Judgment sc-1984-1-480-484

A COMMI~SIONER OF WEALTH TAX, GUJARAT·

Y. ~- . I VIMLABEN. VADILAL MEHTA ' B • October RI, 1983

.[R.S. PATH~ AND E.S, VENKATARAMIAH, JJ.)

Wealfh Tax Act-Computation of assessee's net wealth-Whether income tax or wealth tax liability created in consequence of.rectification orders' passed c after the relevant valuation date can be the subject of a claim to deduction ?

During the collrse of the heari~g of an appeal against an assessment order made under the Wealth Tax Act for the aSsessment year 1964-65 · the respondent who was the ass~ssee: claimed deduction ·or ·an amount in the ~on1~ putation of net wealth which inter alia included the income tax and wealth tax

D s. 154 of the~Income-J'ax Act ands. 35 . . liabilities Created in consequence of certain rectific8:tion orders made under of the Wealth Tax Act. The rectificatjon . orders related to assessment·ofincome 'tax/wealth tax for the previous years and had been made after the completion of the assessment proceedingS · under the Wealth Tax Act for the assessment year 1964-65. The deduction claimed was allowed by the ApPellate Assistant Commissioner and his decision was . "1" upheld by the AppeHate Tribuaal aad the High Court. ·l!l Dismissing the api)eal, ·

Commissioner of Wealth Tax, Gujarat v. Shri Vadilal IA//ubhai (C.A, Nos.• 1524 to 1527 of 1973 de~ided on 21.10.1983) referred. to. • • G When aD appeai is filed against an assessment order before the .Appeitate Assistant Commissioner, the asses&nent case is ~brown open and the appellate proceeding co.nstitutes a continuation of the assessment proceeding. Even if the t:ix liabilities, of which a deduction is claimed, are c~eated by rectification order& or by assessment orders made after the date of the wealth tax assessment order under appeal, the law requires the claim to· deduction being considered On thfl saine basis as if it had been made. in the ori~iaa1 wealth· tax assess~eri: procecdin~. [483 :i;-Hl

c. w. T. v. v. v. MEHTA (Pathak, J.) 481

In the, instant case~ it is ~rue that the rectification orders re~ated to tax '. liabilities which were not claimed by the assessee in the course of the original assessment proceeding before the Wealth Tax ~ffi.cer but as the Appellate Assistant Commissioher permiHed the claim to be made during.the hearing of the appeal, there is Do reason .why the assessee should be denied consideration \r . of his claim. (483 H; 484 A] ·

CIVIL. APPELJ,ATE JURISDICTION : Civil Ap~al No. 1423 (NT) B clln~ •

From the Judgment and Order dated the 13th December, 1972 · of the Gujarat High Court at Ahmedabad in Wealth '.fax Reference No. 21 of 1971. • c S.C. Manchanda, H.B. Ahuja and Miss A. Subhashini for the • appellant.

The Judgln~nt of the Court was delivered by D PATHAK, J : This appeal is directed against the judgment of the ·Gujarat High Court disposing of a wealth tax reference and answering against the Revenu~ the followirtg two questions : • "Whether on the facts and in. the Circumstances of the case the assessee is entitled ·to the deduction of- E (i) income tax liabilities for the assessment years 1962"63, 1963-64 and 1964-65; wealth tax for the assessment year 1964-65 and gift tax for the assessment years 1962·63 to 1964-65 as determined payable on the . . F basis of the assessment orders passed after the vaiuatio'n date, and ·

(ii) income ta;( liability for the assessment years 1958·59 ..J , I and 1960-61 and wealth tax liability for the ·year 1961-62 created as a result of rectification orders· • G passed of the relevant valuation date in determiriing the vaJne of the net wealth ?"

In assessment proceedings under the Wealth Tax Act for the assess· ment year 1964-65; the respondent assessee claimed' a deduction of e Rs. 2,42,53Si- in the computation of her net wealth, on .the ground that0the amount represented the assessee's tall liabilities for dil!'~rent

482 "llliPIUlMB COURT llBPORTS [1984) r s.c.a. y~ars. The Wealth Tax Officer. rejected the claim. An ap\)eal by the assessee was allowed by· the Appellate Assistant Commissioner, who held the ~ssessee entitled to the ·deduction claimed but remanded the case to the Wealth Tax Officer for verifying the arithmetical accuracy of the claimed deductions. The Wealth Tax Officer appealed -. to the Appellate Tribunal. He contended that the assessee's claim J 8 to the deduction of income ta,x liabilities for the assessment years 1962-63, 1963·64 and 1964-65, the wealth tax liability for the assess· ment year 1964·65 and the gift tax liabilities for the assessment years 1962-63, 1963·64 and 1964-65 determined ·on the basis of assessment completed after the valuation date were not admissible deductions in computing the net wealth, and that in any event, the a deductions should have been allowed on the basis of the returns filed and not on .the basis of the assessment orders. The Appellate· • ~ Tribunal rejected the contention in view of the judgment of this • Court in Commissioner of Income Tax v. Kesoram Industries ·Pvt. Ltd.(1) and H.H. Setu Pa;vati Bayi v. Commissioner of Wealth Tax, Kera/a.('} The Wealth Tax Officer also contended that the income ,D tax liabifity for the years 1958-59.and 1960-61 and the wealth tall liability for the year 1961-62 created as a result of rectification ·orders made after the valuatiorr date were not admi.ssible deductions. This contention was also rejected by the Appellate Tribunal. Finally~ the . Wealth. Tax Officer pointed out that the tax liabilities were not deductible in view of the provisions of s. 2 (m) (iii) of the Wealth Tax Act. The Appellate Tribunal observed that this aspect of the case had not been considered by the Appellate Assistant Commis· soner and, accordingly,. the Appellate Tribunal directed the Appellate Assistant Commissioner to consider the case again ·and· determine F . , • which of the liabilities wdere covhered b_Y theHp'.ohviCsions of s.h2 (m) (iii). On a reference being ma e to t. e 0 UJarat 1g ourt at t e instance of the Revenue·on the questions oflaw set forth earlier, the High Court held that both questions were concluded by its judgment in I, Commissioner of Wealth Tax,'. Gujarat II v. !(anti/al Manila/, (B) and answered the questions in the affirmative. I a' As regards the first.,question, we have already expressed our view on the point in our judgment in The Commissioner of Wealth Tax, Gujarat, Ahmedabad v. Shrl Vadifal Lilllubhai etc. in Civil Appeals H ' (I} (1966) 59 LT.R. 767. \2) (1969) 69 J.T;R. 864. <3l (1~73) 8? 1.1".R. 1~, • '

C. W. T. V, V. V. MBHTA (Pathak; J) 483

- -~ Nos. 1524 to 1547 or' 1973. We need add nothing .more on. that point, and answer the question in the affirmative. The second question raises the point whether the incopie tax liability and wealth tax liability created in consequence of rectifi~ cation orders passed after the relevant valuation date can be the

,. 1 subject of a claim to deduction in the computation of an assessee'~ net wealth. Jn appears from the record before us that while the Wealth Tax Officer completed the assessme,nt proceeding for the assessment year 1964-65 by the assessment order dated November 23, • ' 1964, the rectification order under s. 154 of the lncoine Tax Act for the assessment year 1958-59 "'.as made on May. l3, 1966 and·. the rectification order under the same provision for the assessment year 1960-61 :was made on January i, 1965, and the rectification· order c under s. 35 ofthe'Wealth Tax Act for the assessment year 1961-62 :was made on June 10, 1965. In short, the rectification orders were made after the ·assessment proceeding had been completed by the Wealth Tax Officer.. It would seem that the' claim·to ·deduction on account of the income tax liabilities and the wealth tax liability was. D made in the course of the appeal before the Appellate Assistant Commissioner. From the record, it appears also that th'e income tax liabilities, the wealth tax· liability and the gift tax liabili{ies claimed as a deduction :were quantified by assessment order; made after the Wealth Tax Officer had completed the assessment procee- B ding. Those assessment orders were apparently brought to the notice . · of the Appellate Assistant Commissioner .by the assessee duritig . the hearing of Appeal filed the assessec. Shri S.C. Manchap.dlJ., learned counsel for the Revenue, urges that the judgment of Gujarat Iligh Court in Kantila/ Mailila/ (supra) does not conclude the ques· tion arising on this claim because the High Court :was concerned :with a claim to deduction on account of income tax, wealth tax and gift tax liabilities which had arisen before the Wealth Tax Officer had completed the assessment before him. Be that as it may,.it is well-settled that when an appeal is filed against an ·assess-· ment order before the Appellate Assistant Commissioner, ·the assessment case is thrown open and the appellate proCC!lding constit• utes a continuation of the assessment proceeding. Even if the tax liabilities, of which a deduction was claimed, were created by recti• ' fication orders or by assessment orders made after the date of the :wealth tax assessment order under appeal the Jaw ·requires the claim B · to deduction being considered on the same basis as if it had been made in the original :wealth tax assessment proceeding. , It is true that the rectification orders and the gift tax .assessments .related to· tax ·

484 SUPREMB COURT REPORTS U?84) 1 s.c.R.

A liabilities which were not-claiined by the assess·ee in the course of the original assessmenf proceeding before the Wealth Tax Officer, but as the Appellate Assistant Commissioner permitted the claim to be ...' - .made during the hearing of the appeal, we see· no ·reason why the asseesee ··should be· ·denied consideration of his claim. And as regards the quantification of the other focome tax· and wealth tax .liabilities effected after the Wealth Tax Officer had completed the original wealth tax asssessment proceeding, the quantification of the liabilities .related to claim which had already been raised before _ the Wealth Tax Officer in the course of the original assessment pro· ceedmg. As we.have observed in The Commissioner of WealthTax, Gujarat, Ahmedabad v. Shri Vadi/al Lallubhai etc.(1) in Civil Appeais c Nos. 1524 to 1547 of 1973, the rectification of an assessment must be treated on the same basis as an original assessment for the purpose of a claim to .deduction in the computation of the ·assessee's net wealth. The rectification merely quantines the true tax liability which .had already been crystallised and. become a debt on the last da}'. of n the previous year in the case of an income tax liability, on the valu· ation date in the case of a wealth tax liability and oi:t the last day of .the previous year in the OllSe Of a gift tax liability.

In the result, we hold that both the questions set forth earlier must be answered in favour of the assessee and. against the Revenue. · .The appeal'is therefore dismissed. As the assessee is absent, .there is no:order as to costs.

H.L.C. Appeal dismissed .-

(I) Judgment dated Oc!Ober 21, 1983,