COMMISSIONER OF WEALTH TAX Vs. RAVINDRANATHAN NAIR K

JUDGEMENT

(1.) At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law, for the decision of this Court:

(2.) The respondent is an assessee to Wealth Tax. We are concerned with the assessment year 1976-77. The valuation date for this assessment year is 30-9-1975. The respondent/assessee made a voluntary disclosure under S.3(1) of the Voluntary Disclosure of Income and Wealth Act, 1976. By such declaration, he became liable to pay Income Tax in the sum of Rs. 11,87,690. The income so declared by the assessee was included by the Wealth Tax Officer in the chargeable net wealth returned by the assessee for the assessment year 1976-77. The Income Tax liability was not allowed as a deduction. The Wealth Tax Officer took the view that the liability was created by the promulgation of the Ordinance and the assessee made a declaration thereunder and no tax liability attached to the concealed income as on. the valuation date, namely, 30-9-1975, since the Ordinance was promulgated after the valuation date. In appeal, the Commissioner of Income tax (Appeals), relying on the Bench decision of this Court in C. K. Babu Naidu, Sundararaj v. W.T.O. (112 I.T.R. 341), accepted the assessee's contention and allowed the appeal. The above Bench decision dealt with the liability of an assessee on a declaration made under S.68 of the Finance Act, 1965. In second appeal, the Income Tax Appellate Tribunal concurred with the decision of the Commissioner of Income Tax (Appeals), by order dated 4-5-1981. The Revenue pleaded before the Appellate Tribunal, that the Ordinance under which the declaration was made had not been promulgated on the valuation date, and there cannot be a question of "liability" existing on the valuation date, so as to be allowed as a deduction in the computation of the net wealth of the assessee. Relying on the similar provisions occurring in S.68 of the Finance Act, 1965 as also the Bench decision of this Court in C. K. Babu Naidu, Sundararaj v. W. T. O. (112 ITR. 341), the Tribunal negatived the plea of the Revenue. According to the Tribunal, the words "any income chargeable to tax", occurring in S.3(1) of the Voluntary Disclosure of Income and Wealth Act, 1976, indicated that the declaration is only of income that has escaped assessment, that is, income which otherwise should have been part of the assessed income, but which for certain other reasons failed to be included in the total income. It was further held that the different kinds of cases in which the . declarations may be made under S.3(1) of the Voluntary Disclosure of Income and Wealth Act, 1976 are similar to the provisions contained in S.68 of the Finance Act, 1965 and so the Bench decision of this Court in Babu Naidu's case (112 ITR. 341) will govern the issue. Thereafter, at the instance of the Revenue, the above question of law has been referred for the decision of this Court.

(3.) We heard counsel for the Revenue as also counsel for the respondent/ assessee. In Ahmed Ibrahim Sahigra Dhoraji v. Commissioner of Wealth Tax. Gujarat (129 ITR. 314), the Supreme Court has held that the liability to pay income tax on concealed income disclosed under the Voluntary Disclosure Scheme is deductible as "debt owed" on the valuation date. The Court held that the amount declared under S.68 of the Finance Act, 1965 has the liability to pay income tax imbedded in it on the valuation date but only the ascertainment of that liability is postponed to a future date. The Supreme Court held that the declaration contemplated under S.68 of the Finance Act, 1965 is a declaration in respect of income of earlier years which has been concealed and on which tax was payable during the relevant assessment year in the ordinary course. S.68 is in the nature of a package deal and the net result achieved is that the declaration is treated as having discharged all his liability in respect of the said income under the Income Tax law. The Supreme Court approved the Bench decision of this Court in Babu Naidu's case (112 ITR 341).