Law: Wealth Tax Act, 1957

Section: 2(m)

Section 2(m) of the Wealth-tax Act, 1957 - Net wealth - Debt owed - Assessment year 1957-58 - Assessee, a non-resident company, claimed to deduct following amounts as "debts" in computation of net wealth : (i) amount demanded under section 18A and outstanding on valuation date, (ii) amount of income-tax due and payable on valuation date as per notice of demand under section 29, and (iii) amount of estimated reserve for liability to pay income-tax not assessed on valuation date - Whether essential requisites of debts are : (i) ascertained or readily calculable amount; (ii) absolute unqualified and present liability in regard to that amount with obligation to pay forthwith or in future within time certain; and (iii) obligation must have accrued and subsisting and should not be that which is merely accruing - Held, yes - Whether liability to tax under the Act becomes debt only on service of notice of demand calling upon assessee to pay tax levied and term "debt" does not cover amount reserved for tax liability in anticipation of assessment or future demand if assessment has been made - Held, yes - Whether, in instant case assessee was entitled to deduct amounts mentioned at (i) and (ii) above, but not entitled to deduct amount at (iii) as it was not a debt owed within meaning of section 2(m) as department had not even assessed assessee's income and levied tax - Held, yes FACTS The assessee a resident-company filed a wealth-tax return for the assessment year 1957-58 stating that its net wealth was Rs. 59,51,073 after deduction of Rs. 33,24,609, as a debt due and owing. This amount consisted of income-tax demanded under section 18A, income-tax payable as per notice of demand under section 29 and reserve for liability to pay income-tax not assessed. The WTO, disallowed the deduction claimed and computed the net wealth of the assessee at Rs. 92,95,104. On appeal, the AAC held that the income-tax demanded as due under section 18A was not deductible as the assessee could repudiate it by submitting its own estimate of income under section 18A(2). With regard to the claim for deduction income-tax demanded under section 29, it held that it was not a debt owed by the…

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