The main legal point established in the judgment is that for income-tax liability to be deductible from the net wealth of the assessee, it must mature into a debt owed by the assessee within the meaning of S.2(m) of the Wealth-tax Act, 1957.

1. This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under S.27(1) of the Wealth tax Act, 1957. The reference has been made at the instance of the Commissioner of Income-tax, Ernakulam.

2. The assessee is the Travancore Rayons Limited, Rayonpuram. The year of assessment is 1959-60 and the valuation date for the assessment which has been made under S.16(3) of the Act is the 31st December, 1958.

3. The assessment provided by the Act is on the net wealth of the assessee as on the valuation date. The expression "net wealth" is defined in clause (m) of S.2 of the Act. The definition is:

"'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all (he assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than, -

(i) debts which under S.6 are not to be taken into account;

(ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth-tax is not payable under this Act; and (iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953, the Expenditure-tax Act, 1957 or the Gift-Tax Act, 1958,

(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or

(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date."

4. Sub clause (iii) of clause (m) of S.2 was inserted with retrospective effect to the commencement of the Wealth Tax Act, 1957, by S.20 of the Finance Act, 1959. S.20 of the Finance Act, 1959, was Clause.20 of Bill No. 17 of 1959. The Note on Clauses appended to that Bill says:

"Clause 20 amends S.2 of the Wealth-tax Act, 1957, with retrospective effect to make it clear that taxes which are disputed and taxes which are in arrears for more than a year are not to be deducted as debts in the computation of the net wealth of an assessee."

5. The sole question for determination in this reference is whether the income-tax liability of the assessee for the accounting year 1958 - assessment year 1959-60 - should be deducted in computing the net wealth of the assessee as on the 31st December 1958. The question referred is worded as follows:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in allowing under S.2 (m) of the Wealth tax Act, 1957, the deduction of the provisions for income-tax from the taxable net wealth of the assessee?"

6. The answer to the question depends on whether the income-tax liability for the accounting year 1958 - assessment year 1959-60 - constitutes a debt owed by the assessee on the valuation date or not. All debts are liabilities; but all liabilities are not debts. One of the essentials of a debt, as pointed out by the Madras High Court in Commissioner of Wealth-tax v. Pierce Leslie and Co. Ltd. - (1963 - 48 I.T.R. 1005) - a case in which a question similar to the one before us was decided in favour of the Department - is "an ascertained or readily calculable amount."

7. It is true that the liability under the Indian Income-tax Act, 1922, arises not later than the close of the year of account and that in this case it arose not later than the 31st December 1958. As stated by the Supreme Court in Kalwa Deuadattam v. Union of India (1963 - 49 I.T.R. 165 - SC.):

"Under the Indian Income-fix Act liability to pay income-tax arises on the accrual of the income, and not from the computation made by the taxing authorities in the course of assessment proceedings; it arises at a point of time not