The main legal point established in the judgment is that the provision made for purchase tax liability was deductible in the computation of the profits and gains of the business of the firm under S.37(1) of the Income Tax Act, and the shares of the liability provided were deductible in the computation of the partners' net wealth for wealth tax assessment under S.2(m) of the Wealth Tax Act.

Viswanatha Iyer, J.

These petitions are under S.27(3) of the Wealth Tax Act,1957.to compel reference of two questions, arising out of the orders of the Income Tax Appellate Tribunal, for the opinion of this court. The respondents assessees are partners of a firm A bad Fisheries which is engaged in the export of marine products. The prawns purchased locally were subjected to certain processes before they were exported to foreign countries. The firm claimed exemption from the liability for purchase tax under S.SA of the Kerala General Sales Tax Act, 1963 in respect of its purchases of prawns, under S.5(3) of the Central Sales Tax Act, 1956. But in the apprehension that liability may be cast on it for the purchase tax, the firm made provision in its accounts for the liability for various accounting periods, upto 1988-89. The question arose under the Income Tax Act, whether the provision so made by the firm was business expenditure deductible under S.37(1) of the Act. By our judgment rendered today in I.T.R. Nos. 67 and 68 of 1992, we have held that the firm had every reason to apprehend that they will be made liable for the tax, and that the provision was made reasonably. It was therefore held that the amount covered by the provision was deductible in the computation of the profits and gains of the business of the firm.

2. The partners of the firm, who were wealth-tax assessees, had claimed that their shares of the liability so provided were deductible in the computation of their net wealth for purposes of assessment under the Wealth Tax Act. The Tribunal upheld this contention and came to the conclusion that the provision for purchase tax liability was liable to be deducted in computing the net wealth to the extent of the shares of the respective assessees. Arising out of this order of the Tribunal the revenue has sought reference of the following questions for the determination of this Court:

"1. Whether on the facts and in the circumstances of the case and liability to purchase tax being disputed by the firm whether in computing the share interest of the partner in the firm, the purchase tax (proportionately) is eligible to be deducted?

2. Whether, on the facts and in the circumstances of the case the Tribunal is right in law and fact in holding that the firm engaged in food exports have reasonable apprehension of its liability to purchase tax and the same is 'real' and are not the above findings of 'apprehension' and 'real' based on the fact that the commercial tax department is pursuing the matter 'in some cases' unreasonable and unreal in the absence of a finding of any proceedings being pursued in the case of the firm in which the assessee is a partner?"

3. Standing Counsel for the revenue very seriously contests the deductibility of the amount with the plea that the amount of the provision cannot be termed a debt owed by the assessee on the relevant valuation date.

4. He relies on the decisions of the Supreme Court in Commissioner of Wealth Tax v. Standard Vacuum Oil Co.Ltd. (1966) 59 ITR 569 and Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth Tax (1966) 59 ITR 767.

5. We have held in our decision in ITR Nos. 67 and 68 of 1992 that the liability for payment of purchase tax accrues constant the purchases are effected and therefore, the provision for payment of such tax, if ultimately it became payable, is an accrued liability liable to be deducted in the computation of the profits and gains of business under S.37(1) of the Income Tax Act. The ratio of this decision will squarely apply to the wealth tax assessments of the partners as well. S.2(m) of the Wealth Tax Act defines "net wealth' as the amount by which the aggregate value of all the assets, exceeds the aggregate value of all the debts owed by the assessee on the valuation date, what is debt owed was the subject matter of consideration in Kesoram Industries & Cotton Mills. In that case, the assessee had made provision in its accounts for the es