(a) Wealth tax---

----Deduction---Debt owed---Firm manufacturing Bidis---Provision for liabilities under Minimum Wages Act, Bonus Act and Bidi and Cigar Act-- Amounts debited in books---Finding that amounts were not paid but utilised in firm's business---Deductions given in income-tax assessment not conclusive--Amounts not deductible as debts owed by firm in determining value of interest of partner in firm for wealth tax purposes---Indian Wealth Tax Act, 1957, S. 2(m)(iii).

The assessees were partners of a firm which was engaged in the manufacture of Bidis and the firm was governed by the Bidi and Cigar Workers (Conditions of Employment) Act, 1966, and rules made thereunder. Under this Act, it is obligatory for any manufacturer of Bidis to pay to its workers including its contract workers wages at half-rate for "rejected Bidis" and wages for weekly and annual leave. The firm made provisions for payment of the "wages for rejected Bidis" and the "leave wages" under the above Act and claimed the same as expenditure in the income-tax assessments of the relevant year on mercantile basis of accountancy. Similarly, the firm was also under obligation to pay bonus to the workers under the Payment of Bonus Act and, therefore, the firm claimed the deduction for payment of bonus to its workers. Though both these deductions were allowed under the Income-tax Act, for determining the value of the interest of partners in the firm for wealth tax assessment of the partners, the assessing authority declined to grant this deduction as debts owed by the firm because no worker or person concerned claimed any share or portion on account of any such provision and the amount was never paid to the workers and it was found that ultimately, some of the reserves which were kept for payment of bonus amount as well as for payment under the Bidi and Cigar Act to the workers was utilised in the business. The Tribunal upheld the order of the assessing Authority. On a reference:

Held, that the firm had failed to produce before the authorities material to show that it really owed this debt for payment under the Bidi and Cigar Act and also under the Bonus Act. It was open to the Wealth Tax Authority to examine the matter factually. The mere fact that it had been recorded in the account books according to the mercantile practice of accountancy, that this amount was due, was not conclusive. The assessee had not shown to whom the amounts were due. The amounts were not deductible as debts owed by the firm for determining the value of the interest of the partners in the firm for wealth tax assessment of partners.

CIT (Addl.) v. Kale Khan Muhammad Hanif (1978) 114 ITR 812 (MP); CIT v. Sadul Textiles Ltd. (1987) 167 ITR 634 (Raj.); CIT v. Sugauli Sugar Works (P.) Ltd. (1983) 140 ITR 286 (Cal.); CWT v. Harrison and Crossfield Ltd. (1964) 54 ITR 587 (Ker.); CWT v. Prema Laxman (1984) 150 ITR 170 (Ker.); CWT v. Raipur Manufacturing Co. Ltd. (1964) 52 ITR 482 (Guj.); Kala Khan Muhammad Hanif v. CIT (1987) 163 ITR 769 (MP); Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363; (1971) 28 STC 672 (SC) and Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR 767 (SC) ref.

(b) Wealth tax---

---- General principles---Assessment under Income-tax Act not conclusive.

The assessment made by the assessing authority under the Income tax Act does not necessarily mean that the Authority under the Wealth Tax Act is bound by the same. Both the Authorities are free to assess the liability of the assessee under the aforesaid enactments.

B.L. Nema for the Assessee.

V.K. Tankha for the Commissioner.

JUDGMENT

All these aforesaid three references involve common questions of law; therefore, they are disposed of by a common order:

For the convenient disposal of all these aforesaid three references, the facts given in M.C.C. No.270 of 1987 Muhammad Hanif and others are taken into consideration.

This is a reference under section 27(1) of the Wealth Tax Act, 1957 (hereinafter referred to as "the Act"), made by the Tribunal at the instance of the assessees and the following two questions have been referred, for answer. to this Court by the Tribunal, which read as under:

"(1)Whether the Tribunal did not err in law in labelling a sum of Rs.73,60,451 (correct amount being Rs.73,30,736) standing to the accounts of 'Minimum Wages Amanat account', 'Bonus Amanat account' and ' Bidi and Cigar Amanat account' as 'Reserves' of the firm, Kale Khan Muhammad Hanif and consequently including in the net wealth of the assessee his proportionate entitlement in the said alleged reserves?

(2)Whether the Tribunal did not err in not allowing the proportionate sum of Rs.8,79,688 in the case of Muhammad Hanif, Rs.6,59,766 in the case of Muhammad Imran, Rs.7,33,073 in the case of Muhammad Aziz, Rs.6,59,766 in the case of Muhammad Wasim, Rs.5,13,151 in the case of Muhammad Sabir, Rs.5,13,151 in the case of Shri Muhammad Ayaz, and Rs.5,13,151 in the case of Shri Muhammad Ayar, standing to the credit of the Minimum Wages Amanat account; Bonus Amanat account and Bidi and Cigar Amanat account as 'debt owed' by the firm, Kale Khan Muhammad Hanif, while computing the assessable wealth of the assessee-partner?"

The relevant period is the assessment year 1976-77, for which these seven references applications have been filed. It is pointed out that identical issues arose in the case of the partners of Kale Khan Muhammad Hanif for the assessment year 1977-78 and

reference in those cases has also been made by the Tribunal before this Court, which is covered under the aforesaid questions. The assessee/applicants are partners of the firm, Kale Khan Muhammad Hanif, which was constituted by a partnership-deed dated October 29, 1974. This was a very old firm, though there had been a change in the constitution of the firm from time to time.

The firm was assessed for income-tax purposes also and in that assessment order, the firm claimed certain deductions under section 36(1)(ii) of the Income-tax Act for payment of wages under the Bidi and Cigar Workers Act and under the Payment of Bonus Act. It was held that the assessee/applicants incurred the liabilities under the aforesaid Acts; therefore, they are qualified for deductions. The matter reached the High Court and it was disposed of by the High Court upholding the deductions in the case of Kale Khan Muhammad Hanif v. CIT 1987 163 ITR 769; 1981 25 CIR 120 (MP) and Addl. CIT v. Kale Khan Muhammad Hanif 1978 114 ITR 812 (MP). It was submitted that the assessee-firm was also entitled to rebate under the Wealth Tax Act.

The brief facts which are necessary for disposal of these references, are that the assessee-firm deals in manufacture of Bidis and it is governed by the Bidi and Cigar Workers (Conditions of Employment) Act, 1966, and rules made thereunder. Under this Act, it is obligatory for any manufacturer of Bidis to pay to its workers (including its contract workers) wages at halfrate for "rejected Bidis" and wages for weekly and annual leave. The firm mainly gets its manufacturing work done through sub-contractors, who are called "Sattedars" on piece-wages basis. These Sattedars obtain the raw materials from the firm for distribution to workers and supply the manufactured Bidis to the firm. The amounts which were payable under the above Act, were in fact not paid by the firm. It, however, made provisions for payment of the "wages for rejected Bidis" and the "leave wages" under the above Act and claimed the same as expenditure in income-tax assessments of the relevant year on mercantile-basis of accountancy. Similarly, the assessee-firm is also under an obligation to pay the bonus to the workers under the Payment of Bonus Act and, therefore, the assessee-firm claimed the deduction for payment of bonus to its workers. Though both these deductions were permitted under the Income-tax Act, but while assessing the liability on the assessee-firm under the Wealth Tax Act, the assessing authority declined to grant this deduction. For the assessment year 1976-77, the assessee kept the amount to the tune of Rs.70,85,990 on account of payment of bonus amount as well as a provision for payment under the Bidi and Cigar Act. But no worker or person concerned claimed any share or portion on account of any such provision and the amount was never paid to the workers. It was found that ultimately, some of the reserves which were kept for payment of the bonus amount as well as for payment under the Bidi and Cigar Act to the workers, was utilised by the firm in business. Therefore, the assessee's share in this provision was taxed accordingly and the tax liability under the Wealth Tax Act was worked out and no rebate of this debt owed under section 2(m)(iii) of the Wealth Tax Act was given.

The assessee-firm filed an appeal before the Tribunal and the Tribunal upheld the order of the assessing authority. Hence, the assessee firm moved the Tribunal for making reference of the aforesaid questions and the Tribunal had accordingly referred both the aforesaid questions for answer by this Court.

The Tribunal did not dispute the legal position and held that so far as the liability under these Acts, i.e., the Bidi anti Cigar Act and the Bonus Act, is concerned, the assessee is entitled to the same as per law, but the assessee/applicants have failed to lead the evidence to satisfy the Wealth Tax Officer that they are entitled to rebate of the amount in' their liability for payment of Wealth Tax. The Tribunal found that it is not known whether the persons for whose benefit these liabilities are being carried over from year to year and whether that liability is still in existence as on the relevant valuation date or not. It is also found that whether the actual claimants are even aware of their entitlement against the firm (sic). No payment has actually been made so far and no steps have been taken to discharge these liabilities. It was pointed out that the funds in question amounting to Rs.75 lakhs have remained invested in the day-to-day business of the firm and are in its productive deployment. It was also observed that the firm has not separately invested the same in any earmarked assets. It was observed that though the rebate was given to the assessee under section 36(1)(ii), when the matter came before the Wealth Tax Authority, the Wealth Tax Authority insisted on proof whether the amount which has been reserved for Payment of Wages Act and under the Payment of Bonus Act is really due to workers or not. But no evidence was produced and only the assessee-firm has, as per the mercantile practice, filed this amount towards the payment of the statutory liability under the aforesaid enactments and carried on for years and years and then utilised this amount for their own purposes. Therefore, on the factual aspect, the authorities were satisfied that this is a ghost debt and declined to allow this rebate while assessing the tax liability of the assessee firm under the Wealth Tax Act. It is true that if that has accrued and is owed by the assessee, then on the valuation date, the assessee-firm is entitled to rebate of this tax from his net wealth. But the question is whether factually any material has been placed by the assessee to show that this debt has been owed by the assessee on the valuation date or not. It appears that the assessee created a ghost debt of this item in the books as a mercantile practice and continued this ghost debt owed by the assessee for years together and enjoyed this corpus and utilising the same in its business. When the Wealth Tax Officer insisted on material to show in fact, who are the workers to whom this debt is owed by the assessee, no material was placed nor was pointed out the name of any person whose the debt is due by the assessee nor any step was taken by the assessee for these long years to discharge this liability. Simply, from time to time, the assessee created this amount under the so called mercantile practice of accountancy for keeping this amount reserved for payment of statutory liability under the Bidi and Cigar Act or under the Bonus Act. But the assessee failed to satisfy the assessing authority how this amount is due to which worker. From these facts, it appears that this amount has piled up for long years and the assessee has been enjoying the corpus in his own business This only indicates that, in fact, the assessee created this ghost and enjoyed the corpus and succeeded before the authority under the Income-tax Act that the assessee is entitled to rebate under section 36(1)(ii) of the Income-tax Act of this debt. But when the matter came before the Wealth Tax Authority, the assessee only contended on the basis of the assessment orders of the Income-tax Authorities and claimed a rebate of this amount also as a debt owed by the assessee on the valuation date. But this was denied by the authority under the Wealth Tax Act as on their probing it was found that the assessee has failed to point out the names of the workers to whom debt is due. The assessee has also failed to point out that whether any litigation pertaining to this amount under the Bidi and Cigar Act or under the Payment of Wages Act, 1936, is pending anywhere or the authority created under the Payment of Bonus Act, but nothing of this sort was pointed out This left no alternative to the Wealth Tax Officer except to decline the rebate of the so-called debt owed by the assessee on the valuation date.

It is true that the assessee/applicants have succeeded in getting this deduction under the Income-tax Act before this Court also in cases referred to above, but nonetheless, the authority under the Wealth Tax Act cannot be prevented from finding out the correct factual position. The assessment made by the assessing authority under the Income-tax Act does not necessarily mean that the authority under the Wealth Tax Act is bound by the same. Both the authorities are free to assess the liability of the assessee under the aforesaid enactments. In the present case, the assessee has failed to produce before the authorities the material to show that the assessee-firm really owed this debt for payment under the Bidi and Cigar Act and also under the Bonus Act, then it is open for the authority under the Wealth Tax Act to examine the matter factually that the assessee-firm is entitled to the benefit of this rebate as debt owed under both these enactments and on their factual enquiry, it is found that the assessee has only created a ghost of this debt owed by it; but it failed to point out that how this debt is owed by the assessee against which worker and which worker has claimed the same through any legal process or not. Simply recording in its books of account will not be conclusive of the matter. In support thereof, learned counsel for the assessee has invited our attention to the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC), and it was observed headnote:

"Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. "

Therefore, it is open for the authorities to make a factual enquiry to find out that whether this debt was really owed by the assessee or not under the aforesaid enactments, i.e., Bidi and Cigar Act and the Bonus Act. But the assessee has failed to satisfy the authorities about the bona fides of these debts being due or owed by the assessee; therefore, the Wealth Tax Authorities have, rightly recording their finding.

So far as the legal proposition is concerned, there is consensus opinion of the High Courts that the assessee is entitled to such rebate of debts due from net wealth. In this connection, a reference has been made to CIT v. Sugauli Sugar Works (P.) Ltd. (1983) 140 ITR 286 (Cal); CWT v. Raipur Manufacturing Co. Ltd. (1964) 52 ITR 482 (Guj); CWT v. Harrison and Cross-field Ltd. (1964) 54 ITR 587 (Ker); Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR 767 (SC); CWT v. Prema Laxman (1984) 150 ITR 170 (Ker) and CIT v. Sadul Textiles Ltd. (1987) 166 ITR 634 (Raj).

Shri V.K. Tankha, learned counsel appearing for the Revenue, has submitted that so far as the legal proposition is concerned, there are no two opinions that if any debt is owed by the assessee under any enactment then the assessee is entitled to rebate of that debt as a debt owed by him, be it a present or past liability or in some of the cases, as their Lordships have gone to the extent, even a bad liability also. But, again, the question is whether the assessee has satisfied the authority that the debt owed by him under the enactments is existing or not or it is only ghost created by him for rebate. But, in the present case, the assessing authority and the Tribunal have found that the assessee has failed to establish that the debt is owed by him. Simply, it has been recorded in the account books according to mercantile practice of accountancy, that this 'amount is due, but to whom it is due and how it is due, that has not been established by the assessee-firm. Therefore, the authority under the Wealth Tax Act has found that this was only a ghost created by the assessee in order to get the rebate of so-called debt owed by him and carried on this ghost for years together, till they were caught napping and asked to produce evidence for the same. Therefore, front these facts, it is apparent that the assessee has only created a ghost whereas no such liability exists and, accordingly, the authority under the Wealth Tax Act has declined the benefit under section 2(m) of the Wealth Tax Act.

Shri B.L. Nema, learned counsel for the assessee, has also submitted that no action under section 41(1) of the Income-tax Act was taken by the Income-tax Department, if they have found that the debt due to the assessee is not there. But suffice it to say that the Tribunal had adverted to this question in its order, dated May 30, 1986, while concluding. It has observed:

"It is high time that the Revenue should consider taking remedial measures in Income-tax assessments by invoking the provisions of section 41(1) of the Income-tax Act."

Therefore, simply because the Department has not woken up to its responsibility that does not mean that the assessee is entitled to escape the net of liability under the Wealth Tax Act. Hence, we do not find any reason to take a different view from the view taken by the assessing authority as also by the Tribunal which is well justified and both the aforesaid questions are answered in favour of' the Revenue and against the assessee. Likewise, both the references M.C.C. No.142 of 1987 and M.C.C. No.268 of 1987 are also disposed of accordingly, and the questions referred therein are answered in favour of the Revenue and against the assessee

A.A./1341/FCOrder accordingly.