Law: Wealth Tax Act, 1957

Section: 3,7

Section 2(m) read with sections 3 and 7 of the Wealth-tax Act, 1957 - Net wealth - Debt owed - Assessment years 1957-58 to 1959-60 - Assessee-company claimed deduction of provision made for taxation in balance sheet for accounting years relevant to assessment years in question from its net wealth for which assessments under Income-tax Act had not yet been completed - Whether since liability to pay income-tax arises as and when income is earned, though tax may be quantified only after assessment order has been passed, liability cannot be said to be contingent - Held, yes - Whether since amount of liability had been ascertained by assessee itself, it could not be said that amount was not a debt which could be deducted to find out net wealth of assessee - Held, yes - Whether, therefore, provisions for taxation for relevant assessment years were proper deductions in ascertainment of net wealth of assessee-company as on respective valuation dates - Held, yes FACTS In the balance-sheets for the calendar years ending on 31-12-1956 to 1958 relevant to the assessment years 1957-58 to 1959-60, the assessee-company had made provisions for taxation amounting to Rs. 2,25,000, Rs. 2,40,000 and Rs. 2,90,933 for the said calendar years. These amounts were shown as provisions for taxation under the head "current liabilities and provisions". The WTO did not exclude these amounts from the net wealth of the company. The order of the WTO was affirmed by the AAC. On further appeal, the Tribunal held that the liabilities for taxation were deductible from the assets of the company for determination of its net wealth. On reference : HELD Reading of sections 2(m), 3 and 7 showed that the wealth-tax is charged on the net wealth of an assessee which is arrived at by deducting certain debts from the value of the assets determined in accordance with section 7. Before the net wealth can be determined the value of the assets has thus to be determined under section 7. Section 7(1) does not lay down that all items of liability set out in the balance-sheet are bound to be deducted by the WTO in determining the assets of the company. The liabilities which are likely to affect the value of the…

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