COMMISSIONER OF WEALTH TAX Vs. K T DIVECHA

JUDGEMENT

(1.) THIS is a reference at the instance of the Department. The assessee is an architect. He carried on a profession as architect for some time as an individual and then as a partner of a firm which was also carrying on the profession of architects in the two years under reference. Both the assessee and the partnership firm were maintaining their books of account on the cash method of accountancy. The outstanding fees were, therefore, not shown in their balance-sheet. The WTO held that outstanding professional fees represented an "asset" and were includible in the net wealth of the assessee. There was no dispute that the outstanding professional fees amounted to Rs. 1,27,430 for the asst. yr. 1969-70 and Rs. 81,120 for the asst. yr. 1970-71. The alternative claim of the assessee was that income-tax liability in respect of outstanding fees should be treated as debt owed by the assessee and 50 per cnet of the outstanding fees should be allowed as bad debts. The WTO did not accept the alternative submission without any discussion in the order. The AAC, following the Orissa High Court decision in the case of CWT vs. Vysyaraju Badreenarayanamoorthy Raju (1971) 79 ITR 330, held that outstanding professional fees were not includible as an asset in the net wealth of the assessee. The Tribunal upheld the orders of the AAC. At the instance of the Department, the Tribunal has referred the following question of law to this Court under s. 27(1) of the WT Act, 1957 :