AHMED IBRAHIM SAHIGRA DHORAJI v. COMMISSIONER OF WEALTH TAX, GUJARAT

of the assessee. Accordingly the Tribunal allowed the appeals of the assessee. Thereafter at the instance of the Commissioner of Wealth-tax, the Tribunal referred under section 27 of the Act the two questions mentioned above to the High Court. After hearing the parties, the High Court answered both the questions in the negative and in favour of the Revenue by its judgment dated Decem ber 21, 1972. On a certificate granted by the High Court under section 29( l) of the Act, the assessee has come up in appeal to this Court. ' The relevant part of section 2(m) of the Act reads : in accordance with "2. (m} "net wealth" means the amount by which the aggregate value computed provisions of this Act of all the assets, wherever located belonging to the assessee on the valuation date, includ ing 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,,,,,, ... " In the ~se of Kesoram Industries and Cotton Mills Ltd. (supra) this Court has held that income-tax other than that falling under clause (iii) of section 2(m} of the Act payable on the valuation date is a debt owed by the assessee and hence is deductible from the total wealth of the assessee while determining the net wealth for the purpose of levying wealth-tax. The principal question which arises for consideration in these appeals relates to the true character of the tax. paid by the assessee in the proceedings under section 68 of the Finance Act and the applicability of the ratio of the decision of this Court in the case of Kesoram Industries and Cotton Mills Ltd. (supra). Since it is con tended by the assessee that the tax so paid was the tax which he was liable to pay under the relevant income-tax law in force during the assessment years in question and it is urged by tlie Department that the said payment was in discharge of a liability created for the it is necessary to examine the pro first time by the Finance Act, visions of section 68 of the Finance Act in some detail, in so far as they relate to the question involved in this case. The relevant part of section 68 of the Finance Act which came into force on March I, 1965 reads : A B c D E F G H 408 SUPREME COURT REPORTS ( 198 I] 3 S.C.R. "68. Voluntary disclosure of income -(I) Where any person makes a declaration in accordance with sub-section (2) in respect of the amount representing income- (a) which he has failed to disclose in a return of income for any assessment year filed by him before the first day of March, 1965, under the lndian'Jncome-tax Act, 1922 (XI of 1922), or the Income-tax Act, 1961 (XLIJI of 1961 ), or (b) which has escaped assessment for any assessment year for which an assessment has been made before the 1st day of March 1965, under either of the said Acts, or (c) for the assessmen_t of which no either of the said Acts has been I st day of March, 1965, proceeding under taken before the he shall, notwithstanding anything contained in the said Acts, be charged income-tax at the rat!! specified in sub section (3) in respect of the amount so declared if he,- (i) pays the amount. of at the said rate, or income-tax as 1computed (ii) furnishes adequate security for the payment there of in accordance with sub-section (4) and under takes to pay such income-tax within a period, not exceeding six months, from the date of the declara tion as may be specified by him therein, or (iii) on or before the 31st day of May, 1965, pays such amount as is not less than one-half of the amount of income-tax as computed at the said rate or furnishes adequate security for the payment there of in accordance with sub-section (4), and in 1 either case assigns any shares in, or debentures of, a joint stcck company or mortagages any immov able property, in favour of the President of India by way of security for the payment of the balance to pay such balance within the and undertakes periodfreferred to in clause (ii). A B c )) E F G H A.LS. DHORAJI v. C.W.T. (Venkataramiah, J.} 409 (2) The declaration shall be made to the Commissioner, and shall specify the period required to be specified under clause (ii) of sub-section (I), contain the name, address and signature of the person making the decla ration and also full information in respect of the following matters, namely : - (a) Whether he was assessed to income-tax or not and, if assessed, the ~ame of the Income-tax Circle in which he was assessed. (b) The amount of income declared, giving where avPjlable, details of the. financial year or years in w.lich the income was earned and the amount per taining to each such year. (c} Whether the amount declared is represented by cash (including bank deposits), bullion, investments in shares, debts due from other persons, commo dities, or any other assets, and the name in which it is held and location thereof : Provided that the declaration shall be of no effect unless it is made after the 28th day of February, 1965, and before the 1st day of June, 1965. (3) The rate of income-tax chargeable in respect of the amount referred to in sub-section (l) shall be sixty per cent, of such amount : Provided that if before the 1st day of April, 1965, the tax on the amount declared is paid by the declarant at the rate of fifty seven per cent, of such amount, he shall not be liable to pay any further tax on such amount. ( 4) A person shall not be considered to have furnished adequate security for the payment of the tax for the purposes of sub-section (l) unless the payment is guaranteed by a scheduled bank or the person makes an assignment, in favour of the President of India, of any security of the Central or State Government. Explanation-For the purposes of this sub-section, where an assignment of Government securities is made in A B c D E F G H A B c D E F G H 410 SUPREME COURT REPORTS [1981] 3 S.C.R. favour of the President, the amount covered by such assignment shall be the market value of the securities on the date of the assignment. (5) Any amount of income-tax paid in pursuance of a declaration made under this section shall not be re fundable in any circumstances, and no person who has made the declaration shall be entitled, in respect of any amount so declared or any amount of tax so paid, to reopen any assessment or reassessment made under the Indian Income-tax Act, 1922 (XI of 1922), or Income-tax Act, 1961 (XLIH of 1961 ), or the Excess Profits Tax Act, 194) (XV of l 940), or the Business Profits Tax Act, 1947 (XXI of 1963), or the Compa l 954 (VII of 1964) or claim nies (Profits) Surtax Act, any set-olf or relief in any appeal, reference, revision or other proceeding in relation to any such assessment or reassessment. (6) (a)· Any amount declared by any person under this section in respect of which the tax referred to in sub section (3) is paid shall not be included in his total income for any assessment under any of the Acts men tioned in sub-section (SJ if he credits in the books of account, if any, mainta:ned by him for any source of income or in any other r~cord, the amount declared as reduced by the tax paid thereon under this section ... " Section 68( I) of the Finance Act provides that where any person males a declaration in accordance with section 68(2) in respect of any amount representii~g income which he has failed to disclose in his return or which has escaped assessment for any assess ment year for which an assessment has been made before March I, 1965 under either of the two Acts namely the Indian Income-tax Act, 1922 and the Income-tax Act, 1901 or for the assessment of which no proceeding is taken before March 1, 1965, he shall, not withstanding anything contained in the said Acts, be charged income tax at the rate specified in sub-section (3) thereof in respect of the amount so declared. If he pays the amount of income-tax as com puted at the said rate or furnishes adequate security for the payment thereof in accordance with sub-section (4) thereof and undertakes to pay such income-tax within the period specified in the section, he would be absolved from the liability under the relevant law of in- y A.LS. DHORAJI v. C.W.T. (Venkatc, nmiah, J.) 411 come-tax. The declaration should, however, be filed with the parti culars mentioned in section 68(2). Section 68(3) provides that the rate of income-tax chargeable in respect of the amount referred to in the declaration shall be sixty percent of such amount provided l, 1965, the tax payable would that if the tax is paid within April be fifty seven percent. Sub-section ( 5) of section 68 of the Finance Act provides that any amount of income-tax paid in pursuance of a declaration made under that section shall not be refundable in any circumstances nor a declarant is entitled in respect of any amount declared or tax paid thereon to reopen any assessme; it or reassess ment made under the Indian Income-tax Act 1922, or Income-tax Act, 1961 or any other Act mentioned therein. He cannot also claim any set-off or relief in any appeal, reference, revision or other proceeding in relation to any such assessment or reassessment. Clause (a) of sub-section (6) of section 68 grants immunity from section 68 (5) to the proceedings under the Acts mentioned assessee by providing that any amount declared by any person under section 68, in respect of which the tax referred to in sub-section (3) thereof is paid, shall not be included in his total income for any assessment under any of the assessments made under any of the Acts mentioned in section 68(5) if he credits in the books of account, if any, maintained by him for any source of income or in any other record, the amount declared as reduced by the tax paid thereon under section 68. On an examination of the several provisions contained section 68 of the Finance Act it becomes clear that they had b~en enacted as a part' of the measures adopted with a view to unearthing unaccounted money in possession of the members of the public on which income-tax had not been paid and also to create an incentive to such persons to make· disclosure of their unaccounted incomes and to pay tax thereon at the specified rate without the liability to pay any interest thereon or penalities for non-compliance with the tiled by a person under law of income-tax. The declaration to be section 68 is about an aniount representing his income earned in an earlier accounting period which has not been subjected to tax in the ordinary course although income-tax was payable in respect of it. If the declarant pays tax at the rate specified in sub-section (3) of section 68 he would be absolved from any further liability to tax on such income. The declaration has to be made before the Com missioner of Income-tax and it should contain full information, namely whether he was a~sessed to income-tax or not and if assess ed, t1'e nanie of the Income-tax circle in which he was assessed, the A B c D E F G H A B c D E 'F G H 412 SUPREME COURT REPORTS [1981] 3 S.C.R. amount of income declared giving where avail able, details of the financial year or years in which the income was earned and the amount pertaining to each such year and whether the amount dec lared is represented by cash (including bank deposits), bullion, investment in shares, debts due from other persons, commodities or any other assets and the name in which it is held and the location thereof. Section 68 also states at more than one place that what is payable pursuant to a declararion is income-tax. Section 68 (J) contains words such as, "he shall, notwithstanding anything con tained in the said Acts be charged income tax at the rate specified in sub-section (3)", "if he pays the amount of income-tax at the said rate" a_nd "undertakes to pay such income-tax". Section 68(3) contains the words : "the rate of income-tax chargeable". Section 68(5) refers to : "(a) any amount of income-tax paid" and section 68(7) contains the words : "paid the income-tax under this section". These words show that Parliament was ·of the view that what was payable under section 68 was income-tax. The points of difference between any Finance Act, that may be passed annually fixing the rates of income tax and section 68 of ~the Finance Act, however, relate to (i) the time within which and the manner in which information in regard to the income is to be furnished, (ii) the method of computation of taxable income and (iii) the rate of tax payable on such income. The declaration which is equivalent to a return to be filed under the Indian Income-tax Act, 1922 or Income-tax Act, 1961, need not contain all the parti· culars that have to be furnished in such return. The declaration can be filed during the period mentioned in proviso to section 68(2). There is no provision to claim various deductions, exemptions, set the declaration as in off etc. in respect of the income disclosed in the case of income shown in an ordinary return. Since the rate of tax is a uniform one and does not vary with the quantum of the income disclosed, there is no need to trace it to any specific assess ment year. Further the declaration is a voluntary one and it is not pursuant to any notice issued by the Department. The question is whether these distinguishing features make the amount disclosed in a declaration anything different from the income of an assessee and the tax paid under section 68, anything different from a tax on income. In other words, does section 68 impose a new charge on the income of the declarant for the first time wholly independent of the levy under section 3 of the Indian Income-tax Act, 1922 or section 4· of the Income-tax Act, 1961 ? The High ..,...-·· A.LS. DHORAJl v. c.w.T. (Venkataramiah, J.) 413 Court has given the following reasons for holding that the tax p~id under section 68 is not tax on income payable under the Indian Income-tax Act, 1922 and Income-tax Act, 1961 : (i) the charge under the Income-tax Act is on the total income of the previous year and not on any particular item of incJme but that is not so under section 68, (ii) payment of tax under section 68 has no reference to any assessment year and unless it is correlated to an assessment year it can not be ordinary income-tax and (iii) the disclosed income is chargeable to tax without allowing usual deductions and without providing for any procedure for quantification. The High Court proceeded to hold that section 68 enacted a new charge of tax, on an ad hoc basis, on disclosed income irrespec tive of the assessment year in which it was earned. The disclosure of concealed income coupled with the payment of tax as contemplated the High Court, not in clause (i) of sub-section (I), according to In its view, the only created a charge of tax but also satisfied it. disclosure of concealed income coupled with furnishing of security and undertaking as contemplated in clause (ii) created a new charge of tax and when the undertaking was carried out by payment of tax, the liability arising from the charge of tax was satisfied. One basic fallacy underlying the conclusion of the High Court that a new charge is being levied under section 68 appears to be the assumption that the amount in question in respect of which tax is payable under that provision was not liable to income-tax earlier. It should be borne in mind that the declaration contemplated under section 08 is a declaration in respect of income of earlier years, which had been concealed and on which tax was payable during the relevant assessment years in the ordinary course. Section 3 of the Indian Income-tax Act, 1922 and section 4 of Income-tax Act, l 961 which are couched more or less in the same language state that where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of the relevant Act in respect of the total income of the previous year or previous years, as the case may be, of every person. Now it is well settled by a series of judicial decisions that the liability to income-tax arises by virtue of the charging section in the relevant Income-tax Act and it arises not later than the close:~of the prev10us year, even though the rate of tax for the year of assessment may be fixed after the close of the previous year and the the previous year. assessment has necessarily to be made after . . A B c D E F G H A B c D E F G H 414 SUPREME COURT REPORTS [ 1981] 3 S.C.R. The quality of chargeability of any income to tax is not dependent upon the passing of the Finance Act though its quantification may be governed by the provisions of the Finance Act in respect of any assessment year vide Wallace Brothers and Co. Ltd. v. Commis sionfr of Jncome-tax(1), Messers Challuram Hori/ram Ltd. v. Com missioner of Income-lax and Ors.(2) and Kahva D1vadallom & Ors. v. The Union of India & Ors.(3) In the case of Kesoram Industries and Cotton Mills Ltd. (supra) Subba Rao, J. (as he then was) summariz ed the legal position thus : - "To summarize : A debt is a present obligation pay an ascertainable sum of money, whether the anhmnt is payable in praesenti or in juturo: dehitum in praesenti, sol vendum in ji1turo. But a sum payable upon a contingency does not become a debt until the said contingency has is a present liabi happened. A liability to pay income-lax it is quantified in lity though it becomes payable after accordance with ascertainable data. There is a perfected debt at any rate on the last day of the accounting year and is always easily ascer not a contingent liability. The rate is the rate fixed tainable. by that Act; if the Finance Act has not yet been passed, it is the rate proposed in Finance Bill pending before Parlia ment or the rate in force in the preceding year, whichever is more favourable to the assessee. All the ingredients of a "debt" are present. It is a present liability of an ascertain able amount." If the Finance Act is passed, it It is thus clear that if the assessee had brought to the notice of the Department in the usual course the existence of incomes which were later on declared under 'ection 68, they would have been taxed during the relevant assessment year. Hence merely because they are disclosed in a declaration filed under section 68, they cannot cease to be incomes not already charged for income tax. It is true that the Finance Act in question merely levied a fixed rate of tax in respect of all the income disclosed without allowing deduc tions, exemptions and set-off under the relevant income-tax law yet its function was no more than that of a Finance Act passed annually even though it made certain alterations with regard to filing of declaration and computation of taxable income (I) 16 l.T.R. 240. (P.C.) (2) (1955]2 S.C.R. 290 : 27 l.T.R. 709 (S.C.) (3) (1964] 3 S.C.R. 191 : 49 J.T.R. 165 (S.C.l ) A.I.S. DHORAJI v. C.W.T. (Venkataramiah, J.) 415 It was, however, urged on behalf of the :oepartmen t that ~~the nature of the declaration which was dependent upon the volition of the declarant and the fact that the liability to tax the amount men tioned therein was contingent upJn the willingness of the declarant to disclose the amount ought to make a difference. We do not think so because any such voluntary disclosure by an assessee even in the absence 0f section 68 would have exposed him to an assess ment or reassessment, as the case may be, being made in respect of the sum disclosed as part of the income of the relevant assessment year and of course with the additional liability to payment of interest and levy of penalty and perhaps with the right to claim deductions, if any, admissible in the 'circumstances of the case and the benefit of other prccedural rights. The voluntary c:1aracter of the declara tion cannot, therefore, alter the character of the tax. There is also no substance in the contention that in the absence of the allocation of the amount disclosed amongst dil'i'erent assessment years the tax payable under section 68 cannot be termed as a tax on income because snch allocation would not ac'.1ieve any additional purpose Irrespective of the other income which in the scheme of section 68. may have been determined in an ordinary proceeding under the relevant law of income-tax, a fixed rate of tax is payable under treated as the section 68(3) and hence the amount disclosed being income of any particular year would not make any difference re garding the quantum of tax. Nor is there any other purpose to be served by such allocation. Section 68 in the nature of a package deal but the net result achieved is that the declarant is treated as having discharged all his liability in respect of the said income under the income-tax law. There is one other circumstance which may be noticed here. If The tax levied under section 68 can be only a tax on income. we hold it otherwise it may become a tax on wealth itself. The basis of tbe liability in this case is the admission made by the declarant that the amount declared was his income earned in previous years but concealed from the knowledge of the Department. In these circumstances it cannot be said that the amount declared under section 68 is not income which was not taxable under the Indian Income-tax Act, 1922 or the Income-tax Act, 1961, as the case may be. The finding of the High Court that section 68 created a fresh charge is incompatible with tbe foundation of the very reassessment proceedings under section 17 of the Act. The basis of these pro ceedings is the information which the Wealth-tax Officer acquired A B c D E F G H ...,, .• -- 416 SUPREME COURT REPORTS [1981] 3 S.C.R. from the declaration filed by the assessee, in this case that the in possession of unaccounted funds represented by assessee was the non-genuine hundis which had progressively reached the level of Rs. 7,01,578 during the assessment year 1964-65 from the level of Rs. 4,57,465 in 1959-60 by gradual accumulation of income. But for this assumption, in the absence of any other material, reassess ment under the Act would have been possible only in the last year in which the .disclosure was made. That, however, is not the case here. The High~Court in support of its view has relied on decision of the Kerala High Court, though not the reason given in support of that decision in C. K. Babu Naidu v. Wealth-tax Officer.(1 } That decision has since been reversed in appeal by a Division Bench of that Court in C. K. Babu Naidu v. Wealth-tax Officer, 'A' Ward, Calicut & anr.(2) in which the Kerala High Court has held that the liability for tax arising under section 68 of the Finance Act was nothing other than the liability under the Income-tax Act, 1961 itself and accordingly has allowed the dedl1ction of tax paid under section 68 as a 'debt owed' on the valuation date. In Commissioner of Wealth-tax, Haryana, H.P. & Delhi-I/I v. Girdhari La/(3), Com missioner of Wealth-tax v. B. K. Sharma(4 ), Commissioner of Wealth /ax, West Bengal-III, Calcutta v. Bansidhar Poddar,( 5 ) D. C. Shah v. Commissioner of U'ealth-trx, Mysore( 6 ) and Shri Bhagwandas Jain v. Addi. Commissioner of Wealth-tax, M. P.(7), the High Courts of Delhi, Allahabad, Calcutta, Karnataka and Madhya Pradesh have accepted the view that the tax paid under section 68 of the Finance Act should be treated as a 'debt owed' for purposes of determining net wealth as defined in section 2(m) of the Act. The High Court of Bombay has also reached the same conclusion in Bhagwanidas Binam· v. Commissioner of w, altl.-tax, Bombay City-Jll(8 ) but in doing so it observed that "it appears to us that although it is not possible to ·say that the amount of income-tax paid under section 68 of the Finance Act, 1965 is income-tax under the charging sec- (I) 82 I.T.R. 410 (Kerala) (2) 112 l.T.R. 341 (Kerala) (3) 99 I.T.R. 79 (Delhi) (4) 110 J.T. R. 902 (All.) (5) 112 I.TR. 957 (Cal.) (6) 117 I.T.T. 348 (Karnataka) (7) J 16 l.T.R. 347 (Madhya Pradesh) (8) 124 I.T.R. 783 (Born.) A B c D E F G H A.I.S. DHORAJJ v. C.W.T. (Venkataramiah, J.) 417 tion 3 or section 4 of the LT. Acts, it must be regarded as income tax paid in lieu of such income-tax and would be entitled to the same considerations as lavished by the Supreme Court on the ordi nary charge of income-tax". The High Court of Bombay appears to take the view as the High Court of Gujarat has done in the decision under appeal that a new liability is created by section 68 but it however would not have any adverse effect on the right of the assessee to claim the deduction. While we approve of the conclu sion reached by the High Court of Bombay, we feel that the said decision to the extent it attempts to follow the reason given by the Gujarat High Court to hold that the liability under section 68 is a fresh liability is not correct. The true position is that the amount declared has the Jiability to pay income-tax imbedded in it on the valuation date but only the ascertainment of that liability is postpo ned to a future date. In the instant case, its determination is allowed to be done in -accordance with the provisions of section 68. Even though it may appear to be itself a complete code, it is only a scheme which provides a method for the liquidation of an already existing income-tax liability which was present on the relevant valuation date. The view does not in any way go counter to any observations made by this Court in Commissioner of Income-tax, Bombay City Iv. In that case this Khatau Makanji Spinning and Weaving Co. Ltd.(') Court was concerned with the validity of a charge levied by the Finance Act, 1951 in respect of dividends distributed in excess of the specified limit under clause (ii) of the proviso to Paragraph B of Part I of the First Schedule to that Act as applied to the assess ment year 1953-54 by the Finance Act, 1953. This Court held that income-tax was a tax on income of the previous year and it would not cover some thing which was not the income of the previous year or made fictionally so and according to the scheme of that provision it was impossible to say that the additional income-tax was properly laid upon the total income because what was actually taxed was never a part of the total income of the previous year. This decision is clearly distinguishable from the present case where what is taxed is the income which was ordinarily liable to tax but which had not been included in the return of the assesssee, or which had escaped assessment or which was still to be assessed to income tax under the relevant Income-tax Act. It was in fact a part of the total income though not assessed till the declaration was made. Merely because it is stated that the rate of tax charged on the (I) 40 I.T.R. 189 (S.C.)~[1960] 3 SCR 873. A B c D E F G H 418 SUPREME COURT REPORTS [1981] 3 s.c.R. amount declared is sixty per cent or fifty-seven per cent as the case may be it does not cease to be a part of the total income. This is not a case where what was not in fact income had been converted into income by section 68. For the same reason the Department cannot derive any support from the observations made by this Court in Madurai District Central Co-operative Bank Ltd. v. Third Income tax Officer, Madurai.( 1 assessee was entitled to claim deduction of income tax payable on the amounts added to his total wealth under section 2(m) of the Act in the course of the reassessment proceedings. ) We are, therefore, of the view that In the result these appeals are allowed, the judgment of the High Court is set aside and the questions referred to it are answered in the affirmative and in favour of the assessee. The Department will pay the costs of the appellant-assessee, Hearing fee one set. A B c P.B,R. Appeals allowed. (I) 101 I.T.R. 24 (S.C.)