COMMISSIONER OF WEALTH TAX Vs. ANWAR HASIM

JUDGEMENT

(1.) These petitions are under S.27(3) of the Wealth Tax Act, 1957 to compel reference of two questions, arising out of the orders of the Income Tax Appellate Tribunal, for the opinion of this court. The respondents assessees are partners of a firm A bad Fisheries which is engaged in the export of marine products. The prawns purchased locally were subjected to certain processes before they were exported to foreign countries. The firm claimed exemption from the liability for purchase tax under S.5A of the Kerala General Sales Tax Act, 1963 in respect of its purchases of prawns, under S.5(3) of the Central Sales Tax Act, 1956. But in the apprehension that liability may be cast on it for the purchase tax, the firm made provision in its accounts for the liability for various accounting periods, upto 1988-89. The question arose under the Income Tax Act, whether the provision so made by the firm was business expenditure deductible under S.37(1) of the Act. By our judgment rendered today in I.T.R. Nos. 67 and 68 of 1992, we have held that the firm had every reason to apprehend that they will be made liable for the tax, and that the provision was made reasonably. It was therefore held that the amount covered by the provision was deductible in the computation of the profits and gains of the business of the firm.

(2.) The partners of the firm, who were wealth tax assessees, had claimed that their shares of the liability so provided were deductible in the computation of their net wealth for purposes of assessment under the Wealth Tax Act. The Tribunal upheld this contention and came to the conclusion that the provision for purchase tax liability was liable to be deducted in computing the net wealth to the extent of the shares of the respective assessees. Arising out of this order of the Tribunal the revenue has sought reference of the following questions for the determination of this Court:

(3.) Standing Counsel for the revenue very seriously contests the deductibility of the amount with the plea that the amount of the provision cannot be termed a debt owed by the assessee on the relevant valuation date.