JUDGMENT
Balasubramanian, J.
T.C. Nos. 1978 to 1981 of 1984 are at the instance of the Commissioner of Wealth-tax, Tamil Nadu-I, Madras, and the Tribunal, Madras Bench `B’, Madras, has stated a case and referred the following question of law under section 27(1) of the Wealth Tax Act, 1957 (hereinafter referred to as ‘the Act’):
“Whether, on the facts and in the circumstances of the case, on a partial distribution of the assets and liabilities of the estate of the deceased, the assessee, legal representative, could deduct the debts allotted to her share in computing her own net wealth under the Wealth Tax Act, 1957 ?”
2. T.C. No. 1269 of 1990 is also at the instance of the Commissioner, Tamil Nadu-I, Madras, and the Tribunal has stated a case and referred the following question of law under section 27(1) of the Act:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee’s share of liability as legal heir of the estate of his late father, had actually become due and as such is deductible, while computing the wealth of the assessee ?”
3. T.C. No. 1211 of 1991 is also at the instance of the Commissioner, Tamil Nadu-I, Madras, and the Tribunal has stated a case and referred the following question of law under section 27(1):
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee’s share liability, as legal heir of the estate of his late father, had actually become due and as such is deductible, while computing the wealth of the assessee ?”
4. The issues that arise in all the tax cases are common and, hence, they are dealt with together, and it is suffice to notice the facts in T.C. Nos. 1978 to 1981 of 1984 to dispose of the tax cases in the batch. The respondents, hereinafter to be referred to as’ the assessees’, are the sons and daughters of an industrialist, late Shri S. Anantharamakrishnan, who died on 8-8-1964 leaving behind five legal heirs. The estate of the deceased was being administered by the administrator, Mr. A. Sivasailam, the eldest son of the deceased who is also the respondent in T.C. No. 1269 of 1990. The estate was assessed to wealth-tax under section 19A of the Act and after determination of the estate duty and payment thereof, the assets and liabilities of the estate were partially distributed by the administrator among the five legal heirs of the estate during the year ending on 31-3-1974 and in the distribution, 39,000 shares in Amalgamations Ltd. were distributed to the five legal heirs and each got 7,800 shares of Rs. 10 each. The share of liabilities due to the estate was also transmitted to each of them which amounted to Rs. 4,83,702, Rs. 5,11,348 and Rs. 5,38,993 as on 31-3-1974,31-3-1975 and 31-3-1976, respectively.
5. The assessees in T.C. Nos. 1978 to 1981 of 1984 have returned the value of shares in Amalgamations Ltd. as ‘nil’ and claimed deduction of the liabilities distributed to them. The Wealth Tax Officer disallowed the claim of the assessee on the ground that the liability was incurred in relation to the shares which were exempt from tax and, hence, not deductible under section 2(m) of the Act. The Wealth Tax Officer also held that the liability of the assessees as legal heirs could extend only to the extent of properties derived from the deceased and there could be no personal liability in excess of the value of assets inherited by them.
6. The assessees carried the matter in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner did not agree with the Wealth Tax Officer and held that the liability was not incurred in relation to the inherited shares, and he also took the view that the circumstance that the value of the shares was returned as ‘nil’ did not disentitle the assessees from claiming deduction in respect of the liability as the assessees had undertaken to discharge the liability. He, therefore, held that the assessees would be entitled to deduction of the liability and allowed the appeals.
7. The revenue carried the matter in appeal before the Tribunal, on the ground that the liability was received by the assessees as a result of the partial distribution of the assets of the assessees’ father and the liability could be regarded as a contingent liability. The Tribunal, however, rejected the contention of the revenue and held that there is nothing to show that the liability was fastened on the assessees as legal representatives of the deceased, and the Tribunal held that the liability could not be regarded as a contingent liability. The Tribunal also held that the liability was incurred after the death of late Anantharamakrishnan and the liability could not be stated to be a liability incurred by late Anantharamakrishnan and fastened on the legal representatives except the debt due to Higginbothams (P) Ltd. The Tribunal, therefore, held that the assessees are entitled to claim deduction of the liability in the computation of net wealth of the assessees and dismissed the appeals preferred by the revenue. Similar view was taken by the Tribunal in other cases also which are the subject-matter of other tax case references before us and the department has challenged the orders of the Tribunal and the questions of law as stated earlier have been referred by the Tribunal for our consideration.
8. Mr. C.V. Rajan, the learned senior counsel appearing for the revenue, submitted that the assessees are not entitled to claim deduction of the liability as the liability was only a contingent liability. The further submission of the learned senior counsel for the revenue was that the liability was fastened on the exempted assets and, hence, the assessees are not entitled to claim deduction of the same under section 2(m). The learned senior counsel submitted that the liability could extend only to the extent of the value of the property inherited by the assessees from their deceased father and the deduction cannot in any event exceed the value of the property inherited by the assessees. The learned senior counsel for the revenue also submitted that the liability could not be regarded as a liability of the assessees and, hence, he submitted that the Tribunal was not correct in holding that the assessees are entitled to claim deduction of the liability as a debt.
9. Mr. P. P. S. Janarthana Raja, the learned counsel for the assessees, submitted that the Tribunal has come to the correct conclusion and there are no reasons to interfere.
10. We have carefully considered the submissions of the learned counsels for the parties. In considering the common issues raised in the questions of law referred to in various tax cases, it is relevant to notice that except the amount due to Higginbothams (P) Ltd. which represented the money borrowed by the deceased for demand of tax, other amounts due to other persons represented the money borrowed by the executor and the debts were incurred during the course of the administration of the estate for payment of wealth-tax and gift-tax pertaining to the estate of late Anantharamakrishnan. After the determination of estate duty and payment thereof, the assets and liabilities of the estate were partially distributed among the five legal heirs of the deceased and certain shares were distributed and liabilities were transmitted.
11. We are unable to accept the submission of the learned senior counsel for the revenue that the liability fastened on the assessees can be regarded as a contingent liability as there is nothing to show that the liability was fastened on the assessees only on the happening of uncertain events in future. We hold that the liability was incurred by the act of borrowing either by the deceased or by the executor and they are debts within the meaning of the Wealth Tax Act and the executor in discharge of the functions as an executor has distributed not only the shares but also the liability among the legal heirs. Therefore, it is not possible to hold that the liability is a contingent liability as there is nothing to show that the assessees are required to discharge the liability in the event of certain contingencies.
12. In M. CT Muthiah v. CED (1986) 161 ITR 768 (SC), the Supreme Court considered the expression ‘contingent liability’ and held as under :
“In Words and Phrases Legally Defined – Vol. 1, 1969 (Second edn.), at page 332, it has been said that ‘contingent liability’ is a phrase with no settled meaning in English Law because Danckwerts, J. thought it necessary to resort to dictionary use. The Court of Appeal regarded its meaning as an open question. A conditional obligation, it has been said there, or an obligation granted under a condition which is uncertain, had no obligatory force till the condition was purified….” (p. 779)
Applying the test laid down by the Supreme Court, the obligation undertaken by the assessees is not conditional obligation as the assessees have undertaken to discharge the liability unconditionally and there are no materials to establish that the liability to discharge the debt would arise only on fulfilment of uncertain conditions, nor it can be said that the obligation undertaken had no force till the condition is satisfied. We hold that none of the conditions to regard the debt as a contingent liability is present to regard the debt as a contingent liability.
13. The next submission of the learned counsel for the revenue was that the liability is fastened to the exempted assets. We are unable to accept the submission as there is nothing to indicate that the liability was fastened or attached to the shares. It is seen that only after the shares were obtained by late Anantharamakrishnan the debts were incurred. Hence, we find there are no materials to show any nexus or link between the shares and the liability. As rightly pointed out by the Tribunal, the executor had distributed the assets partially and also distributed the liability of the estate partially. We hold that it is not possible to infer from the mere fact that the shares were valued at ‘nil’, that the liability was fastened on the assets, nor it would disentitle the assessees to claim deduction in respect of the liability. Further, the fact that the shares were valued at ‘nil’ for wealth-tax purpose does not indicate that the shares have no value, as the shares were valued at ‘nil’ for the purpose of wealth-tax proceedings, only because of certain circulars issued by the Central Board of Direct Taxes. Therefore, we are unable to accept the submission of the learned senior counsel for the revenue that the liability undertaken by the assessees has a nexus or connection with the exempted assets under section 2(m).
14. We are also unable to accept the submission of the learned senior counsel for the revenue that the assessees are not entitled to claim deduction in excess of the value of the assets inherited by them from their deceased father. Though there is no dispute about the proposition of law that the liability of a legal heir would extend only to the extent of the property derived by him, yet that proposition has no application to the facts of the case as the debts were not incurred by late Anantharamakrishnan and the liabilities were also passed on to the assessees on the death of late Anantharamakrishnan. On the other hand, it was found that except the debts due to Higginbothams (P) Ltd., other debts were incurred by the executor after the death of late Anantharamakrishnan for the discharge of wealth-tax and gift-tax liabilities pertaining to the estate of late Anantharamakrishnan and the liabilities were transmitted to the assessees not in the capacity of legal representatives. As rightly observed by the Tribunal, the liabilities are not debts inherited by the assessees as legal representatives but de hors the same.
15. The other submission of the learned senior counsel for the revenue that the debts claimed as deduction could not be regarded as debts of the assessees is also not acceptable, as the executor has partially distributed the assets of the estate as also the liability of the estate and the assessees had also undertaken to discharge the liability. Further, it was not the case of the revenue at any point of time either during the assessment proceedings or before the appellate authorities that the debts were not those of the assessees. We find that the assessees had undertaken to discharge the liabilities, and it cannot be categorised that they do not represent the debts of the assessees.
16. We are, therefore, of the opinion that the Tribunal has come to the correct conclusion in holding that the assessees are entitled to claim deduction of the liability as a deductible item. Accordingly, we answer the question of law referred to us in the tax cases mentioned earlier in the affirmative and against the revenue. However, in the circumstances, there will be no order as to costs.