AHMED USMAN Vs. WEALTH TAX OFFICER

JUDGEMENT

(1.) All these Appeals arise from a common Order of the Income Tax Appellate Tribunal, Cochin Bench in W.T.A. Nos. 35 to 59 (Coch) / 98. It is relevant to note here that among these Appeals, there is no appeal against the order of the Tribunal in WTA Nos.56 to 59/Coch/98. All these Appeals relate to two assessment years 1991 1992 and 1992 93, the relevant previous years ended with 31-03-1991 and 31-03-1992 respectively. All the appellants are partners of a firm by name M/s. Abad Fisheries at Cochin. The said firm is engaged in the export of marine products. The firm purchased prawns locally and after subjecting it to certain processes, the same was exported to foreign countries. The firm claimed exemption from liability to pay purchase tax under Section 5 of the Kerala General Sales Tax Act in respect of the purchase turnover of prawns. This claim was made on the ground that the said turnover is exempted under Section 5(3) of the Central Sales Tax Act. However, in the apprehension that liability may be cast on it for the purchase tax, the firm made provisions in its Accounts for liability towards payment of purchase tax under the KGST Act.

(2.) As already noted, these Appeals are concerned with the wealth tax assessment of the partners of the said firm.In the revised return filed under the provisions of the Wealth Tax Act for the assessment year 1992 1993, they claimed that their shares of the liability provided in respect of purchase tax were deductible in the computation of their net wealth for the purpose of assessment under the Wealth Tax Act. The assessing authority, however, did not allow the appellants claims. He added back the pro-rata share in the provision created by the firm towards the payment of purchase tax to the declared wealth of the assessee and determined the taxable wealth for the impugned assessment years. In appeal by the appellants, the Commissioner of Wealth Tax (Appeals) relying on the decision of this Court in the case of one of the partners of the firm Shri Anwar Hashim, allowed the appeal and directed the assessing authority to exclude their proportionate share from the net wealth. The Department took up the matter in appeal before the Tribunal and connected that the first appellate authority went wrong in holding that the purchase tax is an accrued liability and hence it is an allowable deduction relying on the decision of this Court in Commissioner of Wealth Tax, Cochin v. Anwar Hashim in ITR Nos. 67 and 68 of 1992 (214 ITR 60). It is also stated in the Appeal Memorandum that the Department has not accepted the said decision in view of the decision of the Supreme Court in Sterling Foods v. State of Karnataka and another ( 63 STC 240 ) and further that the Special Leave Petitions filed by the Department against the judgment of this Court in the assessee s case is pending before the Supreme Court. The Tribunal noted that the Special Leave Petitions filed by the Department against judgment of this Court in ITR Nos. 67 and 68/92 and connected cases were dismissed on the ground of limitation. The Tribunal, however, relying on the decision of this Court in Commissioner of Wealth Tax v. A. M. Moosa (249 ITR 395) and the principles laid down by the Supreme Court in Commissioner of Wealth Tax, Madras v. K. S. N. Bhatt (145 ITR 1) held that there was no tax liability as a result of the final assessments and, therefore, there could be no debt more than what was owed by the assessee for valuation in that case on that account. Hence these Appeals.

(3.) Shri G. Sarangan, learned senior counsel appearing along with Shri Vinod Chandran submitted that neither the assessing authority, nor the two appellate authorities did consider the claim made by the appellants with reference to the relevant provisions of the Wealth Tax Act and the Rules. The counsel also submits that the question involved in these Appeals are squarely covered by the decision of this Court in the case of the partners of the firm M/s. Abad Fisheries itself in Abad Fisheries v. CIT ( (1995) 213 ITR 694 (Ker) ) and Commissioner of Wealth-Tax v. Anwar Hasim (214 ITR 60). The senior counsel further submitted that the decision of the Supreme Court in Commissioner of Wealth-Tax. Madras v. K. S. N. Bhatt (145 ITR 1) has to be understood on the peculiar facts of the said cases, and further that, neither the decision of this Court in Anwar Hasim s case (mentioned supra), nor the decision of the Supreme Court in K. S. N. Bhatt s case (mentioned above) can have any application to a case arising after the amendment to Sec. 4(1)(b) of the Wealth Tax Act and the introduction of Schedule III simultaneously with effect from 1.4.1989. The senior counsel took us to the definition of net wealth in Section 2(m), the charging Section 3, the provisions of Section 4 (1)(b) dealing with a case of an assessee who is a partner in a firm and the provisions of schedule III particularly Rules 14, 15 and 16 thereof and submitted that the facts of that case are different in that, the assessee was a proprietor whereas the assessees in the present case are the partners to whom the provisions of Section 4(1)(b) read with Schedule III applied, with reference to the provisions of Rule 14 of the Schedule III. The senior counsel submitted that it is a code by itself in the matter of determination of net wealth in the case of a partner. The learned senior counsel also submitted that under Rule 14, the assessing authority is obliged to start the computation with reference to the Balance Sheet and to make adjustments in the said Balance sheet with reference to the provisions of Rule 14(2). He also took us to the provisions of Clause (3) of sub-rule (2) and submitted that sub-clause (3) thereof provides for exclusion of only the provision made for improving any future or contingent liabilities and also took us to the explanation thereto which provides that the provisions provided for any purpose otherwise shall be treated as reserve. The senior counsel on the basis of these provisions submits that a provision for taxation made in the Balance Sheet is a permissible deduction in the computation of net wealth under Section 2(m) of the Act for the purpose of assessment to wealth tax in the case of a partner. The senior counsel submits that none of the authorities including the Tribunal had considered the effect of the amendment made to Section 4(1)(b) and the introduction of Schedules III in deciding the question involved in these Appeals. The senior counsel also took us to the decision of this Court in the case of a firm and the partners and submitted that the principles laid down in the said decision are consistent with the amendment to Section 4(1)(b) and Schedule 1(3). It is also pointed out that the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth Tax (Central), Calcutta (59 ITR 767) lays down the principles regarding the determination of the debt owed with reference to the provisions of Section 2(m) of the Act which will also be appropriate in the context of the present provisions of the Wealth Tax Act. The senior counsel also sought to distinguish the decision of the Supreme Court in Bhatt s case mentioned earlier by submitting that the question that arose for consideration in that case was only as to whether, in a case where a return is filed claiming a particular amount as provision, it was open to the assessee to contend on the basis of an amendment of a subsequent order determining a higher liability to substitute the figure claimed in the return with the amount determined in the assessment. The senior counsel also submitted that the Supreme Court did not have an occasion to consider as to whether a provision for a liability made in the Balance Sheet cannot be allowed by the circumstances that subsequent to the valuation date an assessment order has been passed in which it was found that there is no tax liability at all. The senior counsel accordingly submitted that the assessing authority as well as the Tribunal had committed a serious error in relying on the decision of this Court in Moosa s case and the principles laid down by the Supreme Court in Bhatt s case.