Liability shown in the balance sheet of the assessee company if a debt owed.

VEERASWAMI J.

This reference under section 27(1) of the Wealth-tax Act, 1957, refers to the assessment years 1957-58 and 1958-59 and involves the scope of sub-clause (ii) of clause (m) of section 2 of the Act and its applicability to the facts of this case. The assessee is a public limited company carrying on business of different types including as hotel-keepers and caterers. For each of the two years, it has been assessed to wealth-tax. The assessee claimed that a debt of Rs. 31, 26, 000 should be taken into account in ascertaining its net wealth. The claim was negatived by the revenue, and the Tribunal concurred with it. The following question has been, therefore, referred to us

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the claim of the assessee for the deduction of Rs. 31, 26, 000 was rightly rejected and coming under section 2(m)(ii) of the Wealth-tax Act ?" *

The assessee acquired, pursuant to a resolution of its board of directors, dated October 22, 1929, 1, 59, 924 preference shares out of 1, 60, 000 preference shares and 1, 99, 948 equity shares out of 2, 00, 000 ordinary shares issued by G. F. Kellner and Company, an incorporated and registered company whose main business was railway catering in North India. The assessee acquired the shares partly for cash and partly in lieu of its own shares issued to the shareholders of Kellners. By another resolution dated February 4, 1930, the board of directors of the assessee decided to purchase and did purchase all the current assets

"excepting firstly but only for the time being the agreements relating to catering on the East Indian Railway, the Great Indian Peninsular Railway and the Bengal and North Western Railway" *

and the goodwill of Kellners for a consideration of Rs. 31, 26, 000. Part of this consideration was to be paid in cash on demand by Kellners pursuant to a resolution to be passed at the general body meeting of the assessee. On December 29, 1939, another resolution was passed by the board of directors of the assessee to the effect that, in the event of the liquidation of Kellners, the liability of Kellners was to be adjusted against the value of shares held by the assessee in Kellners. Clauses 2, 6 and 8 of the resolution of the board of directors of the assessee dated February 4, 1930, ran

"2. Part of the consideration price shall be Rs. 31, 26, 000 which subject to the provision in that behalf set out below shall be paid and satisfied in cash by this company on demand made by G. F. Kellner and Company Limited pursuant to a resolution to that effect at a general meeting of the shareholders, and it is agreed that the said price of Rs. 31, 26, 000 shall include the indebtedness of this company to G. F. Kellner and Company Limited at 30th June, 1929

6. If and so long as the Rs. 31, 26, 000 mentioned in clause (2) above remains unsatisfied this company shall on each first day of January and each first day of July commencing with the first day of January, 1930, pay to G. F. Kellner and Company Limited such a sum as when increased by any receipts of G. F. Kellner and Company Limited from any other source, (i.e.) other than the aforementioned half-yearly payment, whatsoever during the previous period of six months and reduced by the outgoings of G. F. Kellner and Company Limited for any purpose whatsoever excluding dividends paid, but not excluding taxes during the same period of six months, amount to Rs. 1, 04, 375

8. If while the Rs. 31, 26, 000 mentioned in clause (2) or any part thereof remains unpaid G. F. Kellner and Company Limited shall propose to go into voluntary liquidation, any special resolution submitted to share-holders for the purpose by the board of directors shall provide that this company instead of paying to the liquidators the said Rs. 31, 26, 000 or the unpaid part thereof in cash shall be entitled to surrender to the liquidators any shares in G. F. Kellner and Company Limited held