COMMISSIONER OF WEALTH-TAX Vs. DINA NATH

JUDGEMENT

(1.) Sri Dina Nath, as individual, was a partner in a firm M/s. Banaras Chemical Factory. For the assessment years 1965-66 and 1966-67, the relevant valuation date being Dewali, 1964 and Dewali 1965, respectively, the wealth-tax assessments of the assessee were completed on March 16, 1967, and November 30, 1968, respectively, and the net wealth determined was at Rs. 3,08,420 and Rs. 4,02,940, respectively. Subsequently, the assessment for 1965-66 was reopened under Section 17 of the W.T. Act, 1957, hereafter "the Act" and the reassessment was completed on December 13, 1971, on the total wealth of Rs. 3,66,550. In the meantime a search was made of the business premises of M/s. Banaras Chemical Factory and a settlement was arrived at between the assessee and the department which was in respect of the assessment years 1956-57 to 1966-67. The income-tax assessments were completed on the basis of that settlement and the demands were created on October 18, 1966. As a result of that settlement the wealth-tax assessments for 1965-66 and 1966-67 were reopened under Section 17 of the Act. In these proceedings the assessee claimed that the aforesaid liabilities in respect of income-tax for the assessment years 1956-57 to 1966-67 were liable to be taken into consideration while computing his net wealth. The WTO did not accept that contention. He completed the reassessment. Aggrieved, the assessee filed appeals before the Assistant Commissioner.

(2.) The AAC agreed with the assessee that income-tax was deductible even though it was quantified much later, but in his opinion the entire claim of the assessee could not be upheld. He directed the WTO to allow a deduction of the income-tax liability relating to the assessment years 1964-65, 1965-66 and 1966-67.

(3.) The assessee then took up the matter in further appeal before the Appellate Tribunal. The Appellate Tribunal observed that the assessee had claimed deduction in respect of income-tax liability in the earlier reassessment proceedings also and his claim had been accepted by the Tribunal. Further, it observed that the assessee had been assessed on a higher income for the assessment years 1956-57 to 1966-67, and the demands were raised on October 18, 1966. Anyhow, the mere fact that the quantification was made much later would not mean that the assessee was not entitled to a deduction of the income-tax liability. Further, in its opinion, Clause (iii) of Section 2(m) of the Act was not applicable to the facts of the present case because on the relevant valuation date the order in pursuance of which this tax liability was created had not been passed. In the result, the Tribunal accepted the assessee's claim and allowed the deduction of the income-tax liability for the remaining years as well, i. e., for the assessment years 1956-57 to 1963-64. Now, at the instance of the department, the following question has been referred by the Tribunal for the opinion of this court : "Whether, on the facts and circumstances of the case, the Tribunal was legally justified in holding that the provisions of Section 2(m)(iii) of the W.T. Act were not applicable to this case and that the liability to income-tax for earlier years was allowable as a deduction from the total wealth of the assessee computed for the assessment years 1965-66 and 1966-67 ?"