COMMISSIONER OF WEALTH TAX VS HOOR BAI IBRAHIM
1992 P T D 671
[Supreme Court of Pakistan]
Present: Ajmal Mian, Sajjad Ali Shah and Saleem Akhtar, JJ
COMMISSIONER OF WEALTH TAX
versus
HOOR BAI IBRAHIM
Civil Appeal No. 353-K of 1990, decided on /01/1991.
(On appeal from the judgment and order of the High Court of Sindh dated 25-1-1988 passed in I.T.R. No.3 of 1979).
(a) Wealth Tax Act (XV of 1963)---
----S. 2(m)---Constitution of Pakistan (1973), Art.185(3)---Leave to appeal was granted to consider whether the judgment in Commissioner of Wealth Tax, Lahore v. Fozia Moghis 1988 P T D 629 had been misread by the High Court.
(b) Wealth Tax Act (XV of 1963)---
----Ss2(m) & 27---Reference---Jurisdiction of High Court under S.27 is advisory in nature and is based on the statement of the facts referred to it.
(c) Wealth Tax Act (XV of 1963)---
----S. 2(m)---Term `debt owed'---Definition---Wealth tax or income-tax liability would amount to debt owed by the assessee.
The term `debt owed' has not been defined in the Act, its ordinary dictionary meaning will be relevant for interpreting it.
Word `debt' has the following meaning:--
Something that is owed especially money; a state of obligation to pay something owed.
"Debt" is a sum of money due from one person to another. A debt exists when a certain sum of money is owing from one person (the debtor) to another (the creditor). Hence `debt' is properly opposed to unliquidated damages; to liability, when used in the sense of an inchoate or contingent debt; and to certain obligations not enforceable by ordinary process. `Debt' denotes not only the obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment.
A debt is a sum of money which is now payable or will become payable in the future by raising-of a present obligation.
Standing alone, the word `debit' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If one wishes to distinguish between the two, one can say of the former that it is a debt owing, and of the latter that it is a debt due.
A `debt' is an obligation to pay a liquidated or certain sum of money ... A debt may be present or future; if it is present it is existent or now due or owning. If it is future, it is existent but accruing or payable in the future.
The word `debt' has a wide meaning and is an obligation to pay an ascertained sum in present or in future. Any amount owed to some other person would be a debt owed by him to the creditor. The essence of the word `debt' is the obligation to pay and the amount which is payable. It is a liability of the person who has an obligation to pay, the amount which may be certain or calculable readily.
The term `debt owed' as used in section 2(m) places emphasis on the fact that on the valuation date the debt should be a legal obligation on the assessee to pay it.
C.W.T., Lahore Zone v. Mst. Fouzia Mughis 1988 P T D 629; Commissioner of Wealth Tax, Central Karachi v. Paracha Textile Mills Limited 1983 P T D 335; Concise Oxford Dictionary; Webb v. Stenton (1883) 11 QBD 518; People v. Arguello (1869) 37 Calif 524; Kesoram Industries v. Commissioner of Income-tax A I R 1966 SC 1370; Mulla on Transfer of Property Act, 4th Edn., p.735; P.S.L. Ram Chatan v. O.R.M.P.R.M. A I R 1968 SC 1047; Inland Revenue Commissioner v. Bagnall Limited (1944) 1 All ER 204 and Sea Brooke Estate Company Limited v. Ford (1949) 2 All ER 94 ref.
(d) Income-tax---
----Debt owed---Income-tax liability would amount to debt owed by the assessee.
(e) Wealth Tax Act (XV of 1963)---
----S. 2(m)---Debt---Deduction---If the reserve made for payment of wealth tax in the charge year is to be treated as a debt owed by the assessee he will be entitled to claim deduction---Payment of tax is not dependent upon assessment as liability to pay tax arises by virtue of the charging section.
Commissioner of Wealth Tax, Central, Karachi v. Paracha Textile Mills Limited 1983 P T D 335; Wallace Bros. & Co. Limited v. C.I.T. 161 T R 240; Chathoram v. C.I.T. 15 1 T R 302; Whitney v. I R 10 TC 88 (HL); Kesoram Industries and Cotton Mills Limited v. C.W.T. 59 I T R 767 (SC) and Setu Parvati Bayi v. C.W.T. 691 T R 864 (SC) ref,
(f) Wealth Tax Rules, 1963---
----8. 8(9)(a)(i) & (ii)---Wealth Tax Act (XV of 1963), S.2(m)---Tax reserves---Liability to pay tax is not dependent on assessment and arises, immediately do close of the assessment year and therefore, becomes a debt owed by the assessee in the same charge year.
If the reserve made for payment of the wealth tax in the charge year is to be treated as a debt owed by the assessee he will be entitled to claim deduction. The payment of tax is not dependent upon assessment. The liability to pay tax arises by virtue of the charging section.
The liability to pay tax is not dependent upon assessment which is merely a procedure for quantifying the tax definitely and finally as required by the charging section.
As the liability to tax arises at the close of the assessment year and before the assessment, the tax becomes a debt owed by the assessee in the same charge year.
The liability to pay the tax is not dependent on assessment as it arises immediately on close of the assessment year. It, therefore, becomes a debt owed by the assessee in the same charge year.
Wallace Bros. & Co. Limited v. C.I.T. 16 1 T R 240; Chathoram v. C.I.T. 15 1 T R 302; Whitney v. I R 10 TC 88 (HL); Kesoram Industries and Cotton Mills Limited v. C.W.T. 59 1 T R 767 (SC) and Setu Parvati Bayi v. C.W.T. 69 I T R 864 (SC) ref.
Commissioner of Wealth Tax v. Mst. Fauzia Mughis 1988 P T D 629 not a correct law.
Nasrullah Awan, Advocate Supreme Court for Appellant. Respondent: Ex parte.
Date of hearing: 17th November, 1991.
JUDGMENT
SALEEM AKHTAR, J.--- This appeal is directed against the judgment of the High Court of Sindh in I.T.R. No.3 of 1979 whereby the question referred was answered in the affirmative and the wealth tax liability in respect of assessment year 1972-73 was excluded under section 2(m) of the Wealth Tax Act for the purposes of computing the net wealth liable to wealth tax for that very year.
2. The facts as stated by the Tribunal are the basis for giving the opinion on the question referred to the High Court. The respondent fled wealth tax return for the assessment year 1972-73 but it seems that in Annexure `6' to the return she did not claim the wealth tax chargeable in the year 1972-73 as a deduction. After the assessment was made the respondent filed an appeal in which, inter alia, a plea was raised that the Wealth Tax Officer has failed to allow the liability of wealth tax for the assessment year 1972-73. The Tribunal while dealing with this objection observed as follows:--
"The next objection pressed before us was against the failure of the Wealth Tax Officer to have allowed the liability of wealth tax of the assessment year 1972-73. It is the consensus opinion of the Tribunal that the provisions for taxation is in fact a `debt owed' by the assessee on the valuation date as envisaged by section 2 of the Wealth Tax Act and it must be deducted from amount of aggregate value of all assets as covered by the said section. This view of the Tribunal has recently been approved by the Lahore High Court in C.W.T., Lahore Zone v. Mst. Fouzia Mughis reported as 1988 P T D 629. We would, therefore, allow the appeal on this issue and direct the Wealth Tax Officer to deduct the wealth tax liability or the year under appeal while computing net assets of the assessee-appellant."
The department then filed application under section 27(1) of the Wealth Tax Act for referring the following question to the High Court:--
"Whether on the facts and circumstances of the case the learned Appellate Tribunal was justified in allowing wealth tax provision of the year during the same wealth tax assessment year when there was no such claim in the Annexure `VI' of the wealth tax return and particularly when the assessee has claimed wealth tax liability in subsequent assessment years on determination of such tax liabilities."
The Tribunal while considering this application observed that at the time of hearing of the appeal the departmental representative did not raise any objection to the allowance of the said liability on the plea that the wealth tax liability for the year in question was not claimed. The Tribunal further observed as follows:--
"In the statement of the case now presented by the Commissioner of Income-tax, it is mentioned that the assessee had claimed liabilities at Rs.141,567 as per Annexure `6' in which wealth tax liability for the assessment year 1972-73 was not claimed as the assessee used to claim wealth tax liability when such liability was determined. The questions sought to be referred, have also been framed on these premises although a perusal of our order indicates that this precise objection was not raised on behalf of the department and our decision is not based on consideration of the alleged fact. The learned Commissioner, of Income-tax has also not mentioned in the statement of the case that the wealth tax liability for the year 1972-73, even if not claimed in Annexure `6' would hot have been allowed as not falling within definition of the term `debt owed'. As a matter of fact, the Tribunal has allowed the claim on the basis of its earlier decision wherein it was held that the tax liabilities are `debt owed' within the meaning of section 2(m) of the Wealth Tax Act, and without the adjustments of the wealth tax liability of the relevant year the correct wealth on a particular date of valuation cannot be worked out. This view of the Tribunal was the subject-matter of reference before the Lahore High Court in Commissioner of Wealth Tax, Lahore Zone v. Mst. Fauzia Mughis (supra) and their Lordships of Lahore High Court have upheld the interpretation given by the Tribunal to the said words. The contention now raised in the statement of case is also obviously without substance inasmuch as the Wealth Tax Act makes it obligatory on the Wealth Tax Officer to assess the net wealth of the assessee and to determine the amount payable by him as wealth tax. It is to be done in accordance with law irrespective of the return filed by the assessee.
However, we are of the opinion that a question of law does arise from the order and we would refer to it to the High Court as under:--
Whether on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the tax liability in respect of the assessment year 1972-73 is to be excluded under section 2(m) of the Wealth Tax Act for the purpose of computing the net wealth liable to wealth tax for that very year?"
It can, thus, be seen that the question raised by the department was not referred as required by it but in view of the fact that the objection that the tax liability for the year 1972-73 was not claimed not having been raised the question referred to the High Court was modified. The High Court, therefore, proceeded to express the opinion on the question referred which did not incorporate the objection that the wealth tax liability not having been claimed or shown in Annexure `6' to the return cannot be allowed to the assessee:
3. The High Court by the impugned judgment allowed the deduction of wealth tax liability for the assessment year 1972-73, relying upon two judgments namely Commissioner of Wealth Tax v. Mst. Fauzia Mughis 1988 P T D 629 and Commissioner of Wealth Tax, Central, Karachi v. Paracha Textile Mills Limited 1983 P T D 335. Leave was granted to consider whether the judgment in Mst. Fauzia Mughis had been misread by the High Court.
4. The High Court in the impugned judgment while relying on the aforestated two cases had observed as follows:--
"In both the above cases it has been held that the amount earmarked in the return as the income-tax liability is a `debt owed' which is adjustable out of the gross wealth within the scope of section 2(m) of the Wealth Tax Act. If the amount shown as the liability of income-tax could. be allowed as a `debt owed' for adjustment from the gross wealth under section 2(m) of the Act for the purposes of computation of net wealth of assessee we do not see any reason to disallow the amount shown as a liability of wealth tax under the Wealth Tax Act as a `debt owed' within the meaning of that section 2(m)."
In Mst. Fauzia Mughis's case the following observation was made:-
"In some cases the Tribunal has also allowed deduction of the wealth tax which had remained in arrears while computing net assets for the subsequent years. On the principles and for the reasons recorded earlier, such deduction, if it has remained in arrears will, according to us, constitute a debt owed by the assessee and its deductions was rightly allowed by the Tribunal. No doubt, in the year under charge its deduction will not be permissible but when once that liability has accrued and debt for that year has become a debt owed by the assessee then while computing the net assets of subsequent years, the deduction of this debt will have to be made both on principle of `debt owed' or on the principle that by that debt the opening balance of the assets of the subsequent year automatically gets reduced."
It may be mentioned at the very outset that the assessee's not having claimed the deduction of the wealth tax for the charge year in her return has not been made subject-matter of the controversy nor it formed basis for decision either by the Tribunal or by the High Court. Even this aspect of the case had not been referred to the High Court. The question in a nutshell referred was in respect of the exclusion of the wealth tax liability for that very year in respect of which assessment was to be made. We would, therefore, proceed on the facts stated by the Tribunal and question referred to the High Court. It may be mentioned that the jurisdiction of the High Court under section 27 of the Wealth Tax Act is advisory in nature and is based on the statement of the facts referred to it. It is significant to note that the appellant at no stage objected to ' the reference of the question as framed by the Tribunal which was on material point different front the question sought to be referred by it. In Mst. Fauzia Mughis's case the High Court had held that the wealth tax which had remained in arrears could be deducted in computing the net assets of the subsequent years, as such deduction would constitute debt owed by the assessee. However, it has further been observed that the deduction will not be permissible in the year under charge but once that liability has accrued and debt for that year has become a debt owed by the assessee then it can be claimed in subsequent assessment years. The controversy, therefore, is whether the wealth tax liability can be termed as a `debt owed' by the assessee in the same assessment year for which exclusion is claimed in terms of section 2(m).
5. As the term `debt owed' has not been defined in the Act, its ordinary dictionary meaning will be relevant for interpreting it. In the Concise Oxford Dictionary `debt' means:--
"Something that is owed especially money; a state of obligation to pay something owed."
According to Jowitt:
"Debt" is a sum of money due from one person to another. A debt exists when a certain sum of money is owing from one person (the debtor) to another (the creditor). Hence `debt' is properly opposed to unliquidated damages; to liability, when used in the sense of an inchoate or contingent debt; and to certain obligations not enforceable by ordinary process. `Debt' denotes not only the obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment."
6. Lindlay L.J. in Webb v. Stenton (1883)11 OBD 518 observed that:--
???a debt is a sum of money which is now payable or will become payable in the future by raising of a present obligation.
In People v. Arguello (1869) 37 Calif 524, the Supreme Court of California observed that:--
"Standing alone, the word debt is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due."
This definition was followed by the Supreme Court of India in Kesoram Industries v. Commissioner of income-tax A I R 1966 SC 1370.
8. According to Mulla in his Transfer of Property Act, 4th Edition at page 735:--
"A `debt' is an obligation to pay a liquidated or certain sum of money, ... A debt may be present or future; if it is present' it is existent or now due or owing. If it is future, it is existent but accruing or payable in the future."
9. From these judgments definitions and meanings it can safely be stated that the word ?debt' has a wide meaning and is an obligation to pay an ascertained sum in present or in future. Any amount owed to some other person would be a debt owed by him to the creditor. The essence of the word `debt' is the obligation to pay and the amount which is payable. It is a liability to the person who has an obligation to pay, the amount which may be certain or calculable readily. In this regard reference can also be made to P.S. L. Ram Chatan v. O.R.M.P.R.M. A I R 1968 SC 1047 (1049), Inland Revenue Commissioner v. Ragnall Limited (1944) 1 All ER 204(206) and Sea Brooke Estate Company Limited v. Ford (1949) 2 All ER 94(96). The term `debt owed' as used in section 2(m) places emphasis on the fact that on the valuation date the debt should be a legal obligation on the assessee to pay it: In Fauzia ?Mughis's case it has correctly been held that the wealth tax or income-tax liability will amount to debt owed by the assessee.
10. The next question is whether on the date of valuation the wealth tax assessable in the charge year will amount to debt owed by the assessee and can it be excluded from the net wealth in the same year. In Paracha Textile Mills Limited's case the income-tax 'reserve was held to be debt due and exclusion was allowed in the same charge year. But in Mst. Fauzia Mughis's case exclusion of amount of wealth tax for computing the net valuation in the same charge year was not allowed. If the reserve made for payment of the wealth tai: in the charge year is to be treated- as a debt owed by the assessee he will be entitled to claim deduction. The payment of tax is not dependent upon assessment. The liability to pay tax arises by virtue of the charging section. In Wallace Bros. & Company Limited v. C.I.T. 16 1 T R 240, it was observed by the Privy Council:--
"The rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of the year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed."
The Federal Court in Chathoram v. C.I.T. 15 I T R 302 relying on Whitney v. IR 10 TC 88 (H.L.) held that the liability to tax does not depend on assessment. It is, therefore, a judicially settled view that the liability to pay tax is not dependent upon assessment which is merely a procedure for quantifying the tax definitely and finally as required by the charging section. Reference can be made to Kesoram Industries and Cotton Mills Limited v. C.W.T. 59 I T R 767 (SC) and Setu Parvati Bayi v. C.W.T. 69 I T R 864 (SC). AS the liability to tax arises at the close of the assessment year and before the assessment, the tax becomes a debt owed by the assessee in the same charge year. This aspect does not seem to have been noted in Commissioner of Wealth Tax, Lahore v. Mst. Fauzia Mughis, and therefore, the observation that in the year under charge its (wealth tax) deduction will not be permissible...?does not state the law correctly. The liability to pay the tax not dependent on assessment arises immediately on close of the assessment year. It, therefore, becomes a debt owed by the assessee in the same charge year. The appeal is, therefore, dismissed with no order as to costs.
M.B.A./C-99/S??????????????????????????????????????????????????????????????????????????????????? Appeal dismissed.