Wealth tax---

---- Net wealth---Deductions---Liability to deduct tax at source under S.192, Indian Income Tax Act, 1961---Does not arise from any order passed under or in pursuance of any of provisions of Income Tax Act---Employer has automatic statutory liability to deduct tax from salary disbursed to employee---Tax deducted at source and remaining unpaid to credit of Revenue for more than 12 months---Deductible in computing net wealth as it does not come under S.2(m)(iii)---Indian Wealth Tax Act, 1957, S.2(m)(iii)---Indian Income Tax Act, 1961, S.192.

The expression "or any law relating to taxation of income or profits, etc." occurring in sub-clause (iii) of section 2(m) of the Wealth Tax Act, 1957, is linked with the participle "passed" in the words "any order passed". Therefore, the liability referred to is the liability arising in consequence of any order passed under or any order passed in pursuance either of the Wealth-tax Act or of any other law relating to direct taxes. It is clear that, wherever the disjunctive "or" occurs in the expression "any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, etc.", it is linked with the words "order passed". An order may be passed either under or in pursuance of the Wealth Tax Act or any of the Acts under direct taxation. Thus, the provision means that there is to be an order passed under or in pursuance of the Wealth Tax Act or any of the other direct tax Acts.

The liability to deduct tax at source from salary payable to an employee under section 192 of the Income Tax Act, 1961, does not arise from any order passed under or in pursuance of any of the provisions of the Income Tax Act. The employer has the automatic statutory liability to deduct tax from the salary disbursed to an employee. Section 2(m)(iii) of the Wealth Tax Act, 1957, has no application to such liabilities. Therefore, the tax deducted at source under section 192 of the Income Tax Act, which remained unpaid to the credit of the Revenue for more than 12 months, would not come under section 2(m)(iii) of the Wealth Tax Act, and would be deductible in computing the net wealth of the assessee.

S.K. Mitra and R.C. Prasad for the Commissioner.

J.P. Khaitan for the Assessee.

JUDGMENT

AJIT K. SENGUPTA, J ---These references relate to the assessment years 1970-71 to 1975-76. In all these years, the following common 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 Tribunal was justified in holding that tax deducted at source under section 192 of the Income Tax Act, 1961, which remain unpaid to the credit of the Revenue for more than 12 months would not come under section 2(m)(iii) of the Wealth Tax Act, 1957, and would, therefore, be deductible in computing the net wealth of the assessee?"

The facts, which are admitted and/or found by the Tribunal are as under:

The assessee is an individual and a partner of Messrs Chatterjee and Polk. While determining the assessee's interest in the said partnership concern for the purposes of charge to wealth tax, the Wealth Tax Officer did not grant any deduction in respect of liability to deduct tax at source and payable to the Central Government in accordance with section 192 of the Income Tax Act, 1961. The liability in respect of the unpaid amount towards taxes deducted at source under section 192 of the Income Tax Act, but not paid to the credit of the Central Government was appearing in the balance-sheet of the said partnership concern. The Wealth Tax Officer was of the view that, since the amounts payable to the Central Government on account of deduction at source made under section 192 of the said Act were outstanding for a period of more than 12 months from the respective valuation dates, no deduction was permissible in respect thereof in view of the provisions of section 2(m)(iii) of the Wealth Tax Act, 1957. The Appellate Assistant Commissioner, however, held that section 2(m)(iii) of the Wealth Tax Act, 1957, applied only to such tax liabilities, which arise in consequence of any order passed under or in pursuance of the Income Tax Ad, 1961. This was not the case in respect of taxes deducted at source but not paid to the Central Government in accordance with the provisions of section 192. The Tribunal held that liability to pay tax deducted at source under section 192 of the Income Tax Act, was not in consequence of an order passed under or in pursuance of the Income Tax Act. It was a statutory provision holding the person responsible for payment of income chargeable under the head "Salaries" to deduct tax at source and make payment thereof to the Central Government. The Tribunal, therefore, held th4t the time-limit of 12 months laid down in section 2(m)(iii) was not applicable to such a case.

As we can see, the issue arises because of the manner in which the Assessing Officer read the language of the provisions of section 2(m)(iii). It is, therefore, necessary to examine the words occurring in the said provision for the purpose of appreciating which of the two constructions in the said provision that are before us is correct. Section 2(m)(iii) reads as under:

"(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 all the debts owed by the assessee on the valuation date other than-- ......

(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure Tax Act, 1957 (29 of 1957), or the Gift Tax Act, 1958 (18 of 1958); --

(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him; or

(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date."

The provision as set out firstly requires that the value of the assets includible in net wealth is to be reduced by the value of all the debts owed by the assessee on the valuation date. But, there are some debts, which are to be excluded from such aggregate debt. One such exclusion is of tax, penalty or interest payable in consequence of any order passed under or in pursuance of the Wealth Tax Act or any law relating to taxation of income or profits, etc., which is outstanding for more than twelve months on the valuation date, though the liability is not contested. The Assessing Officer, obviously, has read the provision of sub-clause (iii) of clause (m) as implying that any levy for tax, penalty or interest in pursuance of the Wealth Tax Act or the Income Tax Act or any other Direct Tax Act shall be excluded, if the liability therefor is neither contested in appeal nor paid for more than twelve months on the valuation date.

The Assessing Officer's understanding of the provision is that .the liability may be either in consequence of any order passed under the various Acts referred to in the provision or any liability arising in pursuance of any such Act. According to him,-the linkage of the expression "or in pursuance of this Act or any law relating to taxation of income or profits, etc.", is not with the participle "passed" following the word "any order" but with the adjective "payable". Thus, he reads the provision to mean that any amount of tax, penalty or interest payable in pursuance of any law relating to taxation of income or profits, etc., besides any such amount payable in consequence of any order passed under any such law, is also embraced by the said exclusionary clause. According to him, the phrase "in pursuance of" dispenses with the necessity of the tax liability arising invariably from an order passed under any of the relevant Acts. The exclusion applies even to any liability payable in pursuance of any provision of the relevant Acts irrespective of whether the liability arises from any order passed thereunder or not.

Such construction is obviously misconceived. The expression "or any, lave relating to taxation of income or profits, etc." is linked with the participle "passed" in the words "any order passed". Therefore, the liability referred to is' the liability arising in consequence of any order passed under or any order passed in pursuance either of the Wealth-tax Act or of any other law relating to direct taxes. It is clear that, wherever the adjunctive "or" occurs in the expression "any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, etc.", it is linked with the words "order, passed". An order may be passed either under or in pursuance of the Wealth? tax Act or any of the Acts under direct taxation. Thus, the provision means that there is to be an order passed under or in pursuance of the Wealth-tax Act or any of the other Direct Tax Acts.

The liability to deduct tax at source from an employee under section 192 does not arise from any order passed under or in pursuance of any of the provisions of the Income-tax Act. The employer has an automatic statutory liability to deduct tax from the salary disbursed to an employee. It is not the case that the liability arises only upon an order being passed by any of the income-tax authorities. The liability is not dependent upon any specific order but is an automatic liability arising from the general mandate of the provisions of law itself. Thus, the liability of an assessee as an employer to deduct the tax from the salaries payable to his employees and to pay to the Central Government the tax so deducted does not arise as a result of any order passed under the Income Tax Act, 1961. Accordingly, section 2(m)(iii) has no application to such liabilities.

It may be reasonably argued that object of sub-clause (iii) of clause (m) of section 2 is to eliminate indulgence to a defaulter under the tax law. The Legislature disapproves such conduct on the part of a taxpayer. Therefore, conformably with the object of this provision, the action of the Wealth-tax Officer warrants support. But such intention-seeking construction is not possible here in view of the words which clearly exclude the scope of such construction so as to bring-into the net of the provision even a defaulter withholding the money of the public exchequer collected by way of tax deduction. If we are to attribute to the provision, as worded, such intention, we have to add to or alter the language of the provision. The said sub-clause as worded does not admit of such intention-seeking construction.

In that view of the matter, we answer the question referred to this Court by the Tribunal in the affirmative and in favour of the assessee.

There will be no order as to costs.

SHYAMAL KUMAR SEN, J: --I agree.

M.BA./44/T.F ???????????????????????????????????????????????????????????????????????? Reference answered.