Law:

Section:

Section 2(m) of Wealth-tax Act, 1957, read with section 68 of Finance Act, 1965 – Net Wealth - Debt owed – A firm after making a voluntary disclosure of secreted income under section 68 of Finance Act, 1965, also paid tax at prescribed rate – WTO initiated proceedings under section 17 against each of assessees who were partners in that firm, for taxing escaped wealth – Assessee claimed that if any part of said income was being added to their net wealth, tax liability on same should be deducted in computing their net wealth – Tribunal allowed assessee's claim – Whether even though secreted income was disclosed in assessment of firm and it was firm which had paid tax on such income, once department treated disclosed income as arising to assessees (partners) and included secreted income in their wealth, each of partners became legally entitled to claim deduction of tax liability on said addition as ‘debt owed' within meaning of section 2(m) – Held, yes FACTS The assessees were partners in a firm. The firm after making a voluntary disclosure of secreted income which was spread over the assessment years 1957-58 to 1964-65, also paid tax at the rate of 60 per cent of the amount disclosed in terms of section 68(3) of the Finance Act, 1965. The WTO, initiated proceedings under section 17 against each of the assessees for taxing the escaped wealth. The assessees objected to the inclusion of the said income in their net wealth and alternatively urged that if any part of the said income was being added to their net wealth, the tax liability on the same at the rate of 60 per cent of the amount should be deducted in computing their net wealth, in terms of section 2(m). The claim of the assessee was, however, rejected by the WTO as also on appeal by the AAC. While dealing with the assessee's claim for deduction the AAC observed that since the liability to pay tax in terms of section 68(3) of the Finance Act, 1965, arose much later than the relevant valuation dates, such liability would not come within the ambit of section 2(m). On second appeal, the Tribunal held that the tax liability on the amount added to the assessee's wealth was deductible in terms of section 2(m). On…

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