JUDGMENT V.G. Oak, C.J.
1. This is a reference under the Wealth-tax Act. Messrs. J. K. Cotton Spinning and Weaving Mills Co. Ltd. is the assessee. The assessment year is 1957-58. The valuation date is December 31, 1956. The assessee claimed various amounts as deductions for different debts. A deduction of a sum of Rs. 12,76,278 was claimed on account of tax liabilities. Deduction of another sum of Rs. 3,78,900 was claimed as. proposed dividend. Thirdly, deduction of a sum of Rs. 20,94,023 was claimed as the balance of the demand as a consequence of findings and orders of the Income-tax Investigation Commission. The Income-tax Officer and the Appellate Assistant Commissioner did not accept these claims. Upon further appeal by the assessee, the Appellate Tribunal accepted the first claim partially to the extent of Rs. 4,29,148, but rejected the balance of the claim to the extent of Rs. 8,47,130, The second and third claims advanced for the assessee were rejected by the Tribunal. Upon an application by the assessee, the following three questions of law have been referred to this court:
"(1) Whether, on the facts and in the circumstances of the case, the amount of Rs. 8,47,130 being provision for payment of income-tax and super-tax in respect of assessments not completed on the valuation date was deductible in computing the net wealth of the assessee?
(2) Whether, on the facts and in the circumstances of the case, the provision for proposed dividend of Rs. 3,78,900 was deductible in computing the net wealth of the assessee ?
(3) Whether, on the facts and in the circumstances of the case, the sum of Rs. 20,94,027 being the balance of the demand payable as a result of the orders and findings of the Investigation Commission is deductible in determining the net wealth of the company?"
We find that on the first two questions referred to this court there is a decision of the Supreme Court. The case is Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, [1966] 59 I.T.R. 767 ; [1966] 2 S.C.R. 688 (S.C.). In that case the balance-sheet of the assessee for the year ending the 31st March, 1957, mentioned a certain amount as provision for payment of income-tax and super-tax in respect of the year of account. The question arose whether that amount was a debt owed within the meaning of Section 2(m) of the Wealth-tax Act, 1957, as on March 31, 1957, which was the valuation date and as such deductible in computing the net wealth of the appellant-company. It was held by the Supreme Court by a majority that all the ingredients of a debt were present. It was a present liability of an ascertainable amount.
2. On this authority, it must be held that in the instant case the amount of Rs. 8,47,130 provided by the assessee for payment of income-tax and super-tax was deductible in computing the net wealth of the assessee.
3. In the case of Kesoram Industries, referred to above, there was merely a report of the directors recommending certain dividend. It was held by the Supreme Court that until the company in a general body meeting accepted the recommendation, the director's report was merely a recommendation which might be withdrawn or modified. On the valuation date there was nothing beyond a mere recommendation by the directors as regards distribution of dividend. There was no debt owed by the company to the shareholders on that date. The proposed dividend was not deductible in computing the net wealth of the appellant-company.
4. Facts of the present case arc similar. There was merely a proposal that a sum of Rs. 3,78,900 should be distributed as dividend. There was no existing liability. Consequently, the proposed dividend of Rs. 3,78,900 was. not deductible in computing the net wealth of the assessee.
5. The third question referred to this court relates to the demand payable as a result of certain orders and findings of the Income-tax Investigation Commission. A similar question came up before this court in J.K. Cotton Manufacturers Ltd. v. Commissioner of Wealth-tax, [1971] 80 I.T.R. 34 (All.) (W.T.R. 327 of 1964, decided on April 29, 1970). In that case it was held by this court that the sum of Rs. 5,49,041 being the balance of the demand payable as a result of the findings and orders of the Income-tax Investigation Commission was deductible in determining the wealth of the company.
6. That principle applies in the instant case also. The sum of Rs. 20,94,027 represents an existing liability of the assessee-company. The amount is therefore deductible in determining the net wealth of the company.
7. In the result, we answer questions Nos. 1 and 3 in the affirmative, and in favour of the assessee. Our answer to question No. 2 is in the negative, and against the assessee.
8. Parties shall bear their own costs in this reference.