Wealth tax---

---- Net wealth---"Asset", meaning of ---Income-tax refunds becoming due on account of excess advance tax paid or excess tax deducted at source---Tax finally assessed, after valuation date, resulting in refund---Such refund is an asset on the valuation date---Refunds not includible in net wealth where advance tax or tax deducted at source is included in computation of net wealth or where refund arises out of tax paid after valuation date---Tribunal not ascertaining in what situation refund arose---Matter remanded. CIT v. Rangnath Bangur (1985) 152 ITR 71 (Raj.) and CWT v. Arvindbhai Chinubhai (1982) 133 ITR 800 (Guj.) dissented from.

The assessee claimed refunds of income-tax on account of taxes deducted at source. Most of refunds had not been determined and/or quantified on the valuation date corresponding to the wealth-tax assessment in question since the income-tax assessments for the relevant years had been completed long after the valuation date. The assessee claimed that these refunds having not been determined could not be included in his net wealth. The Tribunal held that the refunds were actionable claims as on the valuation date and hence were includible in the net wealth of the assessee. On a reference:

Held, that income-tax refunds arise on account of excess advance tax paid or excess tax deducted at source. The tax as finally as4essed should be the liability on the valuation date. If such a quantification culminates in refund by reason of the advance tax paid or tax deducted at source being in excess of such quantified liability, as a concomitant of the said ratio, the refund should also emerge as an asset on the valuation date. The refund may be non- includible if, in the assessment, the advance tax and tax deducted at source are already taken as assets because that will be inclusion of the same asset twice over. There are two situations conceivable where the refund shall not relate back. One situation is where the advance tax or tax deducted at source is included in the computation of net wealth. The other situation of non-inclusion of refund may arise if the refund arises out of the tax paid after the valuation date.

(Since the Tribunal did not ascertain in what situation the refund arose, the matter was remanded to it for decision afresh in accordance with the guidelines laid down by the Court).

CIT v. Rangnath Bangur (1985) 152 ITR 71 (Raj) and CWT v. Arvindbhai Chinubhai (1982) 133 ITR 800 (Guj.) dissented from.

CWT v. J.K. Cotton Manufacturers Ltd. (1984) 146 ITR 552 (SC); CWT v. Vadilal Lallubhai (1984) 145 ITR (SC) and Kesoram Industries and Cotton Mill Ltd. v. CWT (1966) 59 ITR 767 (SC) ref.

JUDGMENT

AJIT K. SENGUPTA, J.---In this reference made at the instance of the assessee, the following question of law has been referred by the Tribunal to this Court under section 27(1) of the Wealth Tax Act, 1957:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in its decision that income- tax refunds determined after the valuation date should be considered as an asset for inclusion in the net wealth as on the valuation date?"

This reference relates to the assessment for the assessment year 1974-75 corresponding to the valuation date March 31, 1974. During the material time, the assessee was Director of Duncan Brothers and Co. Ltd., from where he drew salary. The assessee also had income from other sources such as dividend, interest and Director's fees, etc. He was also a partner in the firm styled "Badridas Keshav Prosad". The assessee claimed substantial income-tax refunds on account of taxes deducted at source. Most of these refunds had not been determined and/or quantified on the valuation date corresponding to the assessment under reference since the income-tax assessments for the relevant years had been completed long after the valuation date. The assessee claimed that these refunds having not been determined so far, could not be included in his net wealth. The Tribunal, however, held that the refunds could be considered as actionable claims as on the valuation date and, therefore, were includible in the net wealth.

This issue has recently been decided by the Rajasthan High Court in CIT v. Rangnath Bangur (1985) 152 ITR 71 as well as by the Gujarat High Court in CWT v. Arvindbhai Chinubhai (1982) 133 ITR 800. It has been held that the mere possibility of getting an income-tax refund in future as and when the assessment proceedings are to be finalised would not form part of an asset of an assessee belonging to him on the valuation date. The future possibility of getting a refund either of advance tax paid/or taxes deducted at source would represent a mere chance to get an asset in future, may be, years after the valuation date. This was a mere possibility and could not, therefore, be treated as an asset on the valuation date. It would be impossible to comprehend or predict with any degree of certainty as to what would be the actual amount of tax refund, if any, which would be available to the assessee in future and which could be treated as his asset as on the valuation date.

It is, however, to be noticed that the Supreme Court in a series of cases has held that the tax liability as finally assessed, in spite of the uncertainty as to such quantification on the valuation date. shall relate back as an allowable debt on the valuation date. The mere fact that the computation of the quantum of tax takes place years after the valuation date has been held to be immaterial. This applies even when the tax liability is enhanced by way of rectification. (See CWT v. Vadilal Lalubhai ((1984) 145 ITR 7 (SC)).

This position has been followed in CWT v. J.K. Cotton Manufacturers Ltd. (1984) 146 ITR 552 (SC). The said principle may, at the first blush. appear to apply also in the case of refund arising from such quantification of tax for the sake of parity. There is, however, no straight answer in relation to refund.

There are cases where the income-tax refunds arise on account of excess advance tax paid or excess tax deducted at source. In such eventuality, with respect, we differ from the view taken by the High Courts of Rajasthan and Gujarat as aforesaid. The Supreme Court, in Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR 767, has laid down that the tax as finally assessed should be the liability on the valuation date. If such a quantification culminates in refund by reason of the advance tax paid or tax deducted at source being in excess of such liability quantified, as a concomitant of the said ratio, the refund should also emerge as an asset on the valuation date. The refund may be non-includible if, in the assessment, the advance tax and tax deducted at source are already taken as assets because that will he inclusion of the same asset twice over. There are two situations conceivable where the refund shall not relate back. One situation is where the advance tax or tax deducted at source is included in the computation of net wealth. The other situation of non-inclusion of refund may arise if the refund arises out of the tax paid after the valuation date.

In that view of the matter, we decline to answer the question anti remand the matter to the Tribunal with the direction to ascertain in what situation the refund in the case arises and decide the case on the guideline as laid down by us.

There will be no order as to costs.

J.N. HORE, J: --I agree.

M.BA./1646/T Case remanded.