The wealth-tax liability of the assessee on the valuation date is a "debt owed" within the meaning of S. 2 (m) of the Wealth-tax Act, 1957 and should be deducted from the estimated value of the assets as on the valuation date.

JUDGMENT :

Ramaswami, J.

1. These appeals are brought, by special leave, from the Judgment of the High Court of Kerala dated June 28, 1966 in Income-Tax Referred Case No. 6 of 1966.

2. From the assessment years 1958-59 to 1960-61 the Income Tax Officer, A Ward, Trivandrum completed the assessment of the appellant to wealth tax as follows:

Assessment year Net wealth assessed.

Rs.

1958-59 73, 36, 303

1959-60 72, 47, 522

1960-61 74, 31, 760

The appellant took the matter in appeal to the Appellate Assistant Commissioner of Wealth Tax, Trivandrum and contended that the liability to income-tax and wealth-tax as mentioned below should be deducted in computing the net wealth of the appellant as on the relevant valuation dates corresponding to the respective assessments:

Assessment year. Amount of income-tax liability claimed Amount of wealth-tax liability claimed Total tax liability claimed.

1958-59 Nil 1,33,127 1,33,127

1959-60 Nil 1,37,995 1,37,995

1960-61 1,07,102 1,56,691 2,63,793

The Appellate Assistant Commissioner rejected the claim of the appellant. Against the order of the Appellate Assistant Commissioner the appellant preferred an appeal to the Income-tax Appellate Tribunal, Madras. The Tribunal by its order dated March 15, 1963 allowed the claim of the appellant holding that the liability to wealth-tax should be deducted in computing the net wealth of the appellant for the respective years. At the instance of the Commissioner of Wealth-Tax, Kerala the Appellate Tribunal stated a case to the High Court under S. 27 (1) of the Wealth-Tax Act' 1957 (Act No. 27 of 1957), hereinafter referred to as the Act'. on the following questions of law:

"(1) Whether on the facts and in the circumstances of this case. the liability towards wealth-tax calculated on the basis of Wealth returns filed by the assessee is an admissible deduction under S. 2 (m) of the Wealth-tax Act for the purpose of computation of the net wealth of the assessee for the assessment years 1958-59, 1959 60 and 1960-61?

(2) Whether on the facts and in the circumstances and the provisions of S. 7 (2), the deletion of Rs. 5 13,390, Rs. 3.17,448 and Rs. 9,19,809 representing the differences between the market value and the book value' of the quoted shares held by Narayanan Investment Trust (P.) Ltd. in computing the value of the shares of that company as on 16-8-1957, 16-8-1958 and 16-8-1959 was justified?

(3) Whether on the facts and in the circumstances of the case, the tribunal is justified in law to hold that an amount of Rs. 7,00 000/-being the provision made for tax and shown in the Balance Sheet as on 16-8-1957 should be allowed as a deduction in computing break-up value of the shares in M/s. Narayanan Investment Trust (P.) Ltd.?"

After hearing the reference the High Court answered the second and the third questions in favour of the appellant and against the Department. With regard to the first question, the High Court took the view that the Wealth-tax liability of a particular year could not be deducted as a liability for that year but could be deducted in subsequent years subject to the provisions of S. 2 (m) of the Act. In the course of its judgment, the High Court observed that the liability for wealth-tax for the year 1958-59 commenced only on April 1, 1958 and not earlier than that and there was hence no liability towards wealth-tax for the year 1958-59 as on March 31, 1958. But any liability towards wealth-tax for 1957-56 which was in existence as on March 31, 1958 must be taken into account in determining the assets as on that date which could be charged under S. 3 of the Act for the year 1958-59.

3. The Act was brought into force on April 1, 1957. S. 3 of the Act imposes a charge for every financial year commencing on and from April 1, 1957, for tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule. The expression "valuation date" by S. 2 (q) means in re