SHAH D. C. v. COMMISSIONER OF WEALTH-TAX — 1978 DIGILAW 96 (KAR)

VENKATARAMIAH, J. ( 1 ) SINCE common questions of law and facts are involved in these cases, they are disposed of by this common order. ( 2 ) THESE seven references are made by the Income-tax Appellate tribunal, Bangalore Bench, under the Wealth-tax Act, 1957. The relevant assessment years are 1959-60 to 1965-66. ( 3 ) ON 26-4-65, the assessee made a voluntary disclosure before the commissioner of Income-tax, Mysore, Bangalore, declaring a total amount of Rs. 11,67,008 distributed over several previous years as his income which had not been disclosed in Ms returns before 1-3-65 and which had escaped assessment before that date. The said diclosure was made under sec. 68 of the Finance Act of 1965. On the basis of the said disclosure the assessee paid on 10-5-65, an amount of Rs. 7,00,205 being 60 per cent of the disclosed amount. Thereafter, the Wealth-tax Officer issued notices under sec. 17 of the Wealth-tax Aot, in respect of the assessment years 1958-59 to 1964-65 on the basis of the. information furnished by the assessee in the statement accompanying the disclosure made by him on 26-4-65. During the assessment years 1958/59 to 1964-65, the assesses had not filed any return of wealth in repect of any part of the amount disclosed by him nor had he been assessed to wealth tax prior to the date of notice. ( 4 ) IN the course of the enquiry held by the Wealth-tax Officer, subsequent to the issue of the said notices, the assessee furnished information to the Wealth-tax Officer in respect of his assets qtc, in respect of the relevant years. On the basis of the information furnished by the assessee the Wealth-tax Officer pasjsed orders of assessment under Sec. 16 (3) read with Sec. 17 of the Wealth-tax Act. Aggrieved by the order of the Wealth tax Officer, the assessee preferred appeals before the concerned Appellate aast Commr of Wealth-tax who allowed the appeals in part. On further appeal to the Income-tax Appellate Tribunal in all the cases, the orders passed by the Appellate Asst Commr of Wealth-tax were affrmed. Aggrieved by the order of the Wealth tax Officer, the assessee preferred appeals before the concerned Appellate aast Commr of Wealth-tax who allowed the appeals in part. On further appeal to the Income-tax Appellate Tribunal in all the cases, the orders passed by the Appellate Asst Commr of Wealth-tax were affrmed. The tribunal found that the Wealth-tax Officer had reason to believe that the wealth of the asaessee had escaped assessment during the years 1958-59 to 1964-65 and that the income-tax liability in respect of the income disclosed in the disclosure application on 26-4-65 could not be deducted in computing the net wealth on the relevant valuation dates. ( 5 ) AT the instance of the assessee, in respect of the assessment year- 1959-60 to 1964-65, the following two questions have been referred for the opinion of this Court : (1 ). Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Wealth-tax Officer had reason to believe that 'the wealth of the assessee had escaped assessment for the years under consideration? (2 ). Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income-tax liability in respect of the income disclosed in the disclosure application of 26-4-65 could not be deducted in arriving at the net wealth of the appellant on the relevant valuation date? ( 6 ) THE reference made in respect of these years are registered as trc. 5 of 1974 to TRC. 10 of 1974 on the file of this Court. TRC. 11 of 1974 relates to the assessment year 1965-66 and the only question referred to by the Tribunal in that case for the opinion of this Court at the instance of the assessee is similar to the Second question referred to above. ( 7 ) IN so far as the first question in TRCs. 5 to 10 of 1974 is concerned, it has to be observed that the declaration made by the assessee under sec. 68 of the Finance Act 1965 and the annexure thereto themselves contain the material on which reasonable belief could be entertained by the wealth-tax Officer that some wealth which was assessable to tax had been withheld from the knowledge of the Department during the relevant years. 68 of the Finance Act 1965 and the annexure thereto themselves contain the material on which reasonable belief could be entertained by the wealth-tax Officer that some wealth which was assessable to tax had been withheld from the knowledge of the Department during the relevant years. After looking into the records, the Tribunal has found that in initiating proceedings under Sec. 17 of the Wealth-tax Act, the Wealth-tax officer had noted the assessee's wealth which appeared is the form of loans to certain parties had escaped assessment and the source of that information wag the disclosure made by the asslessee on 26-4-65. We, therefore, feel that the Tribunal was right in holding that the Tribunal was right in holding that the Wealth-tax Officer had reason to believe that some wealth of the assessee had escaped assessment for the years under consideration. ( 8 ) WE shall now take up for consideration the second question in trcs. 5 to 10 of 1974 and the only question in TRC. ll of 1974. The Tribunal has held that the income-tax liability in respect of the income disclosed in the disclosure application d. 26-4-65 could not be deducted in arriving at the net wealth of the assessee on the relevant valuation dates. The conclusion of the Tribunal was entirely based on the decision of the kerala High Court in the case of Babu Naidu v. Wealth-tax Officer, 82 ITR. 410. in which a Single Judge of the Kerala High Court had held that the income-tax payable under Sec. 68 of the Finance Act, 1965 could not be considered as) a debt which could be deducted under Sec. 2 (m) of the wealth-tax Act for purposes of determining the net wealth. It has to be observed at this stage that the above decision of the Kerala High Court has been reversed in appeal by a Division Bench of the Kerala High Court in C. K. Babu Naidu v. Wealth-tax Officer, 112 ITR. 341. It has to be observed at this stage that the above decision of the Kerala High Court has been reversed in appeal by a Division Bench of the Kerala High Court in C. K. Babu Naidu v. Wealth-tax Officer, 112 ITR. 341. ( 9 ) SECTION 2 (m) of the Wealth-tax Act, 1957, defines the expression "net wealth" as follows :" 2 (m) "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of of all the debts owed by the asseslsee on the valuation date, other than,. . . . . . . . "the expression 'valuation date' is defined in Sec. 2 (q) of the Wealth tax as follows :" 2 (q) 'valuation date' in relation to any year for which an assessment has to be made under this Act is the last date of the previous year as defined in Sec. 3 of the Income-tax Act if an assessment were to be made under that Act for that year. . . . . . . . " ( 10 ) IN Kesoram Industries and Cotton Mills v. . Commr of Wealth-tax, 59 ITR. 767. the Supreme Court held that the income-tax payable during any assessment year was deduc. table by the assetisoe from his grogs wealth in arrivirig at his net wealth under Sec. 2 (m) of the Wealth-tax Act, as it was a debt owed by the assessee within the meaning of Section 2 (m) of the wealth-tax Act because it was a perfected debt at any rate on the last date of the accounting year and not a contingent liability. In the decision of the Kerala High Court (82 ITR 410) on which the Tribunal relied, it was held that Sec. 68 of the Finance Act, 1965, was a special provision to compound the income-tax liability in respect of an income which an assassee might choose to disclose under the scheme envisaged by it and that by such a disclosure, an assessee did not incur a liability to pay any tax under that section. In that view, the learned Judge who decided the case held that the amount of tax paid under Sec. 68 of the Finance Act, 1965, was not a debt owed by the assejssee on the valuation date for the purpose of determining the neit wealth under the Wealth-tax Act. The reason given by the learned Judge is not at all in conformity with the language of Sec. 68 of the Finance Act, 1965. S. 68 of the Finance act, 1965 provides that where any person makes a declaration in accorda. nce with sub-section (2) therefo, any amount representing income which he has failed to disclose in a return of income for any assessment year filed by him before the 1st day of March, 1965, or which has escaped assessment for any assessment year for which an assessment has been made before the 1st day of March, 1965, or for the assessment of which no proceeding either under the Income-tax Act, 1922 or the Income-tax Act, 1961 has been taken before the 1st day of March, 1965, he shall notwithstanding anything contained in the said Acts,, be charged to income-tax at the rate specified in sub-sec (3) in respect of the amount so declared. Sub-sec (3) of Sec. 68 provides that the rate of income-tax chargeable in respect of the amount referred to in sub-sec (1) shall be sixty per cent of such amount arid the proviso thereunder states that if the declarant paid such tax within 1st day of April, 1965, the rate shall be fifty-seven per cent of such amount. It is thus seen that what is disclosed under Sec. 68 of the finance Act, 1965 is deemed to be the income of the person who makes the declaration and what is paid to the Govt is the income-tax thereon. The tax payable thereunder is in substance the tax payable by him either under the Indian Income-tax Act, 1922 or under the Income-tax Act. 1961 read wlith the Finance Act, 1965. We cannot therefore agree with the view taken by the learned Single Judge of the Kerala High Court in the above decision that the amount paid by the declarant under Section 68 of the finance Act, 1965 in respect of the income disclosed by him under that section is not income-tax, bxit it is an amoun. t of a different nature altogether. t of a different nature altogether. We respectfully agree with the view expressed by the Division bench in C. K. Babn Naidu v. Wealth-tax Officer, 'a' Ward, Calicut (2) in which the earlier judgment has been set aside, ( 11 ) SRI S. R. Rajasekhara Murthy, learned Counsel for the Revenue drew our attention to the decision of the Gujaralt High Court in commr of Wealth-tax, Gujarat-I v. Ahmed Ibrahim Sahigara, 93 ITR. 288 in which a view similar to the view taken in the case of C. K. Babu Naidu's case (1) had been expressed. The learned Judges of the Gujarat High court have depended upon these circumstances to distinguish the amount payable under Sec. 68 of the Finance Act, 1965, from the income-tax payable either under the Indian Income-tax Act, 1922 or under the Income-tax act, 1961,_ (i) that the charge under the Income-tax Act is on the total income f the previous year and not on any particular item of income, but the tax referred to in sub-sec (1) of Sec. 68, cannot be construed to mean charge of income-tax. (ii) payment of income-tax under Sec. 68 has no reference to any assessment year; and (iii) the disclosed income is chargeable to income-tax under Sec. 68 without taking into account any deductions or allowances which would be permissible, if the charge were under the income-tax Act. This decision of the Gujarat High Court has been considered by the allahabad High Court in commr of Wealth-tax v. B. K. Sharma, 110 ITR. 902 by the Calcutta High Court in Commr of Wealth-tax, W. B. , III Calcutta v. Bansidhar Poddar, 1978 Taxlr. 24 and by the Delhi High Court in Commr of W-T, haryana, H. P. and Delhi-Ill v: , Girdhari Lal, 99 ITR. 79, The Allahabad, Calcutta and Delhi High Courts have expressed their disagreement with the reasons given by the Gujarat High Court for reaching the conclusion that the tax paya'ble under Section 68 of the Finance Act of 1965 was not income-tax. The reasons given by these three High Courts appeal to us. As already mentioned by us the tax payable under Sec. 68 of the Finance act is called by the Parliament as income-tax. The reasons given by these three High Courts appeal to us. As already mentioned by us the tax payable under Sec. 68 of the Finance act is called by the Parliament as income-tax. The said tax is payable in lieu of I-T payable under Indian I-T. Act, 1922 or under the I-T. Act of 1961 read with 'the relevant Finance Act on the amount which is income in the hands of the assessee which would have been subject to income-tax if he had disclosed it during the relevant years. The fact that the mode of computation of taxable income adopted by Sec. 68 is different from the mode provided in the Indian Income-tax Act, 1922 or the Income-tax act, 1961; the fact that the income does not find a place in the order of the assessment of any particular year and the fact that certain deductions which can normally be claimed when the assessment is under the regular Income-tax Act are not allowed, would not in any way make the tax payable under Sec. 68, anything other than income-tax, that being a tax on the income already earned. It can however be as in this case income which has been earned in the several previous years on which tax is paid as per a single Finance Act. ( 12 ) IT is very clear that the charge under Sec. 68 is not at all a new charge, but it is charge which is imposed under the Income-tax Act though at a rate different from the usual rates prescribed by the relevant finance Act. As observed in Bansidhar Poddar'y case (6), Sec. 68 of the finance Act does not impose a new charge but only provides that "the disclosure envisaged under it is in respect of an amount which is already liable to be assessed as income under the relevant Income-tax Act and the condition precedent of disclosure under ,the said section is that the paid amount of income has not been so assessed in the regular course for some reason or other. " ( 13 ) WE are of the opinion that 'the liability under Sec. 68 of the finance Act is nothing other than the liability under the Income-tax Act. " ( 13 ) WE are of the opinion that 'the liability under Sec. 68 of the finance Act is nothing other than the liability under the Income-tax Act. ( 14 ) IN order to claim deduction of the amount payable as income-tax in determining net wealth under Sec. 2 (m) of the Wealth-tax Act, it is unnecessary that it should have been ascertained. What is ascertained or payable will be a debt that is owed by the assessee, on the valuation date (vide Kesoram Industries' case (3 ). ( 15 ) THE Tribunal was therefore tin error iri not having deducted the income-tax liability on the various valuation dates for the assessment years in question on the amounts declared by the assessee under Section 68 (2) of the Finance Act 1965. In the result, we answer the first question in TRCs. 5 to 10 of 1974 in the affirmative and the second question in TRCs. 5 to 10 of 1974 and the only question in TRC. 11 of 1974 in the negative and in favour of the asgessee. No costs. --- *** --- .