Badri Prasad vs Commissioner of Wealth Tax

R.K. Agrawal, J.—The income tax Appellate Tribunal, Allahabad has referred the following question of law u/s 27(3) of the Wealth-tax Act, 1957, (hereinafter referred to as "the Act"), for opinion to this Court:-- Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the unpaid income tax liability was not allowable as a debt within the provisions of Wealth-tax Act, 1957?

Briefly stated that the facts giving rise to the present Reference are as follows:--

The applicants are Hindu Undivided Families and the assessment relates to the assessment year 1976-77 for which the relevant valuation date is 31-3-1976. For the assessment year in question the applicants claimed a sum of Rs. 5,31,808 (Badri Prasad, HUF) and Rs. 5,33,965 (Ram Narain, HUF) as income tax liabilities, which had been incurred upto 1972-73. The Wealth-tax Officer refused to allow deduction of these liabilities in view of the provisions of section 2(m)(iii)(b) of the Act since more than 12 months had expired from the relevant valuation date and the liability had remained outstanding. He also disallowed a sum of Rs. 1.00 lakh paid as penalty which was imposed by the Collector of Central Excise for violation of the Gold Control Act, 1968. In appeal, the Appellate Assistant Commissioner did not accept the plea of the applicants regarding allowance of the liability towards income tax. However, he allowed the deduction of Rs. 50,000 each towards penalty under the Gold Control Act, 1968. The applicants as well as the Department took up the matter before the income tax Appellate Tribunal. The Tribunal has upheld the order passed by the Appellate Assistant Commissioner.

We have heard Sri Shashikant Gupta, learned counsel for the applicants and Sri Dhananjay Awasthi, learned Standing Counsel for the Revenue.

Learned counsel for the applicants submitted that the liability of income tax was created on the basis of settlement which it had with the Central Board of Direct Tax vide order dated 20-9-1972 and as the taxes were realized after 25-1-1974, the income tax liability remained unpaid and, therefore, it had been allowed as deduction. Learned Standing Counsel, however submitted that in view of the provisions of the section 2(m)(iii)(b) of the Act as the liability towards income tax was outstanding for the period of more than 12 months on the valuation date it could not be allowed.

Having heard the learned counsel for the parties, we find that u/s 2(m)(iii)(b) of the Act the amount of tax penalty, interest if outstanding for the period more than 12 months on valuation date is not to be allowed as a debt. Our view finds support from the decisions of this Court in the cases of Moti Lal Padampat Sugar Mills Co. (P.) Ltd. Vs. Commissioner of Wealth Tax, , J. K. JUTE MILLS CO. LTD. Vs. COMMISSIONER OF Income Tax, U. P., and Smt. Prem Lata Agarwal v. CWT [1983] 142 ITR 586 1 (All.). In this view of the matter, as the amount of income tax liability was outstanding for a period of more than 12 months on the valuation date i.e., 31-3-1976, the liability has rightly been disallowed. We, therefore, answer the question of law referred to us in the affirmative i.e., in favour of the Revenue and against the assessee. However, there shall be no order as to costs.