Banerjee, J.:— This is a reference under section 27(1) of the Wealth-tax Act, 1957.
2. The statement of case relates to two assessment years 1957-58 and 1959-60, corresponding valuation dates being December 31, 1956, and December 31, 1958.
3. The assessee is a company doing coal-mining business. In making a return of its net wealth as on the two valuation dates hereinbefore mentioned, the assessee claimed deduction of a sum of Rs. 28,37,282-8-0, representing taxes, penalties, etc., assessed and demanded in the year 1952. It is not disputed that certificates, under the Public Demands Recovery Act, have been issued for recovery of the said amount of Rs. 28,37,282-8-0 and it is not also disputed that notice under section 7 of the Public Demands Recovery Act, 1913, was served on the assessee and that recovery proceedings were pending on the relevant valuation dates.
4. The Wealth-tax Officer disallowed the assessee's claim for deduction of the said amount from the net wealth. An appeal preferred by the assessee, against the assessment order, before the Appellate Assistant Commissioner also failed.
5. Thereafter, the assessee appealed before the Appellate Tribunal, which allowed the claim of the assessee in respect of the sum of Rs. 28,37,282, with the following observations:
“As soon as the Income-tax Officer treats an assessee as in default and forwards to the Collector a certificate under his signature for recovery of the amount of arrears due from the assessee under section 46(2), the amount specified in such certificate becomes recoverable as if it were an arrear of land revenue. Upon such certificate being issued, the assessee becomes a certificate-debtor and the amount specified in the certificate becomes a certificate-debt recoverable as an arrear of land revenue under the Public Demands Recovery Acts, in force in the relevant area. In our opinion the amount specified in the certificate can no longer be regarded as tax payable in consequence of any order passed under or in pursuance of any law relating to taxation of ‘income or profits’ within the meaning of Section 2(m)(iii) of the Wealth-tax Act. A certificate-debt to which the provisions of the Public Demands Recovery Act applies, constitutes a charge upon the immovable property of the certificate-debtor wherever situate, under section 8(b) of the Bengal Public Demands Recovery Act (Bengal Act III of 1913). We are, therefore, of the view that the certificate-debt of Rs. 28,37,282 is deductible from the capital value of the immovable assets of the assessee upon which such debt constitutes a first charge.”
6. The assessee had taken up another objection before the Tribunal to the effect that the provisions of Section 2(m)(iii) of the Wealth-tax Act were against the provisions of the Constitution of India and were, therefore, ultra vires the Parliament's legislative powers. This point the Tribunal had failed to deal with in their original order. When this omission was brought to the notice of the Tribunal, the Tribunal rectified the omission, under section 35 of the Wealth-tax Act, and passed the following further order:
“The appellant's representative contended that if, in view of Section 2(m)(iii), no deduction is allowed in respect of debts due in consequence of tax demands made by the taxation authorities, such debts would be included in the net wealth and assessed to wealth-tax. The Central legislature, it was urged, was competent, under entry 86, to levy wealth-tax only on assets and not on debts and, hence, the provisions of Section 2(m)(iii) precluding deduction of debts, outstanding for over one year, are ultra vires the Constitution.
We are not, however, in agreement with the contention of the appellant. Entry 86 of the Constitution enables the Central legislature to levy tax on the capital value of assets excluding agricultural lands; it is not disputed that the tax in this case has been levied on such assets; the dispute in this case relates to the disallowance of a deduction claimed by the assessee against, the capital value of such assets. The Central legislature has, under Section 2(m)(iii) of the Wealth-tax Act, permitted the deduction of debts owed by the assessee from the aggregate value of the assets on grounds of equity only and there is nothing in the Constitution limiting or affecting the powers of the legislature in regard to the allowance or disallowance of such deductions. Section 2(m)(iii) is, therefore, evidently within the legislative competence of the Parliament and it does not offend against the provisions of entry 86 of the Constitution.”
7. Dissatisfied with the order of the Tribunal the revenue sought for a reference of the point of law, involved in the case, before this court, under section 66(1) of the Indian Income-tax Act. The assessee wanted that the question should be in the following form:
“Whether, on the facts and in the circumstances of the case, the amount of Rs. 28,37,282-8-0 being the amount in respect of which certificates have been filed under the Public Demands Recovery Act and notices under section 7 of the Public Demands Recovery Act, 1913, had been served, is deductible from the value of the immovable assets of the assessee for the purpose of computing the net wealth of the assessee?”
8. The Tribunal, however, did not refer the question in that form. Instead thereof the following two questions were referred to this court:
“(1) Whether, on the facts and in the circumstances of the case, the provisions of Section 2(m)(iii) are a bar to the deduction of Rs. 28,37,282 in the computation of the net wealth of the assessee as on the relevant valuation dates?
(2) Whether the provisions of Section 2(m)(iii) of the Wealth-tax Act offend against the provisions of the Constitution and, therefore, ultra vires the legislature?
9. Mr. B.L Pal, learned counsel for the revenue, submitted that on a proper interpretation of Section 2(m)(iii) of the Wealth-tax Act, read with the provisions of section 46 of the Indian Income-tax Act, the answer to the first question should be in the affirmative. What he wanted to argue was that the sum of Rs. 28,37,282 was due by the assessee by reason of certain orders made upon it under laws relating to taxation of income, which amount was kept outstanding for a period of more than 12 months on the valuation date, and, as such, in the computation of the net wealth of the assessee the aforesaid sum was not deductible at all. In order to understand this branch of the argument of Mr. Pal, we need refer to the language of the Section 2(m)(iii) of the Wealth-tax Act, and also to the language of section 46 of the Indian Income-tax Act. Section 2(m)(iii) of the Wealth-tax Act reads as follows:
“2.(m) ‘net-wealth’ means the amount by which the aggregatem yalue computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, ???uding 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—……
(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 proceedings 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 dates,”
10. Section 46 of the Indian Income-tax Act deals with the mode of recovery of tax. There are several modes of recovery prescribed of which one is recovery under the provisions of the Public Demands Recovery Act. We need not concern ourselves, in this reference, with all the provisions for recovery of income-tax prescribed by section 46. We, therefore, set out below that portion of section 46 which deals with recovery of income-tax, by the procedure prescribed by the Public Demands Recovery Act:
“46.(1) When an assessee is in default in making a payment of income-tax, the Income-tax Officer may in his discretion direct that, in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty.
(1A) For the purposes of sub-section (1), the Income-tax Officer may direct the recovery of any sum less than the amount of the arrears and may enhance the sum so directed to be recovered from time to time in the case of a continuing default, so however that the total sum so directed to be recovered shall not exceed the amount of the arrears payable.
(2) The Income-tax Officer may forward to the Collector a certificate under his signature specifying the amount of arrears due from an assessee, and the Collector, on receipt of such certificate, shall proceed to recover from such assessee the amount specified therein as if it were an arrear of land revenue”…
11. It appears from Section 2(m)(iii)(b) that a taxation demand, not disputed by the assessee as not payable by him but nevertheless kept outstanding for a period of more than twelve months on the valuation date, is not an amount which is to be excluded in the computation of the net wealth of the assessee. It is not disputed, in the instant case, that the sum of Rs. 28,37,282 was basically a taxation demand upon the assessee but was kept outstanding by it for a period of more than twelve months on the valuation date. Wharf: was disputed before us by Dr. Pal, learned counsel for the assessee, was that the demand may have originated as a taxation demand but lost character when steps for recovery thereof were taken under the Demands Recovery Act and, thereafter, took up the colour of a public enforceable against the assessee as arrears of land revenue recoverable under the Public Demands Recovery Act. As such, he contended, the demand fell outside the mischief of Section 2(m)(iii)(b) of the Wealth-tax Act. In our opinion, Dr. Pal is not right in this contention. The point, in another context, came up before this court in the case of Ramesh Behari Ghose… v. Union Of India…Opposite Party. [1962] 45 I.T.R 622.. What happened in that case was that proceedings were started against the petitioner, before the Certificate Officer, under the provisions of the Public Demands Recovery Act read with section 46(2) of the Indian Income-tax Act, 1922, for recovery of arrears of income-tax. The petitioner filed a suit for a declaration that the assessment was illegal and also for a declaration that the certificate proceeding and the orders passed thereunder were inoperative and without jurisdiction and for an injunction restraining the certificate-holder, namely, the Union of India, from proceeding with the certificate. The suit succeeded to a limited extent. A second attempt to recover the income-tax dues also failed. Thereupon, the Union of India filed a suit, in the Court of Small Causes, Calcutta, for recovery of the arrears of dues from the petitioner. The court decreed the claim. The correctness of the decree was disputed by the petitioner judgment-debtor by way of an application under section 115 of the Code of Civil Procedure. In that context, this court observed that the amount of incomertax assessed may become due after demand is made under section 29 and section 45 of the Indian Income-tax Act and may thereafter become a debt due to the Crown, realisable under the Public Demands Recovery Act. But because it becomes a debt, it does not lose its character as an arrear of revenue and since for realisation or collection of such revenue, the Court of Small Causes, Calcutta, is not the proper forum, that court has no jurisdiction to entertain the claim in view of section 19 of the Presidency Small Causes Courts Act which debars that court from entertaining suits concerning the assessment or collection of revenue. This court further observed with reference to the provisions of section 46(2) of the Indian Income-tax Act:
“The aforesaid provisions of law relate to the mode of recovery of taxes. But, because the mode is the same as the mode of recovery of land revenue and because the arrear of income-tax becomes debt to the Crown when due, such tax does not lose its character as arrear due by way of revenue.”
12. The above decision is an authority for the proposition that if income-tax dues, assessed and demanded, be not paid by the asssesee and if, thereafter, steps be taken for realisation of the dues by the procedure prescribed under-section 46(2) of the Indian Income-tax Act, that does not denature the incometax demand, although the procedure for its recovery becomes the same as for recovery of land revenue. In other words, because the tax is sought to be recovered as land revenue, it does not become land revenue and lose its character as income-tax demand.
13. The point also came up for consideration before the Supreme Court in another context in the case of Builders Supply Corporation v. Union of India. We need not concern with the facts of the case because the context in which the Supreme Court made the observation was a different context concerning the priority of arrears of income-tax dues over debts from him to unsecured creditors. The observation, which is material for the purposes of this reference, is set out below:
“Section 46(2) does not deal with the doctrine of the priority of Crown debts at all; it merely provides for the recovery of the arrears of tax due from an assessee as if it were an arrear of land revenue. This provision cannot be said to convert arrears of tax into arrears of land revenue either; all that it purports to do is to indicate that after receiving the certificate from the Income-tax Officer, the Collector has to proceed to recover the arrears in question as if the said arrears were arrears of land revenue.”
14. The above decision is again an authority for the proposition that, because income-tax dues are enforced under the provisions of the Public Demands Recovery Act, the demand is not denatured and does not change itself from an income-tax demand to a demand for land revenue. It remains the same demand as it originally was, namely, demand of tax, penalty or interest payable in consequence of any order passed under or in pursuance of any law relating to taxation on income, and if such tax remains unpaid, for a period of more than 12 months, then the provisions of Section 2(m)(iii)(b) will disentitle an assessee from claiming deduction of such debts in the computation of the value of his net wealth.
15. Dr. Pal did not think it proper to dispute the authorities to which reference has hereinbefore been made. He took us through the scheme of the Public Demands Recovery Act and submitted that after the issue of notice under section 7 of the Public Demands Recovery Act, an income-tax demand ceased to be an income-tax debt and changed over to a certificate debt recoverable in the manner prescribed by the Public Demands Recovery Act. We do not find any force in this contention of Dr. Pal. We have already referred to the authorities which go to establish that, in spite of the fact that an income-tax debt is enforced by the procedure prescribed under section 46(2) of the Indian Income-tax Act, read with the provisions of the Public Demands Recovery Act, it does not lose its original character of tax payable under the law relating to taxation of income. If no change in its character takes place, because proceedings under the Public Demands Reco very Act have been initiated, then the provision of sections 2(m)(iii)(b) become applicable to such demand. Dr. Pal made a desperate attempt to argue that, 1 even if the tax demand be not deductible by reasons of the provisions of Section 2(m)(iii)(b) of the Wealth-tax Act, even then section 8 of the Public Demands Recovery Act makes the debt charged on the property and reduces the value of the net wealth. He submitted that this aspect of the matter was not considered by the Appellate Tribunal and that made the order bad. In our opinion, Dr. Pal is not entitled to argue this point, regard being had to the nature of the question referred to this court. We have already quoted the question which the assessee wanted the Tribunal to refer to this court. The Tribunal did not refer the question in that form. Thereafter, the assessee took no steps to have the question of its choice.referred to this court. It is now too late for Dr. Pal to try to argue that question, which the assessee wanted to be referred to this court but which the Tribunal did not. In the view that we take, the answer to the first question must be in the affirmative and against the assessee.
16. We now turn to the second question referred to this court. In the case of K.S Venkataraman & Co. (P.) Ltd. v. State of Madras, the Supreme Court observed:
“As the Tribunal is a creature of the statute, it can only decide dispute between the assessee and the Commissioner in terms of the provisions of the Act. The question of ultra-vires is foreign to the scope of its jurisdiction. Jf-an assessee raises such a question, the Tribunal can only reject it on the ground that it has no jurisdiction to entertain the said objection or decide on it. As no such question can be raised or can arise on the Tribunal's order, the High Court cannot possibly give any decision on the question of the ultra vires of a provision. At the most the only question that it may be called upon to decide is whether the Tribunal has jurisdiction to decide the said question. On the express provisions of the Act it can only hold that it has no such jurisdiction.”
17. The same view appears to have been reiterated by the Supreme Court in C. T. Sienthilnathan Chettiar v. State Of Madras. [1968] 67 I.T.R 102 S.C.. That being the law we can only say that the Tribunal had no jurisdiction to go into the question of vires of Section 2(m)(iii) of the Wealth-tax Act and such a question should not have been referred to this court.
18. We also cannot decide the question ourselves in the advisory jurisdiction, because we must always proceed on the basis that the Tribunal had jurisdiction to apply Section 2(m)(iii) of the Wealth-tax Act.
19. We, therefore, answer question No. 2 in the following manner, namely, that the question does not arise for decision in this reference. J Since our decision goes against the assessee, the assessee must pay costs of this reference to the Commissioner of Wealth-tax.
K.L Roy, J.:— I agree.