JUDGMENT

TULZ.APURKAR, J. :— The only question raised in these appeals is whether the two sums of Rs. 5,40,941/- (in the case of M/s. J. K. Cotton Ltd.) and Rs. 21,61,788/-(in the case of J. K. Jute Ltd.) being the balance of the demands payable as a result of the findings and orders of the Income-tax Investigation Commission in the settlements made under the Taxation on Income (Investigation Commission) Act (30 of 1947) are deductible as debts owed by them in determining the net-wealth of these companies?

2. The question arises in these circumstances; M/s. J. K. Cotton Manufacturers Ltd., the assessee, is a limited company engaged in the manufacture of cotton textiles. etc. and the assessment involved is the wealth-tax assessment for the year 1957-58 based on the valuation date 30-9-1956. It appears that as a result of proceedings taken and a settlement arrived at in 1952 under the Taxation on Income (Investigation Commission) Act 1947, a sum of Rs. 15,99,041/- was determined as payable by the assessee company on its secreted profits and a scheme for the payment of the said liability by instalments was laid down. Out of this, a sum of Rs. 10,50,000/- had been paid before the valuation date (30-9-1956) and Rs. 5,49,041/- remained unpaid on that date. The assessee company claimed that the balance of the demand that had remained unpaid was a debt owed by it and should be allowed as a deduction while computing its net-wealth for the concerned year of assessment (1957-58).

3. In the case of M/s. J. K. Jute Mills Co. Ltd. the assessment involved under the Wealth-tax Act is also for the assessment year 1957-58 but the valuation date is 31-12-1956. In the case of this company also as a result of proceedings taken and a settlement arrived at in 1952 under the Taxation on Income (Investigation Commission) Act 1947 a sum of Rs. 42,93,392/- was determined as payable by it on its secreted profits and a scheme for the payment of the said liability by instalments was laid down. Out of this, a sum of Rs. 21,31,604/-had been paid before the valuation date (31-12-1956) and Rs. 21,61,788/- remained unpaid on that date. The assessee company claimed that the balance of the demand that had remained unpaid was a debt owed by it and should be allowed as a deduction while computing its net-wealth for the concerned year of assessment (1957-58).

4. The Wealth-tax Officer computed the net-wealth of each company by adopting the figures of assets and liabilities as shown in their balance sheets as on their respective valuation dates after making such adjustments as he considered necessary but in both the cases he disallowed the aforesaid claim for deduction on the ground that the liability was outstanding for more than 12 months on the valuation dates. The Appellate Assistant Commissioner confirmed the disallowance of the amounts but for a different reason. He took the view that the tax liabilities assessed by the Income-tax Investigation Commission had no relation to the assets or the declared wealth of the assessee companies, which were the basis of the wealth-tax assessment and since the assets on which the said liability was assessed, namely, the secret profits were not included in the declared assets the disallowance was justified. In further appeals preferred by the assessee-companies to the Tribunal, the reasons given by the Wealth-tax Officer as well as the Appellate Assistant Commissioner were assailed but without expressing any view on the validity or otherwise of the reason given by the Wealth-tax Officer, the Tribunal confirmed the disallowance by substantially agreeing with the view expressed by the Appellate Assistant Commissioner. The Tribunal pointed out that in Section 2 (m), which defines net-wealth, sub-section (i) excludes debts located outside India in the case of certain classes of assessees, in whose case assets located outside India are excluded; that Section 2 (m) (ii) bars the deduction of debts secured on or incurred in relation to