Income tax assessed and demanded held deductible.

JAGDISAN J.

Messrs. Pierce Lesile & Co. Ltd., which is a non-resident company, was assessed to tax under the Wealth-tax Act, 1957, for the assessment year 1957-58. We shall refer to this company as the assessee in this judgment. It field a return under the Act stating that its net wealth was Rs.59, 51, 073. In computing this net wealth the assessee claimed as deduction a sum of Rs.33, 24, 609 as a debt due and owing which ought to be taken into account in fixing the taxable value under the Act. The break of this figure, Rs.33, 24, 609 was as follows

1. The amount of income-tax demanded as per Rs.10, 22, 463

order under section 18A of the Indian Income-

tax Act and outstanding on the valuation date

3th June, 1956

2. Amount of income-tax due and payable on the Rs. 2, 56, 762

valuation date as per notice of demand under

section 29, Indian Income-tax Act

3. Estimated reserve for liability to pay income- Rs.20, 45, 384

tax not assessed on the valuation date, but for

which provision was made by the assessee in

anticipation of a future liability

The Wealth-tax Officer, , Madras disallowed the deduction claimed and computed the net wealth of the assessee at Rs.92, 95, 104. The assessee preferred an appeal to the Appellate Assistant Commissioner. The appellate authority held that the income-tax demanded as due under section 18A aggregating to Rs.10, 22, 463 was not deductible as the assessee could repudiate it by submitting its own estimate of income under section 18A(2). With regard to the claim for deduction of Rs.2, 56, 762 demanded from the assessee under section 29 of the Act, the appellate authority held that it was not a debt owed by the assessee as the collection of the amount was postponed due to the claim made by the assessee for relief under " double income-tax relief". regarding the sum of Rs.20, 45, 34 the Assistant Commissioner's view was that it was a mere provision in the accounts of the assessee for anticipated tax liability, and that, therefore, it was not a real and present liability which came in for deduction in computing the net wealth under the Act. The appeal therefore failed. The assessee preferred a further appeal before the Income-tax Appellate Tribunal. The Judicial Member held that the assessee was entitled to deduct the sum of Rs.10, 22, 463 and Rs. 2, 56, 762, the amounts due as per section 18A demand and section 29 demand under the Indian Income-tax Act, but that the claim for deduction of Rs.20, 45, 384 was not permissible. The Accountant Member, however, held that the assessee was entitled to deduct the sum of Rs.10, 22, 463 and Rs.2, 56, 762, the amounts due as per section 18A demand and section 29 demand under the Indian Income-tax Act, but that the claim for deduction of Rs.20, 45, 384 was not permissible. The Accountant Member, however, held that the assessee was entitled to deduct the entire sum of Rs.33, 24, 609. In this view of the matter his decision was that the appeal should be allowed fully. Due to the difference of opinion between the two Members of the Tribunal, the matter was placed before the President. He agreed with the Accountant Member. He expressed his conclusion in these terms

" In order to arrive at the correct net value of the business as a whole all known liabilities have to be provided . a provision made in anticipation of a liability is something very different than a provision made for a specific liability like that of income-tax. In the first case. it is only a reserve , , but in the latter case it is a liability which has to be taken into account in ascertaining the net value of the business as a whole. I do not agree with the departmental representative that the payment of a tax is a contingent liability. If income accrues, the liability to tax also accrues with it." *

The result was that the assessee obtained the benefit of deduction of Rs.33, 24, 609 in the computation of its wealth. On an application preferred by the Commissioner of Wealth-tax , Madras the following quest