A.H. DALMIA VS COMMISSIONER OF WEALTH TAX
1999 P T D 988
[232 I T R 921]
[Delhi High Court (India)]
Before Y. K. Sabharwal and D. K. Jain, JJ
A.H. DALMIA and others
Versus
COMMISSIONER OF WEALTH TAX
Wealth Tax References Nos. 115 to 129 of 1988, decided on 20/02/1998.
(a) Wealth tax---
----Net wealth---" Asset", meaning of---Amounts paid by assessee pursuant to demands under Income Tax Act, Wealth Tax Act, Gift Tax Act, etc.---Part of amounts becoming due for refund to assessee in pursuance of appellate orders after relevant valuation date---Does not constitute an "asset"---Not to be included in net wealth---Indian Income Tax Act, 1961, S.156---Indian Wealth Tax Act, 1957, S.2(e), (m).
(b) Wealth tax---
---- Net wealth---" Asset", meaning of---Compulsory deposit made under Compulsory Deposit Scheme (Income-tax Payers') Act, 1974---Is not an annuity but is an asset---Is to be included an net wealth---Indian Wealth Tax Act, 1957, S.2(e)(2)(ii).
On the question whether the amount paid by the assessee as additional demands on completion of assessment under the Income Tax Act, 1961, the Wealth Tax Act, 1957, and the Gift Tax Act, 1958, and a part of it becoming due for refund to him in pursuance of appellate orders passed after the relevant valuation date, constituted an asset within the meaning of section 2(e) of the Wealth Tax Act, 1957, and, thus, formed part of the assessee's net wealth within the meaning of section 2(m) of the Act on the relevant valuation date:
Held, that it could not be said that the mere possibility of getting a refund from the amounts so paid could be treated as an asset of the assessee for the purpose of computation of his net wealth under the Wealth Tax Act.
After the deposit of the amount in compliance with the statutory demand notice under section 156 of the Income Tax Act, 1961, the assessee had no claim, right or title in that amount till an order for the refund of excess amount so paid was made. The asset should be in existence on the valuation date or at least the assessee should have a right to receive or there should be a subsisting interest on the valuation date, which could be treated as an asset. Mere actionable claims or a right contingent upon the occurrence of a subsequent event could not be treated as an asset. Therefore, a mere chance of getting relief in appeals and the resultant refund in future could not be treated as forming part of an asset of the assessee belonging to him for the purpose of determining his net wealth on the relevant valuation date:
Held also that the compulsory deposit made under the Compulsory Deposit Scheme (Income-tax Payer's) Act, 1974, is not an annuity and is an asset within the meaning of section 2(e)(2)(ii) of the Wealth Tax Act, 1957, and is to be included in the net wealth of the assessee.
CWT v. Seth Lalit Modi (1998) 232 ITR 348 (Delhi) fol.
CIT v. Rangnath Bangur (1985) 152 ITR 71 (Raj.); CWT v. Arvindbhai Chinubhai (1982) 133 ITR 800 (Guj.); CWT v. Bhatt (K.S.N.) (1984) 145 ITR 1 (SC); Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR 767 (SC) and Nawab Sir Mir Osman Ali Khan (Late) v. CWT (1986) 162 ITR 888 (SC) ref.
Harihar Lal with Ms. Radha Rangaswamy for the Assessees.
B. Gupta, R.D. Jolly with A.K. Jha for the Commissioner.
JUDGMENT
D. K. JAIN, J.--- In this batch of fifteen references, at the instance of the assessees, the following two questions arising out of its consolidated order have been referred by the Income-tax Appellate Tribunal under section 27(1) of the Wealth-tax Act, 1957 (for short "the Act"), for the opinion of this Court:--
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal erred in holding that the amounts of refund of income-tax and other direct taxes for various assessments years prior to the assessment year 1981-82 to which the assessees became entitled as a result of the appellate orders passed subsequent to the valuation date relevant to the assessment year 1981-82 were "assets" belonging to the assessees on the valuation date within the meaning of section 2(m) of the Wealth-tax Act, 1957?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the amounts lying to the credit of the applicant in the Compulsory Deposit Scheme (Income-tax Payers') Act, 1974, is an 'asset' within the meaning of section 2(e)(2)(ii) of the Wealth-tax Act, 1957?"
All the references relate to the assessment year 1981-82 corresponding to the valuation date March 31, 1981. The first question involved is as to whether the amounts paid by the assessees as additional demands on completion of assessment under the Income-tax Act, 1961, the Wealth-tax Act and the Gift-tax Act and a part of it becoming due for refund to them in pursuance of the appellate orders passed after the relevant valuation date, constituted an asset within the meaning of section 2(e) and thus formed part of the assessee's net wealth within the meaning of section 2(m) of the Act on the relevant valuation date.
During the course of the assessment proceedings for the relevant assessment year the Wealth-tax Officer was of the opinion that even though these deposits have been made in pursuance of demands raised by the Revenue vet these demands were not final and were liable to be varied by the appellate authorities. Relying on the judgment of the Supreme Court in the case of CWT v. K.S.N. Bhatt (1984) 145 ITR 1, wherein it was held that in computing the net wealth of the assessee under the Act, the liabilities towards income-tax, wealth-tax and gift-tax, which crystalise on the relevant valuation dates determined in the respective assessment orders as liabilities are to be deducted as debt due, even though those assessments are finalised after the valuation date, the Wealth-tax Officer took the view that the converse of this proposition laid down by the Supreme Court must also hold good i.e. the amount which becomes refundable to the assessee consequent to assessees pursuant to the appellate orders after the relevant valuation date, as part of the net wealth of each of the assessees. It is not in dispute that the amounts in question represented refunds received by the assessees in pursuance of the appellate orders passed after the valuation date in respect of amounts which the assessees had deposited pursuant to various demands for income-tax etc., raised by the Revenue authorities.
The assessee took the matter in appeal before the Commissioner of Wealth-tax (Appeals), who directed the Wealth-tax Officer to exclude the amounts due as refunds on account of appellate orders passed after the valuation date, from the net wealth of the assessees.
Aggrieved by the decision of the Commissioner of Wealth-tax (Appeals) the Revenue took the matter to the Tribunal. The Tribunal deriving support from the decision of the Supreme Court in the case of K. S. N. Bhatt (1984) 145 ITR 1, by propounding a proposition converse to the proposition laid down in the said decision, took the view that the amount which becomes refundable as a result of the appellate order is certainly an asset when the amount due under the assessment is sought to be claimed as a liability. Accordingly, the Tribunal uphold the action of the Wealth-tax Officer. Being aggrieved by the view taken by the Tribunal, the assessees have raised question No. 1, referred to above.
We have heard learned counsel for the parties. Mr. Harihar Lal, learned counsel for the assessee, has contended that the view taken by the Tribunal is not legally sustainable. He contends that once an amount has been paid as tax in response to a notice of demand, as on the relevant valuation date, the assessee has no legal right to claim its refund. In other words, the contention is that the amount so paid ceases to be an asset "belonging to the assessee" within the meaning of section 2(m) of the Act and, therefore, cannot be included in his net wealth. His submission is that the expression "belonging to the assessee" postulates a legal domain of an assessee over the asset as explained by the Supreme Court in Nawab Sir Mir Osman Ali Khan (Late) v. CWT (1986) 162 ITR 888. Learned counsel has also invited our attention to a decision of the Gujarat High Court in CWT v. Arvindbhai Chinubhai (1982) 133 ITR 800 and of the Rajasthan High Court in CIT v. Rangnath Bangur (1985) 152 1TR 71, holding that on the mere possibility of getting income-tax refund in future, of the excess advance tax paid, on finalisation of the assessment proceedings, it would not form part of the asset of the assessee on the valuation date.
On the other hand, Mr. B. Gupta and Mr. R.D. Jolly, learned senior standing counsel for the Revenue, while supporting the view taken by the Tribunal have contended that the subsequent event of the assessee getting relief in appeals and thus becoming entitled to refund of the excess amounts paid pursuant to the notice of demand under section 156 of the Income-tax Act, shows that the excess amount realised by the Department was not under the authority of law and, therefore, the excess amount so paid by the assessee being legally due to him, continued to belong to him and was thus includible in his net wealth.
As noted above, the question posed for our consideration is as to whether the likelihood of certain refunds of the amounts, paid pursuant to notice of demands issued after finalisation of income-tax wealth-tax and gift-?tax assessments, which might be available to an assessee in future on his getting relief in appeals, constitutes an asset within the meaning of section 2(e) of the Act, includible in his net- wealth as on the relevant valuation date.
The definition of the word "asset" in section 2(e) of the Act is very wide and includes movable and immovable property of every description except what has been specifically excluded therein. Under section 3 of the Act, the charge of wealth-tax is on the net wealth of the assessee on the relevant valuation date. "Net wealth" is defined under section 2(m) of the Act. The relevant portion of section 2(m) reads as follows:--
"(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.. "
From a conjoint reading of sections 3 and 2(m) of the Act it is evident that the charge of wealth-tax is only on the net wealth of the assessee, which comprises all assets belonging to him as are in excess of the aggregate value of the debts owed by him on the relevant valuation date. In other words, the net wealth connotes excess of assets over liabilities as on the valuation date. In section 2(m), apart from the first material expression "belonging to the assessee" on the valuation date, the other expression which equally has a material bearing on the determination of the question posed is "in excess of the aggregate value of all the debts owed by the assessee".
The question as to whether the amount of the provision made for the payment of income-tax and super-tax could be considered as debt owed within the meaning of section 2(m) came up for consideration in Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR 767 (SC). The Supreme Court held that the phrase "debt owed" could be defined as a liability to pay "in praesenti" or "in futuro" an ascertainable sum of money; that the charging section for the purposes of income-tax was section 3 of the Indian Income-tax Act, 1922, and the annual Finance Acts only gave the rate for quantifying the tax; that a liability to pay income-tax was a present liability though the tax became payable after it was quantified in accordance with the ascertainable data. It was observed that there was a perfected debt at any rate on the last day of the accounting year and not a contingent liability, the rate was always easily ascertainable. If the Finance Act was passed, it was the rate fixed by that Act; if the Finance Act was not yet passed it was the rate proposed in the Finance Bill pending before the Parliament or the rate in force in the preceding year, whichever was more favourable to the assessee. If all the ingredients of "debt" were present, it was a present liability of an ascertainable amount. In that light it was held that the amount of the provision for payment of income-tax and super-tax in respect of the year of account ending March 31, 1957, was a "debt owed" within the meaning of section 2(m) on the valuation date, i.e. March 31, 1957 and was as such deductible in computing the net wealth.
In the light of the principle laid down in the aforesaid judgment it cannot be disputed that the liability to pay the amount demanded vide notice under section 156 of the Income-tax Act, being an actual accrued liability, is by itself, a "debt owed" by the assessee and as such its value is liable to be deducted before arriving at the net wealth in terms of section 2(m), if it is not discharged before the relevant valuation date. If that is so, it seems difficult to say that if such an ascertained liability is discharged by an assessee by actual payment either before or on the valuation date, it would cease to have the character of a debt and further refund of a part of this amount on a future date would get converted into an "asset" within the meaning of section 2(e) of the Act.
In the instant case, as noticed above, the assessees have deposited the amounts in question in compliance with the statutory demand notice issued to them. On finalisation of the assessment under various Acts, what the assessees had done on the valuation date was that they had discharged their legal obligation by making the payment of the demands so raised against them. If they had not done so and the additional demands created had remained undischarged by the valuation date, undisputably these would have been allowed as debt owed on the valuation date. Merely because the payment had been made on the valuation date, the demands raised did not lose their character of a debt owed by the assessee on the valuation date. '
Under these circumstances it cannot be said that the mere possibility of getting refund from the amounts so paid can be treated as an asset of the assessee for the purpose of computation of his net wealth under the Act. After the deposit of the amount in compliance with the statutory demand notice under section 156 of the Income-tax Act, the assessees had no claim, right or title in that amount till an order for the refund of excess amount so paid was made. The asset should be in existence on the valuation date or at least the assessee should have a right to receive or there should be a subsisting interest on the valuation date, which can be treated as an asset. Mere actionable claims or a right contingent upon the occurrence of a subsequent event cannot be treated as an asset. Therefore, a mere chance of getting relief in appeals and the resultant refund in future, in our view, cannot be treated as forming part of an asset of the assessee belonging to him for the purpose of determining his net wealth on the relevant valuation date.
In K.S.N. Bhatt's case (1984) 145 1TR 1 (SC), relied upon by the Tribunal, the Supreme Court introduced the theory of relating back to a limited extent in so far as it related to the question of deduction of statutory liability from the net wealth under the Act. According to this decision, if there is a variation in the liability consequent upon the appellate or revisionary order or as a result of reference to the High Court or appeal to the Supreme Court, the liability as finally determined should be taken into consideration as on the valuation date to which it related, even though variation has taken place in a subsequent year. The relevant assessment has to be rectified giving effect to any of these orders. The said judgment basically deals with the quantification of the liability. It does not deal with a situation where reduction in the liability results in the grant of refund. This would be an entirely different situation, to which the said judgment does not seem to provide the answer. To apply the ratio of this judgment as an abstract proposition of law in a converse situation, as done by the Tribunal, in our view, may not be a correct reading of the judgment, because the answer to the question whether the refund is to be included in the net wealth or not, would depend on many factors, like how an assessee has treated the amounts paid towards tax in his return. For instance, if the deposit of advance tax or tax deducted at source (T.D.S.) or any other payment of tax is included as an asset in the computation of net wealth, there is no question of treating the refund of any of the said amounts as an asset.
Though the aforesaid decisions of the Gujarat and Rajasthan High Courts, relied upon on behalf of the assessees, pertain to the question of treatment to be meted out to the excess advance tax for the purpose of section 2(e) read with section 2(m) of the Act and may not strictly apply to the controversy before us, the observations in the Gujarat case that the mere possibility of getting income-tax refund in future as and when the assessment proceedings are to be finalised would not form part of an asset belonging to the assessee tend to support the above view taken by us.
For the foregoing reasons it has to be held that the amount in question received as refund by the assessees after the relevant valuation date cannot be treated as an asset belonging to the assessees on the valuation date within the meaning of section 2(e) of the Act and thus, cannot be included in their net wealth. Accordingly, we answer question No.l in the affirmative, i.e. in favour of the assessee and against the Revenue.
Coming to the second question, as to whether a compulsory deposit made under the Compulsory Deposit Scheme (Income-tax Payers") Act, 1974, is an asset within the meaning of section 2(e)(2)(ii) of the Act, learned counsel for the parties are agreed that the answer to the question stands concluded by our decision in WTR Nos.210-212 of 1987, dated September 17, 1996, in CWT v. Seth Lalit Modi (1998) 232 ITR 348 (Delhi), wherein it has been held that the said deposit is not an annuity within the meaning of the said section and is an "asset" to be included in the net wealth of the assessee.
For the reasons given in the said decision, we answer question No.2 in the negative, i.e. in favour of the Revenue and against the assessees.
The references are answered accordingly. There will be no order as to costs.
M.B.A./1884/FC???????????????????????????????????????????????????????????????????????????????? Reference answered.