COMMISSIONER VS WEALTH TAX VISHWANATH PRATAP SINGH
1997 P T D 970
[222 I T R 189]
[Supreme Court of India]
Present: J. S. Verma and Suhas C. Sen, JJ
COMMISSIONER OF WEALTH TAX
Versus
Raja VISHWANATH PRATAP SINGH
Civil Appeals Nos. 1364 to 1368 of 1974, decided on 03/04/1996.
(Appeals from the judgment and order, dated April 22, 1971, of the Allahabad High Court in Wealth Tax Reference No. 284 of 1965.
Wealth tax---
----Deductions---Debt---Death of assessee's father---Estate of assessee's father taken over by Court of Wards---Investment by Court of Wards in Government securities out of savings from income of estate---Decree passed against assessee's father---High Court holding that decree-holders could not proceed against Government securities---Amount of money decree not deductible in computing net wealth of assessee---Indian Wealth Tax Act, 1957, S.2(m).--[Raja Vishwanath Pratap Singh v. CWT (1972) 84 ITR 135 reversed].
The assessee was the son of the late R, who was the owner of extensive Zamindari and other properties. R ran into debt and so he applied under section 4 of the Uttar Pradesh Encumbered Estates Act, 1934, for the liquidation of his debts. While his application under section 4 was pending, R. passed away and his estate was taken over by the Court of Wards on September 16, 1941. The estate was released on February 16, 1953. Out of the savings of the estate, the Court of Wards invested an amount of Rs.6,11,324 in Government securities. The investment fetched an income of Rs.76,000 per annum by way of interest. The amount of interest used to be collected by the assessee. In the proceedings under the Uttar Pradesh Encumbered Estate Act, the Special Judge passed a simple money decree for Rs.30,00,000 and odd. Since the assessee had been substituted in the place of his father, the decree was passed against the assessee. When some of the decree-holders wanted to proceed against the amount of Rs.6,87,000 held in Government securities, the assessee opposed the claim of the' decree-holders. The Special Judge held that the decree-holders could not proceed against this amount which did not form part of the estate of the deceased, R. The decree- holders went on appeal to the High Court which upheld the order of the special Judge by an order passed on March 25, 1961. While these proceedings were going on under the Uttar Pradesh Encumbered Estates Act, the wealth-tax assessment of the assessee was completed for the assessment years 1957-58. 1958-59 and 1959-60. However, the proceedings for the assessment year 1960-61 and 1961-62 were pending. In the wealth tax assessment proceeding up to the assessment year 1959-60, the decretal amount of Rs.30,00,000 and odd had been treated as "debt owed" by the assessee. Taking this debt into consideration it was held that the assessee was not liable to tax under the Wealth Tax Act. But, when the judgment of the High Court dated March 25, 1961, came to the knowledge of the Department to the effect that the decree-holders could not proceed against the amount of Rs.6,87,000 and odd held by the assessee in his own name for recovery of the decretal debt, the Wealth Tax Officer initiated proceedings under section 17 of the Wealth Tax Act, 1957, against the assessee for the assessment years 1957-58, 1958-59 and 1959-60. After giving a hearing to the assessee, the assessments were completed by the Wealth Tax Officer for the aforesaid years of assessment holding that since the decretal amount of Rs.30,00,000 could not be recovered from the assessee personally, it was not a debt owed by the assessee and that the sum of Rs.6,78,000 constituted the net wealth of the assessee against which the decretal amount could not be set off. Similar orders were passed for the assessment year 1960-61 and 1961-62. The assessee appealed to the Appellate Assistant Commissioner. One of the points taken before the Appellate Assistant Commissioner was that the assessee had a pious obligation to discharge the debts contracted by his father and, therefore, the decretal dues of Rs.30,00,000 should be treated as "debt owed" by the assessee. The Appellate Assistant Commissioner, however, held that under the Hindu law the creditors could not proceed against the assets of the assessee for fulfilling his pious obligation to pay the decretal dues of his father. There was a further appeal to the Tribunal. Before the Tribunal, the point of pious obligation of the son to pay the debts contracted by the father under the Hindu law was given up. It was contended that the aggregate value of the debts of the assessee was more than Rs.30,00,000. If this was deducted from the assets held by the assessee, the resultant figure would be negative. The Tribunal rejected the arguments and upheld the order of the Assessing Officer and the Appellate Assistant Commissioner. On a reference, the High Court observed that the assessee was liable to pay the debts incurred by his deceased father. But his liability was restricted to the extent of the property inherited by him from his deceased father. So his father's debts which may be satisfied from the property which he had inherited from his father were "debts owed by the, assessee". The High Court held that the debt amount to Rs.30,00,000 and odd should have been allowed as a deduction in calculating the net wealth of the assessee. On appeal to the Supreme Court by the Department:
Held, allowing the appeal, that it was not clear how the High Court went to the question of pious obligation of a Hindu son for payment of his father's debt. This question was given up before the Tribunal and no argument was advanced on this point. Moreover, the High Court noted that the assessee's liability to pay his father's debt as restricted to the properties which he had inherited from his father. The amounts invested in the Government securities were investments made by the Court of Wards out of savings from the income of the estate in its hands. It was held by the Special Judge that this property was not available for payment of the decretal dues obtained by the creditors in the proceedings under the Uttar Pradesh Encumbered Estates Act. The High Court in appeal had affirmed that view. Therefore, the creditors of the deceased, R, could not proceed against these Government securities to recover the decretal dues. The High Court obviously overlooked these facts in coming to the conclusion that the assessee had a pious obligation to pay his father's debts even out of these Government securities. It was not the case of the assessee that on the relevant valuation date the assessee was saddled with a decretal debt and the assessee was under a legal obligation to pay that amount sooner or later. Having successfully thwarted the attempts of the decree-holders to proceed against the Government securities and the income arising therefrom, the assessee could not now claim that the decretal dues were his debts which were personally payable by him. On the facts and tinder the circumstances of the case, the debts amounting to Rs.30,00,000 and odd for each of the assessment years under appeal, were rightly not allowed as a deduction in calculating the net wealth of the assessee. The provisions of section 17 of the Wealth Tax Act were applicable so far as the assessment years for 1957-58, 1958-59 and 1959-60 were concerned.
Raja Vishwanath Pratap Singh v. CWT (1972) 84 ITR 135 reversed.
Kesoram Industries and Cotton Mills Ltd. v. CWT (1969) 59 ITR 767 (SC) ref.
T.L. Vishwanatha Iyer, Senior Advocate (S. Rajappa and S.N. Terdol Advocates with him) for Appellant.
Shivpujan Singh, Advocate for Respondent.
JUDGMENT
SUHAS C. SEN, J.---The assessee, Raja Vishwanath Pratap Singh, is the son of the late Captain Raja Bahadur Ram Gopal Singh, who was the owner of extensive Zamindari and other properties. Ram Gopal Singh ran into debts. He applied under section 4 of the Uttar Pradesh Encumbered Estates Act, 1934, for the liquidation of his debts. While his application under section 4 was pending. Ram Gopal Singh passed away and his estate was taken over by the Court of Wards on September 16, 1941. The estate was released on February 16, 1953. All the proceedings pursuant to the application before the Special Judge after the death of Ram Gopal Singh went on in the name of the assessee.
Out of the savings of the estate, the Court of Wards invested an amount of Rs.6,11 324 in Government securities. The investment fetched an income of Rs.76,000 per annum by way of interest. The amount of interest used to be collected by the assessee.
In the proceedings under the Uttar Pradesh, Encumbered Estates Act, the Special Judge passed a simple money decree for Rs.30,00,000 and odd. Since the assessee had been substituted in the place of his father, the decree was passed against the assessee. When some of the decree-holders wanted to proceed against the amount of Rs.6,87,000 held in Government securities, the assessee opposed the claim of the decree-holders. The Special judge held that the decree-holders could not proceed against this amount which did not form part of the estate of the deceased, Ram Gopal Singh. The decree-holders went on appeal to the High Court which upheld the order of the special Judge by an order passed on March 25, 1961.
While all these proceedings were going on under the Uttar Pradesh Encumbered Estates Act, the wealth tax assessment of the assessee was completed for the assessment years 1957-58, 1958-59 and 1959-60. However, the proceedings for the assessment years 1960-61 and 1961-62 were pending. In the wealth tax assessment proceeding up to the assessment year 1959-60, the decretal amount of Rs.30,00,000 and odd had been treated as "debt owed" by the assessee. Taking this debt into consideration, it was held that the assessee was not liable to tax under the Wealth Tax Act. But, when the judgment of the High Court dated March 25, 1961, came to the knowledge of the Department that the decree-holders could not proceed against the amount of Rs.6,87,000 and odd held by the assessee in his own name for recovery of the decretal debt, the Wealth Tax Officer initiated proceedings under section 17 of the Wealth Tax Act, 1957, against the assessee for the assessment years 1957-58, 1958-59 and 1959-60.
After giving a hearing to the assessee, the assessments were completed by the Wealth Tax Officer for the aforesaid years of assessment holding that since the decretal amount of Rs.30,00,000 could not be recovered from the assessee personally, it was not a debt owed by the assessee. The sum of Rs.6,78,000 constituted the net wealth of the assessee against which the decretal amount could not be set off. Similar orders were passed for the assessment years 1960-61 and 1961-62.
The assessee appealed to the Appellate Assistant Commissioner who examined the facts of the case in depth and dismissed the appeals by a consolidated order disposing of all the five cases.
One of the points taken before the Appellate Assistant Commissioner was that the assessee had a pious obligation to discharge the debts contracted by his father. And therefore, the decretal dues of Rs.30,00,000 should be treated as "debt owed" by the assessee. The Appellate Assistant Commissioner, however, held that under the Hindu law the creditors could not proceed against the assets of the assessee for fulfilling his pious obligation to pay the decretal dues of his father.
There was a further appeal to the Tribunal. Before the Tribunal the point of pious obligation of the son to pay the debts contracted by the father under the Hindu law was given up. It was contended that the aggregate value of the debts of the assessee was more than Rs.30,00,000. If this was deducted from the assets held by the assessee, the resultant figure would be negative. Therefore, no wealth tax needed to be paid by the assessee. It was pointed out that section 2(m) of the Wealth Tax Act enjoined deduction of debts owed by the assessee. The decrees passed under the Uttar Pradesh Encumbered Estates Act were personal decrees against the assessee and, therefore, the amount had to be deducted from the assets of the assessee as "debts owed" by the assessee. The payability of the debt was not very material for this purpose. For this proposition, reliance was placed upon the judgment of this Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT (1969) 59 ITR 767. It was further argued that a decree could not be passed against a dead person. The decree in question was actually passed against the assessee. Therefore, it could not be said that no decree was passed against the assessee personally.
The Tribunal rejected all these arguments. The Tribunal held that in order to get any deduction of any amount of "debt owed" by the assessee, it will have to be shown that he was personally liable to pay the debts. In a case where a person was liable to pay debts only to the extent of property which he had received from another person, there could be no personal liability to pay the tax. The creditors could proceed against the assets and recover their dues from the assets of the deceased. But the creditors could not enforce their claim against the assessee personally or against the personal assets of the assessee. Since the creditors could not proceed against the assessee personally for recovery of their decretal dues, it could not be said that the assessee owed any debt which had to be deducted from his assets for the purpose of computation of net wealth. The Tribunal therefore, dismissed the appeal.
At the instance of the assessee, the following two questions of law were referred to the High Court see (1972) 84 ITR 135 under section 27 of the Wealth Tax Act (page 136):
"(1) Whether, on the facts and in the circumstances of the case, the debts amounting to Rs.30 lakh and odd, more or less for each of the assessment years under appeal, were rightly not allowed as a deduction in calculating the net wealth of the assessee?
(2) Whether, on the facts and under the circumstances of the case, the provisions of section 17 of the Wealth Tax Act were applicable so far as the assessment years 1957-58, 1958-59 and 1959-60 are concerned?"
The High Court took the view that the Tribunal had misconstrued the expression "debts owed by the, assessee" in section 2(m) of the Wealth Tax Act. The Tribunal had also misunderstood the true nature of the obligation of the heir of a deceased debtor to pay his debts. The High Court referred to Mulla's Hindu Law, 12th Edition, page 426, and observed that the assessee was liable to pay the debts incurred by his deceased father. But his liability was restricted to the extent of the property inherited by him from his deceased father. So his father's debts which may be satisfied from the property which he had inherited from his father were "debts owed by the assessee". The High Court, therefore, answered the first question by holding that he debt amount to Rs.30,00,000 and odd should have beet: allowed as a deduction in calculating the net wealth of the assessee. As a consequence o the answer given to the first question, the second question was answered by saying that section 17 of the Wealth Tax Act could not be applied for the assessment years 1957'-58, 1958-59 and 1959-60.
We fail to see how the High Court went into the question of pious obligation of a Hindu son or payment of his father's debt. This question was given up before the Tribunal and no argument was advanced on this point. Moreover, the High Court noted that the assessee's liability to pay his father's debt was restricted to the properties which he had inherited from his father. The amounts invested in the Government securities were investments made by the Court of wards out of savings from the income of the estate in its hands. It was held by the Special judge that this property was not available for. payment of the decretal dues obtained by the creditors in the proceedings under the Uttar Pradesh Encumbered Estates Act. The High Court in appeal had affirmed that view. Therefore, the creditors of the deceased, Ram Gopal Singh could not proceed against these Government securities to recover the decretal dues. The reference Court obviously overlooked these facts in coming to the conclusion that the assessee had a pious obligation to pay his father's debts even out of these Government securities.
In the case of Kesoram Industries and Cotton Mills Ltd. (1966) 59 ITR 767 (SC), it was held that: "debt owed" under section 2(m) of the Wealth Tax Act could be defined as the liability to pay in praesenti or in future an ascertainable sum of money. Debitum in praesenti solvendum in futuro. In that case, the question was whether liability to pay income-tax which had not been computed by an assessment order could be treated to be a present liability and therefore, a debt. This Court held that the liability to pay, income-tax' arose by virtue of the Income-tax Act. At the end of the accounting period there was a perfected debt. This was not a contingent liability. It was a present liability to pay an ascertainable amount in future. Therefore, it came within the meaning of the phrase "debts owed" section 2(m) of the Wealth Tax Act on the valuation date.
This decision does not come to the aid of the assessee in any way. Under the Wealth Tax Act, "net wealth" has been defined as under:
"2. (m) 'net wealth' means the amount by which the aggregat4 value computed in accordance with the provisions of this Act of ;ill 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: which have been incurred in relation to the said assets."
It was not the case of the assessee that he had a personal liability to pa) the decretal amount of Rs.30,00,000 and that it was payable by him ultimately. The decree-holders have been unable to proceed against his assets (the Government securities of Rs.6,87,000) for the realisation of their decretal dues. It is not the case of the assessee that on the relevant valuation date the assessee was saddled with a decretal debt and the assessee was under a legal obligation to pay that amount sooner or later. Having successfully thwarted the attempts of the decree-holders to proceed against the aforesaid Government securities and the income arising therefrom, the assessee cannot now be heard to say that the decretal dues are his debts which are personally payable by him. We are of the view that the Tribunal had given good reasons for its decision and the decision of the Tribunal should have been upheld by the High Court.
On behalf of the assessee our attention was invited to the provisions of the Uttar Pradesh Encumbered Estates Act and also the judgment of the High Court passed on March 25, 1961. It was argued that the judgment must be understood in the context of the provisions of that Act. It was emphasised that there was a pious obligation of the assessee to pay off the debts incurred by his father. This argument had been advanced before the Appellate Assistant Commissioner, but was not pressed before the Tribunal. Moreover, the obligation of the son to pay off the debts contracted by his father is limited to the properties inherited by the son from his father. It is not the case of the assessee that he has inherited the amount of Rs.6.87,000 held in Government securities from his father. In any event, it was held by the High Court in its order dated March 25, 1961, that a decree obtained by the creditors could not be executed against these Government securities.
In view of the aforesaid, we answer both the questions in the affirmative and in favour of the Revenue. The appeals are allowed. Each party will bear its own costs.
M.B.A./120I/FCQuestion answered.