and that the tax liability arose only under the provisions of S. 68 of the Finance Act of 1965. The Tribunal accepted the contention of the Department to the extent that the tax liability in respect of the amount declared by the firm could not be said to have arisen before 1st March, 1965, and that the Finance Act of 1965 provided for a machinery and also a tax liability in respect of certain items which were quite independent of the provisions of the IT Act. The Tribunal, however, did not accept the further contention of the department that for that reason the deductions claimed by the assessees did not represent a debt owed within the meaning of S. 2(m) of the Act on each of the valuation dates relevant to the assessment years under reference. The Tribunal held that though the declaration was made by the firm in May, 1965, the WTO had taken the view that since the declaration pertained to cash credits which appeared in the books of account in earlier Samvat years, the disclosure had brought to light wealth that was in existence already though disguised in the form of a liability of the assessee in respect of cash credits and that once it was postulated that the assessees had certain income for the asst. year 1959 -60, it followed that they were entitled on the basis of the decisions of the Supreme Court referred to above to claim a deduction in respect of the tax liability that would be due thereon under the IT Act. The Tribunal, therefore, allowed the assessees' claim but, at the instance of the Revenue, has referred the two questions to this Court under S. 27(1) of the Act. We have first to determine the implications of the voluntary disclosure made by the assessee under s. 68 of the Finance Act, 1965. The relevant portions of S. 68 are reproduced below :