A taxation demand that is not disputed by the assessee as not payable by him but is nevertheless outstanding for a period of more than twelve months on the valuation date is not deductible from the net wealth of the assessee under section 2(m)(iii)(b) of the WT Act.

BANERJEE, J.

1. This is a reference under s. 27(1) of the WT Act, 1957.

2. The statement of case related to two asst. yrs.1957-58 and 1959-60, corresponding valuation dates being 31st Dec., 1956 and 31st Dec., 1958.

The assessee is a company doing coal-mining business. In making a return of its net wealth as on the two valuation dates hereinbefore mentioned, the assessee claimed deduction of a sum of Rs. 28,37,282-8-0, representing taxes, penalties, etc., assessed and demanded in the year 1952. It is not disputed that certificates, under the Public Demands Recovery Act, have been issued for recovery of the said amount of Rs. 28,37,282-8-0 and it is not also disputed that notice under s. 7 of the Public Demands Recovery Act, 1913, was served on the assessee and that recovery proceedings were pending on the relevant valuation dates.

3. The WTO disallowed the assessee's claim for deduction of the said amount from the net wealth. An appeal preferred by the assessee, against the assessment order, before the AAC also failed. Thereafter, the assessee, appealed before the Tribunal, which allowed the claim of the assessee in respect of the sum of Rs. 28,37,282, with the following observations :

"As soon as the ITO treats an assessee as in default and forwards to the Collector a certificate under his signature of recovery of the amount of arrears due from the assessee under s. 46(2), the amount specified in such certificate becomes recoverable as if it were an arrear of land revenue. Upon such certificate being issued, the assessee becomes a certificate-debtor, and the amount specified in the certificate becomes a certificate-debt recoverable as an arrear of land revenue under the Public Demands Recovery Acts, in force in the relevant area. In our opinion, the amount specified in the certificate can no longer be regarded as tax payable in consequence of any order passed under or in pursuance of any law relating to taxation of 'income or profits' within the meaning of s. 2(m)(iii) of the WT Act. A certificate-debt to which the provisions of the Public Demands Recovery Act applies, constitutes a charges upon the immovable property of the certificate-debtor wherever situate, under s. 8(b) of the Bengal Public Demands Recovery Act (Bengal Act III of 1913). We are, therefore, of the view that the certificate-debt of Rs. 28,37,282 is deductible from the capital value of the immovable assets of the assessee upon which such debt constitutes a first charge."

4. The assessee had taken up another objection before the Tribunal to the effect that the provisions of the s. 2(m)(iii) of the WT Act were against the provisions of the Constitution of India and were, therefore, ultra vires the Parliament's legislative powers. This point the Tribunal had failed to deal with in their original order. When this omission was brought to the notice of the Tribunal, the Tribunal rectified the omission, under s. 35 of the WT Act, and passed the following further order :

"The appellant's representative contended that if, in view of s. 2(m)(iii), no deduction is allowed in respect of debts due in consequence of tax demands made by the taxation authorities such debts would be included in the net wealth and assessed to wealth-tax. The Central legislature, it was urged, was competent, under Entry 86, to levy wealth-tax only on assets and not on debts, and hence the provisions of s. 2(m)(iii) precluding deduction of debts, outstanding for over one year, are ultra vires the Constitution. We are not, however, in agreement with the contention of the appellant. Entry 86 of the Constitution enables the Central legislature to levy tax on the capital value of the assets excluding agricultural lands; it is not disputed that the tax in this case has been levied on such assets; the dispute in this case relates to the disallowance of the deduction claimed by the assessee against the capital value of such assets. The Central legislature has, under s. 2(m)(iii) of the WT Act, p