COMMISSIONER OF WEALTH TAX Vs. SAYAJI MILLS LIMITED

JUDGEMENT

(1.) THIS reference raises a question of some importance as to whether bonus paid by an assessee to its workmen out of the profits of the previous year after the relevant valuation date is debt owed by the assessee so as to be deductible in computing the net wealth of the assessee. The question is not free from difficulty and it is with some hesitation that we have arrived at a decision against the assessee. The assessee which is a public limited company submitted a return showing a net wealth of Rs. 89,39,671 for the asst. year 1959 60, the relevant valuation date being 31st March, 1959. There was no provision for the accounting year 1st April, 1958, to 31st March, 1959, but in the return submitted by it the assessee claimed a deduction of Rs. 5,33,000 on account of liability for bonus for the said accounting year on the ground that it was a debt owed by the assessee on the relevant valuation date, namely, 31st March, 1959. This claim for deduction was negatived by the WTO and hence the assessee preferred an appeal to the AAC. Before the AAC, the claim for deduction was revised, since, in the meantime, the amount of bonus payable to the workmen was settled and Rs. 2,62,279 and Rs. 1,82,007 were paid to the workmen of Baroda unit and Sayaji Mills No. 2, respectively, as bonus for the calendar year 1958, and Rs. 19,433 were paid to the workmen of Kathwada factory as bonus for the accounting year 1st April, 1958, to 31st March, 1959. These payments aggregating to Rs. 4,63,719 formed the subject matter of the revised claim for deduction made by the assessee before the AAC. The argument of the assessee was that, though these payments were made subsequent to the relevant valuation date, they were in respect of liability for bonus which had arisen prior to the relevant valuation date in the case of Baroda unit and Sayaji Mills No. 2, and on the relevant valuation date in the case of Kathwada factory and they were, therefore, deductible as debts owed by the assessee on the relevant valuation date. This argument found favour with the AAC and he directed the WTO to allow the deduction of Rs. 4,63,719 subject to verification of the figures, in computing the net wealth of the assessee. The Revenue appealed against this decision of the AAC but the Tribunal also took the same view following the decision of the Calcutta High Court in Textile Machinery Corporation Ltd. vs. CWT (1968) 67 ITR 122 (Cal) : TC64R.750 which had been given in the meantime. The Revenue thereupon applied for a reference and, on the application of the Revenue, the Tribunal referred the following question of law for the opinion of this Court :

(2.) NOW what is the true meaning and import of the expression "debt owed" in S. 2(m) is no longer a matter of doubt or debate. It is settled by the decision of the Supreme Court in Kesoram Industries & Cotton Mills Ltd. vs. CWT (1966) 59 ITR 767 (SC) : TC64R.687. There the question was whether income tax payable in respect of the profits of the previous year was a "debt owed" by the assessee on the relevant valuation date so as to be deductible in computing the net wealth of the assessee. The determination of this question rested on the true interpretation of the expression "debt owed" in S. 2(m) and the Supreme Court was, therefore, called upon to consider what that expression means. The Supreme Court, after referring to various decisions, English as well as Indian, pointed out that all these decisions agree

(3.) IT will thus be seen that a debt is a sum of money which is not payable or will be payable in future by reason of a present obligation. It postulates an existing liability a liability which has accrued as distinguished from a liability which is contingent to pay a sum of money in present or in future. The sum of money may be ascertained or it may be ascertainable in future "in the light of factors existing at the date when the nature of the liability is to be determined". The mere fact that the sum of money is yet to be ascertained does not make it any the less a "debt". This much is clear from the decision of the Supreme Court in Kesoram Industries case (supra). But there is also one other requirement which is implicit in it though not articulated in so many words and that is that the liability must be to pay a liquidated. amount. A "debt" in the legal sense of the word, as pointed out by B. K. Mukherjee, J., in Jabed Sheikh vs. Taher Mallick AIR 1941 Cal 639, a case referred to by the Supreme Court with approval in Kesoram Industries case (supra), "means a liquidated. money obligation". Lord Justice Lindley in his decision in Webb vs. Stenton (1883) 11 QBD 518 (CA) clearly indicated that a debt is a liquidated sum of money which is now payable or will become payable in future and this was quoted with approval by Sir Lawrence Jenkins in the Full Bench case in Banchharam Majumdar vs. Adyanath Bhattacharjee (1910) ILR 36 Cal 936 (FB) which was a case accepted by the Supreme Court in Kesoram Industries case (supra), as laying down the correct meaning of the word "debt". To quote again the words of B. K. Mukherjee, J. in Jabed Sheikh vs. Taher Mallick (supra), "there cannot be a debt in law unless there is a liquidated money claim". This, of course, does not mean that the amount of the claim must be an ascertained amount. It may be ascertainable in future as was the case in O'Driscoll vs. Manchester Insurance Committee (1915) 3 KB 499 (CA) or Kesoram Industries case (supra). But it must be a liquidated amount which is certain and definite though not yet ascertained. The process of ascertainment in such a case would be nothing but a process of discovering or finding out what is that certain and definite sum. What was uncertain and indefinite does not become certain and definite by this process, but what happens is that that which was always certain and definite nut not ascertained is now ascertained. This is an essential characteristic of a debt, namely, that it should be for a liquidated amount, whether ascertained or ascertainable and that is why B. K. Mukherjee, J. held in Jabed Sheikh vs. Taher Mallick (supra) that in a suit for mesne profits for wrongful possession of land, though law declares that a person in unlawful possession of land is liable to pay mesne profits to the original owner, such liability does not become a debt until a final decree for a specified sum is passed in the suit as a result of investigation. So also in a case of tort or breach of contract, there is undoubtedly liability on the wrongdoer to pay damages to the aggrieved party but that liability being for unliquidated damages, it would not ripen into a "debt" until judgment. It was in fact so held in Jones vs. Thompson (1858) 27 LJQB 234 : 113 ER 545, where the Court observed that the claim for damages does not become a "debt" till the judgment is actually delivered. Shah, J. also pointed out in his minority judgment in Kesoram Industries case (supra) and on this point there was no contrary opinion expressed by the majority that the expression "debt" does not include "liability to pay damages". The reason is that until judgment is given, it cannot be said even in a case where liability to pay damages is found by the Court or admitted by the wrongdoer, what would be the damages payable by the wrongdoer. The amount of damages would be uncertain; it would be made certain only when judgment is pronounced. Then only it would become a "debt owed" by the wrongdoer.