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IN THE HIGH COURT OF ALLAHABAD
K. N. Seth and R. R. Rastogi, JJ.
SMT.PREM LATA AGARWAL - Appellant
Versus
COMMISSIONER OF WEALTH-TAX - Respondents
Wealth-tax Reference 203 Of 1978
Decided On : 04/26/1982
WEALTH TAX - Net wealth - Deduction - Debt - Income-tax liability outstanding against HUF - Whether assessee entitled to deduction of entire liability or only 1/5th thereof - Whether assessee entitled to deduction of entire amount of decrees passed against assessee's branch and Mohan Lal's branch or only half thereof - Whether assessee entitled to deduction of entire amount of decree against HUF of M/s. Kishori Lal Mukundi Lal or only 1/5th thereof - Whether value of ascertained decrees pending in execution court on valuation date can be treated as wealth on valuation date.
Fact of the Case:
The assessee, an individual, claimed deduction of the entire amount of income-tax liability outstanding against the HUF of M/s. Kishori Lal Mukundi Lal, of which she was a member, as well as the entire amount of decrees passed against her branch and Mohan Lal's branch, and the entire amount of a decree against the HUF of M/s. Kishori Lal Mukundi Lal. The WTO and the AAC allowed deduction of only 1/5th of the income-tax liability and half of the amount of the decrees. The Tribunal confirmed the AAC's order. On reference, the assessee contended that she was entitled to deduction of the entire amount of the liabilities as they were joint and several.
Finding of the Court:
The court held that the assessee was not entitled to deduction of the income-tax liability outstanding against the HUF as it was hit by Section 2(m)(iii)(b) of the Wealth-tax Act, 1957, which provides that no deduction shall be allowed in respect of any tax, penalty or interest payable in consequence of any order passed under or in pursuance of the Wealth-tax Act or any other specified Act, which is outstanding for a period of more than twelve months on the valuation date. The court also held that the assessee was entitled to deduction of the entire amount of the decrees passed against her branch and Mohan Lal's branch, as well as the entire amount of the decree against the HUF of M/s. Kishori Lal Mukundi Lal, as they were joint and several liabilities. The court further held that the value of ascertained decrees pending in execution court on the valuation date can be treated as wealth on the valuation date.
Issues: 1. Whether the assessee was entitled to deduction of the entire amount of income-tax liability outstanding against the HUF of M/s. Kishori Lal Mukundi Lal? 2. Whether the assessee was entitled to deduction of the entire amount of decrees passed against her branch and Mohan Lal's branch? 3. Whether the assessee was entitled to deduction of the entire amount of a decree against the HUF of M/s. Kishori Lal Mukundi Lal? 4. Whether the value of ascertained decrees pending in execution court on the valuation date can be treated as wealth on the valuation date?
Ratio Decidendi: 1. The court held that the assessee was not entitled to deduction of the income-tax liability outstanding against the HUF as it was hit by Section 2(m)(iii)(b) of the Wealth-tax Act, 1957, which provides that no deduction shall be allowed in respect of any tax, penalty or interest payable in consequence of any order passed under or in pursuance of the Wealth-tax Act or any other specified Act, which is outstanding for a period of more than twelve months on the valuation date. 2. The court held that the assessee was entitled to deduction of the entire amount of the decrees passed against her branch and Mohan Lal's branch, as well as the entire amount of the decree against the HUF of M/s. Kishori Lal Mukundi Lal, as they were joint and several liabilities. 3. The court held that the value of ascertained decrees pending in execution court on the valuation date can be treated as wealth on the valuation date.
Final Decision: The court answered the questions referred as follows: 1. In the affirmative, in favour of the Revenue and against the assessee. 2. Is academic and is returned unanswered. 3. In the affirmative, in favour of the Revenue and against the assessee. 4. In the negative, in favour of the assessee and against the Department. 5. In the affirmative, in favour of the Department and against the assessee.
( 1 ) BOTH these references can be taken up together. The Income-tax Appellate Tribunal, B-Bench, allahabad (hereafter "the Tribunal"), stated a case and referred the following questions of law for the opinion of this court under Section 27 (1) of the W. T. Act (hereafter "the Act") :
" (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that half the value of the properties owned by the association of persons consisting of the assessee and her son was liable to be assessed as assessees wealth ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessees claim that the entire amount of the income-tax liabilities outstanding against the huf of M/s. Kishori Lal Mukundi Lal was liable to be treated as a debt owed by the assessee and in holding that only 1/5th of this liability could be treated as the liability of the assessee while computing her wealth ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessees claim for deduction of the income-tax demands outstanding against M/s. Kishori Lal Mukundi Lal was hit by the provisions of Section 2 (m) (iii) of the Wealth-tax Act. (iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that only half the amount payable under the decree passed against the assessee branch and mohan Lals branch (and not the whole) could be claimed by the assessee as a deduction in her wealth-tax assessments ? (v) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that only 1/5th of the amount payable under the decrees against the HUF of M/s. Kishori Lal mukundi Lal (and not the whole) could be claimed by the assessee as a deduction in her wealth-tax assessments ?"
( 2 ) THE reference has been made at the instance of the assessee, Smt. Prem Lata Agarwal, an individual, and the assessment years involved are 1964-65 to 1971-72, The assessee had also sought reference of the following question for all these six years :
"whether, on the facts and in the circumstances of the case, the value of ascertained decrees which were pending in the execution court on the date of valuation can be treated as wealth on the date of valuation for the purposes of wealth-tax ?"
( 3 ) THE Tribunal did not refer this question because in its opinion the answer to it was self-evident. The assessee, thereafter, moved an application before this court, being Wealth-tax application No, 494 of 1978, and this court issued a direction on 30th October, 1978, to the tribunal and in compliance with the same the Tribunal has drawn up a supplementary statement of the facts of the case and referred the following question for the opinion of this court :
"whether, on the facts and in the circumstances the value placed by the Tribunal on the decree in question was in law the correct value ?"
( 4 ) THE brief facts are these. There was a bigger HUF of one Ram Dayal. He had five sons, viz. , harnam Das, Mohan Lal, Kishori Lal, Kanhaiya Lal and Mukundi Lal. Harnam Das had one son, baijnath Prasad, The assessee, Smt. Prem Lata Agarwal is the daughter and the only issue of baijnath Prasad. We are concerned with the branch of Baijnath Prasad in this reference. This huf had been carrying on business in the name and style of M/s. Kishori Lal Mukundi Lal. Baijnath Prasad had made a gift of some of the immovable properties in favour of the assessee, smt. Prem Lata Agarwal, and her son, Madhu Kailash by means of a registered deed dated 22nd october, 1955. The deed did not specify the shares of the two donees in the gifted properties and the income from the same was being assessed in their hands in the status of an association of persons. In her assessments to wealth-tax for the assessment years under consideration, that is, 1964-65 to 1971-72, the assessee claimed that since these properties belong to the assoc
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