# KESORAM JNDUSTRIES & COTION MILLS LTD v. COMMISSIONER OF WEALTH TAX, (CENTRAL) CALCUTTA - **Citation:** [1966] 2 S.C.R. 688 - **Court:** Supreme Court of India - **Decided:** 1965-11-24 - **Case number:** Civil Appeal No. 539 of 1964 - **Bench:** K. Subba Rao, J.C. Shah, S. M. Sikri - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kesoram-jndustries-cotion-mills-ltd-v-commissioner-of-wealth-tax-central-3741 - **Pages:** 32 ## Headnote Wealth Tax Act (27 of 1957), ss. 2(m) and 1-Provision for paying dnco1ne-tax-lf deductible debt~Provision for payn1ent of dividendWhen deductible-Scope of s. 1. In the profit and loss account of the, appellant company for the ac- · counting year ending 31st 'March 1957, a certain sum of money \Vas shown as the amount of dividend proposed to be distributed for that :year; and its balance-sheet as on that date showed the value of its fixed . assets and another sum as a provision for tax liability under the Incometax Act, 1922. In computing the net wealth for the purposes of Wealth 'Tax Act, 1957, the Wealth Tax Officer accepted the said valuation cf the fixed assets under s. 7(2) of the Act, rejecting the appeUant's pica that •each item shotild be valued at the 1narkct rate under s. 7 ( 1). He also disallowed the c1aim of the appellant in respect of the proposd dividend atlci estimated tax liability on the ground that the said items were not debts within the meaning of s. 2(m) of Act, on the valuation date 31st March 1957. The, order was confirmed by the, Appellate Tribunal .and by the High Court on a reference to it. In appeal to this Court, B c D HELD : (i) The Wealth Tax Officer was justified in taking the value E ssee. All the ingredients of a debt are present. lt is a present liability of an ascertainable amount. [697 E; 703 E, F; 704 C, E. H; 705 A-B, 708 A-CT Wallace Brothers and Co. Ltd. v. Con1n1i.~sioner of lncome·tax BonIbay, (1948) 16 l.T.R. 240 (P.C.); Chatturam Hori/ram Ltd. v .. Commis, sioner of Income-tax, Bihar, (1950) 27 I.T.R. 709 (S.C.) and Kalwa Davadattam v. Union of Indio, (1963) 49 I.T.R. 165 (S.C.) followed. Cotnmissioner of WeG/th Tax, Bonibay v. Standard Mills Co. Ltd., (1963) 50 I.T.R. 267 and Commissioner of Wealth Tax, Kera/a v. Travan• core Rayon Ltd., (1964) 54 I.T.R. 332, disapproved. F Looking at the problem from the standpoint of a businessman or looking at the question from a commonsense view, one: will ·reasonably hold that the net wealth of an assessee. during the accounting year is the incomeearned by him minus the tax payable by him in respect of that income. [697 A] Per Shah J. (dissenting); The liability to pay the tax is not a debr arising on the valuation date and therefore is not deductible in computG ing the net wealth of the, assesse.e under s. 2(m). A debt involves a present obligation incurred by the debtor and a liability to pay a sum of money in present or in foture. The liability must however be to pay a sum of money, that is, to pay an amount whichis determined or determinable in the light of factors existing at the date, when the nature of the liability has to be ascertained, but the ex~ pression does not include liability to pay unliquidated damages nor obliH gations which are inchoate or contingent. [711 A, B-CJ Under s. 3 of the Income Tax Act. liability to he taxed becomes effective not later than the last day of the year of account. But the liability· to pay tax arises, not from the estimate made, but only whern '690 SUPREME COURT REPORTS [1966] 2 S.C.R. 1he Finance Act becomes operative on the first day of April of the a5Sessment year either by enactment of an Act or by virtue of s. 67B of the Income-tax Act. Section 67B, however, operates only on the first day -of the assessment year, that is, after the valuation date and not before. Therefore, the existence on the Statute Book of s. 67B does not convert what is an inchoate liability on the valuation date into a completed or •effective liability to pay tax. Hence, the liability to pay tax, in the present case, at the earliest, arose on the first day of April 1957, but >that, under the Wealth Tax Act, is not the valuation date. The liability to pay wealth tax becomes crystallised on the valuation date though the qax is levied for the assessment year, and on the valuation date there is normally no completed or effective charge. for incomee-tax payable for the assessment year, because, the liabil.ity to tax did not give rise to any •obligation to pay a sum of money either determined or determinable in the light of factors existing on that date. [712 D-E; 716 C-F; 717 A] A B To a commercial man the distinction betwe.en liability which arises C ·immediately and a liability to arise in future may be blurred: but that in la\\1 is a real distinction and a liability which arises in the. year of assess- :ment may not be projected into the account of the previous year. [716 GJ There is no warrant for the argument that substantially s. 7(2) is a definition 'ection, which extends for the purposes of the Act tho definition ·<>f the "net wealth" of assessees carrying on business. Neither cl. (a) • nor cl. (b) of the section is directed towards the determination of the D net wealth, and it would be impossible to hold that the Legislature intended "that the net wealth for the purpose of the charge to tax under s. 3 should '" be the net value of the assets as determined under s. 7(2). [719 B-DJ The power conferred upon the Wealth Tax Officer by s. 7(2) is to ·arrive at a valuation of the assets and not to arrive at the net wealth Of the assessee. The section merely provides machinery in certain special ·cases fur the valuation of assets, and it is from the aggregate VJluation of assets that the net wealth chargeable to tax may be ascertained. It does not contemplate determination of the net wealth, be.cause, net wealth can only be determined from the net value of the asse.ts by making appropriate deductions for debts owed by the asseessee. Section 7 (2 )(b) only contemplates cases whe.re a company not resident in India is carrying on business and it is not possible. t_o make a computation in accordance with cl. (a) becaG~e of the absence of a separate balance sheet of the •company. [718 B, D-FJ Chattura1n HorUram Ltd. v. Conunissioner of Jncon1e-ta.x, Bihar and Orissa, 27 l.T.R. 709 (S.C.) referred to. Wallace Brothers and Co. Ltd. v .. Conunissioner of Inco111e-tc,x, Bon1bay, 16 I.T.R. 240 (P.C.) and Ka!wa Devadattam v. Union of India, 49 I.T.R. 165 (S.C.), explained. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 539 of 1964. Appeal from the judgment and order dated May 14, 1962 of 'the Calcutta High Court in Wealth Tax Reference No. 178 of 1960. N. A. Palkhiva/a, S. T. Desai, R. K. Chaudhury, S. Murthi :and B. P. Mah~shwari, for the appellant. E F G 1 H ,, • , ,_ KESORAM INDUSTRIES v. COMMR. w. TAX (Subba Rao, J.) 691 A A. V. Viswanatha Sastri, N. D. Karkhanis, R. N. Sachthey, . B. R. G. K. Achar and R. H. Dhebar, for the respondent. The Judgment of Subba Rao and Silcri, JJ. was delivered by Subba Rao J. Shah, J. delivered a dissenting Opinion. B Subba Rao, J. Kesoram Industries and Cotton Mills Limited, the appellant herein, is a company incorporated under the Indian Companies Act. Its subscribed capital at the end of the relevant accounting year ending March 31, 1957, was Rs. 2,29,99,125/-. The original cost of the said assets was Rs. 2,30,32,833/-. During the year ended March 31, 1950, the company made a revaluaC tion of its assets and added an amount of Rs. 1,45,87,000/- to the costs of the said fixed assets. After certain adjustments, the value of the fixed assets was fixed at Rs. 2,60,52,357 /-. The said fixed assets of the assessee were shown m the balance-sheets issued by the assessee from time to time at the added value less depreciation calculated on the original cost. In the balanceD sheet of the relevant accounting year also th.'! said amount was shown as the value of the fixed assets. In the profit and loss account for the said year a sum of Rs. 15,29,855/- was shown as the amount of dividend proposed to be distributed for that year. The said amount was declared as dividend at the General Body Meeting of the assessee held on November 27, 1957. The E said balance-sheet as on March 31, 1957, also showed a provision for taxation amounting to Rs. 1,03,69,009/- and as against the said amount a sum of Rs. 84,76,690/- was shown as the taxes paid during the said accounting year. In computing the net w.~alth for the purposes of Wealth Tax F Act, 1957, the Wealth Tax Officer accepted the said valuation of the fixed assets under s. 7 (2) of the said Act, rejecting the plea of the assessee that each item of the assets should be valued at the market rate under s. 7 ( 1) th.'!reof. He also disallowed the claim of the assessee in respect of the proposed dividend and estimated income-tax and super-tax on the ground that the said G items were not debts on the valuation date, i.e., March 31, 1957. within the meaning of s. 2(m) of the Wealth Tax Act. On appeal, the said order was confirm~d by the Appellate Assistant Commissioner except to the extent of outstanding demand of income-tax for Rs. 30,305 /-. On further appeals, the Income-tax Appellate Tribunal, Calcutta Bench "A", not only disallowed the H claims of the assess.w but also allowed the appeal of the Department in regard to Rs. 30,305 /-, subject to certain directions given by it. At the instance of the assessee, the following three 692 SUPREME COURT REPORTS [1966] 2 S.C.R. questions were referred to the High Court under s. 27 of the Wealth Tax Act : ' (I) Whether, on the facts and in the circumstances of the case, the Wealth Tax Officer was justified in taking the value of the assets of the assessee as shown in its Balance Sheet on the relevant valuation date. (2) Whether, on the facts and in the circumstances of the case, in computing the net wealth of the assessee the amount of proposed dividend was deductible from its total assets. ( 3) Whether, on the facts and in the circumstances of the case, in computing the net wealth of the assessee, the amount of the provision for payment of income-tax and super-tax in respect of the year of account was a debt owed within the meaning of Section 2 (m) of the Wealth Tax Act, 1957, and as such deductible in computing the net wealth of the assessee. · The High Court answered the three questions against the assessee. Hence the present appeal. A B c D Mr. Palkhivala, learned counsel for the assessee raised before us the same arguments as he had unsuccessfully pressed before E the High Court. We shall take each of them seriatim for our consideration. The first question is whether the High Court was right in agreeing with the Tribunal that the assessee's revaluation of the assets should be accepted for the purposes of the Wealth Tax Act. F Section 7 of the Wealth Tax Act lays down how the value of assets is to be ascertained for the purposes of the said Act. It reads: ( 1) The value of any asset, other than cash, for the purposes. of this Act, shall be estimated to be the price which in the opinion of the WealthG tax Officer it would fetch if sold in the open market on the valuation date. (2) Notwithstanding anything contained in subsection ( 1 )- (a) where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may, instead H • .. • • • ' • • A B XESORAM INDUSTRIES v. COMMR. w. TAX (Subba Rao, l.) 693 of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as the circumstances of the case may require. Under this section in the case of an assessee carrying on business the Wealth-tax Officer may determine the net value of the assets of the business as a whole having regard to the balance-sheet of the business as on the valuation date. The balance-sheet, as C indicated earlier, as on March 31, 1957, showed the appreciated value on revaluation of the assets at Rs. 2,60,52,357 /-. As the value of the assets had increased, a corresponding balancing figure, vi~ .• Rs. 1,45,87,000/- was introduced in capital. reserve surplus : that figure represented the increase in the value of the assets. It was argued that the revaluation was done for other I> purposes, that it did not represent the real value of the assets and that fact was also reflected by the said amount representing the difference being shown as a capital surplus. Apart from the argument raised, there is nothing on the record to disclose why the said figure did not represent the correct value of the assets .. We do not also se.e how the fact that the said increase was shown E as caoital surnlus would detract from the correctness of the valuation, for the corresponding balancing figure had to be introduced in the balance-sheet. Under s. 211 of the Companies Act, 1956, every balance-sheet of a company must !!ive a true and fair view of the state of its affairs as at the end of the financial year. When F the as its general body meeting accepts the recommendation and de- . clares the dividend, the report of the directors in that regard is only a recommendation which may be withdrawn or modified, as the case may be. As on the valuation date nothing further happened than a mere recommendation by the directors as to the K amount that might be distributed as dividend, it is not possible to hold that there was any debt owed by the assessee to the shareholders on the valuation date. The High Court rightly answered the second question in the negative. The third question raised a serious controversy between the parties. On this question the High Court held that although the F assessee was liable to pay income-tax on the valuation date, the actual amount of the liability was not ascertained until some time after the passing of the Finance Act and determination made by the income-tax authorities and, therefore, no debt was owed by the assessee on the valuation date. In that view, it answered the third question in the negative. G A few facts relevant to this question may be recapitulated. Under the Wealth Tax Act, 1957, the Wealth-tax Officer valued the net wealth of the assessee as on March 31, 1957, which was the valuation date as defined under the said Act. The Finance B Act came into force on April 1, 1957. The question is whether the liability to' pay income-tax and super-tax became a debt owed by the assessee on March 31, 1957, or on April l, 1957: if it • • • : • .... ·, KESORAM INDUSTRIES V. COMMR. w. TAX (Subba Rao, J.)695 A was a debt on the latter date, it could not be deducted from the gross assets of the assessee to arrive at the net wealth, if it was on the former date, it could be. Mr. Palkhivala argued that the liability to pay tax arose by virtue of the charging section, i.e., s. 3 of the Income-tax Act, and that it arose not later than the close of the previous year though the quantification of the amount B payable was postponed till the Finance Act was passed and that, therefore it being a liability in praesenti existing on the valuation date, it was a debt owed by the assessee on the said date. Mr. A. V. Viswanatha Sastri, learned counsel for the Revenue, argued that the expression "debt owed" meant an obligation to C pay an ascertained amount, that the said obligation to pay incometax arose only on the passing of the Finance Act and that, therefore, on the valuation date no debt was owed by the assessee to the Department within the meaning of s. 2(m) of the Wealth Tax Act. At the outset it will be convenient to gather the material proD visions of the relevant Acts at one place. They read : E r G • H WEALTH TAX ACT, 1957. Section 2(m). "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including 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 ........ . Section 3. Subject to the other provisions contained in this Act there shall be charged for every financial year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule. Section 2 ( q). "valuation date" in relation to any year for which an assessment has to be made under this Act, is the last day of the previous year as defined in clause ( 11) of Section 2 of the Income-tax Act if an assessment were to be made under that Act for that year ................................ . -696 SUPREME COURT REPORTS [1966] 2 S.C.R. INCOME-TAX ACT, 1922 Section 2. ( 11) "previous year" means- ( i) in respect of any separate source of income, profits and gains- ( a) the twelve months ending on the 31st day of March next preceding the year for which the. assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said 31st day of March, then, at the option of the assessee, the year ending on the date to which his accounts have been so made up. Section 3. Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of 1he previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the m.-::mbers of the association individually. Section 55. In addition to the income-tax charged . for any year, there shall be charged, levied and paid for that year in respect of the total income of the previous year of any individual, Hindu undivided family, company, local authority, unregistered firm or other assodat:on of persons, not being a registered firm, or the partners of the firm or members of the association indi- . vidually, an additional duty of income-tax (in this Act referred to as super-tax) at the rate or rates laid down for that year bv a Central Act. ....... . Section 67B. If on the 1st day of April in any year provis'on has not yet be~n made by a Central Act for the charging of income-tax for that year, this Act shall nevertheless have effect until such provision is so made as if the provision in force in the preceding ye~r or the provision proposed in the Bill then before Parliament, wbichever is more favourable to the assessee, were actually in force. A • B c [I 11 G H ' ' • • .. I KESORAM INDUSTRIES v. COMMR. w. TAX (Subba Rao, !.) 697 A THE FINANCE (NO. 2) ACT, 1957 (ACT NO. XXVI of 1957) (It received the assent of the President on September 11, 1957). B c D Section 2. (1) Subject to the provisions of sub-sections (2), (3), (4) and (5) for the year beginning on the 1st day of April, 1957,- ( a) income-tax shall be charged at the rates specified in Part I of the First Schedule, and, in the cases to which Paragraphs A, B and C of that Part apply, shall be increased by a surcharge for purposes of the Union and a speciai surcharge on unearned income, calculated in either case in the manner provided therein; and (b) super-tax shall, for the purposes of section 55 of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the Income-tax Act), be charged at the rates specified in Part II of the First Schedule ............ . A gist of th.e said provisions, excluding the controversial points, relevant to the assessment under scrutiny may be given thus : Under s. 3 of the Wealth-tax Act, the net wealth of the assessee was assessable as on the valuation date, i.e., March 31, 1957, at the rate or rates snecified in the Schedule to the said Act. "Net E Wealth" is the amount by which the aggregate value of the assets of the assessee as on the said date is in excess of the aggregate value of the debts owed by it on the said date. Under s. 3 of the Income-tax Act, the assessee was liabl.e to pay income-tax and super-tax on its income ascertained during the accounting year F ending with March 31, 1957, at the rates prescribed under the Finance Bill or the previous Finance Act whicheve< was less, as the Finance Act of 1957 was passed only in September, 1957. On those facts, the question is whether the liability of the assessee to pay income-tax and super-tax arose on the valuation date, i.e., March 31, 1957, the last day of the accounting year, or subseG quently during the assessment year~ i.e., during the period April l, 1957 to March 31, 1958. Looking at the problem from the standpoint of a businessman or looking at the question from a commonsense view, one will reasonably hold that the net wealth of an assessee during the· accounting year is the income earned by him minus the tax payH able by him in respect of that income. If a person earns Rs. 1.00,000/- during the accounting year and has to pay Rs. 60,000/- as tax in respect of that income, it will be incongru- 698 SUP.REME COU.RT .REPO.RTS [1966] 2 S.C • .R. ous to suggest that his wealth at the end of that year is A Rs. 1,00,000/-. A reasonable man will say that his income is only Rs. 40,000/-, which represents his wealth at the end of the year. But it ~ said that what is just is not always legal. This Court has, on more than one occasion, emphasized the fact that the real income of an assessee has to be ascertained on commercial principles subject to the provisions of the Income-tax Act. B Is there any provision in the Wealth-tax Act which compels us to come to a conclusion which is unjust on the face of it ? The problem presented can satisfactorily be solved by answering two. qu.~stions, namely, (I) what docs the expression "debt · owed" mean? and (2) when does the liability to pay income-tax C • and super-tax under the Income-tax Act become a debt owed within the meaning of that expression ? lf we ascertain the meaning of the word "debt", the expression "owed" does not cause any difficulty. The verb "owe" means "to be under an obligation to pay". It does not really add to the D meaning of the word "debt". What does the word "debt" mean ? A simple but a clear definition of the word is found in Webb v. Stenton('J wherein Lindley, L.J., said: " ........ a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro." E This view was accepted by the other Lord Justices. · The Court of Appeal in O'Drisco/l v. Manchester Insurance Committee(') con- ~idered the word "debt" in the context of fees payable by National Insurance Committee to Panel Doctor. The Insurance Committee F entered into agreements with the panel doctors of their district by which the whole amounts received by the committee from the National Insurance Commissioners were to be pooled and distributed among the panel doctors in accordance ·with a scale of fees. The Court held that where a panel doctor had done work under his agreement with the insurance committee, and the G committee had received funds in respect of medical benefit from the National Insurance Commissioners, there was a debt owing or accruing from the insurance committee to the panel doctor which might be attached, though the exact share payable to him was not yet ascertained. It was argued there that there could not be a debt until the amount had been ascertained and in support of that conH tention cases relating to unliquidated damages were cited. Dis- (1} (1883) 11 Q.B.D. 518, 527. (2) (1915) 3 K.B.D. 499, 512, 515, 517. ,. , • • • - KESORAM INDUSTRIES v. COMMR. w. TAX (Subba Rao, !.) 699 A. tinguishing those cases on the ground that there was no debt until the verdict of the jury was pronounced assessing the damages and judgment was given, Swinfen Eady, L.J., observed: B "Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the Insurance Committee. Therefore, there was a "debt" at the material date, though it was not presently payable and the amount was not ascertained." Phillimore, L.J., dealing with the argument based on the fact that the sums were not ascertained at the time they were sought to be C attached, observed : 0 E "No doubt these debts were not presently payable, and the amounts were not, on April 9, 1914, ascertained in the sense that no one could say what the result of the calculations would be, but it was certain on that date that a payment would become due from the committee to the doctors out of the balance of the moneys in the hands of the Committee for 1913 ........ ". So also Bankes, L.J. observed : "Dr. Sweeny fulfilled that condition, and a debt arose, though the amount of it was not ascertained on April 9, 1914,. and was not then payable." This judgment in substance ruled that a present liability to pay an amount in future, though it was not ascertained but was ascertainable, was a debt liable to attachment. The word "debt" was again considered in Inland Revenue F Commissioners v. Bagnall, Ltd.(') in connection with the excess profits tax. There, the Board of Inland Revenue accepted an offer of £ 10,000 made by the respondent company's accountants in settlement of their earlier liability. Thav offer was accepted only on September 22, 1937. The company contended that the sum G. was a debt due from the respondent to the Inland Revenue as from January 1, 1935. As the offer was not accepted, it was held that the sum was not a debt. It was argued that even if there was a liability on January 1, 1935, that liability did not become a debt within the meaning of the Finance (No. 2) Act, 1939. Adverting to that argument, Macnaghten, J., observed : H "It is true that the word 'debt' may, in certain connections, be us~d so as to cover a mere liability, but I (I} [1944] 1 All. E.R. 204, 206. 700 SUPREME COURT REPORTS [1966] 2 S.C.R .. think that in this Act it is used in the proper sense of an ascertained sum and that the contention of the Attorney" General is well founded." This decision, while holding that in the context of the Finance Act of 1939 there was no debt until the liability was quantified, conceded that the expression "debt" was wide enough to take in a B. liability; it also did not define the scope of the expression "ascertained", that is to say whether the said expression would take in amounts ascertainable. The King's Bench Division in Seabrook Estate Co. Ltd. v. Ford(') held that money in the hands of a Receiver for debenturehold.ers was not a debt owing or ;;ccruing and, therefore, was not C liable to attachment. But Hallett, J., accepted the following proposition laid down by Rowlatt, J., in O'Driscoll v. Manchester Insurance Committee( 2 ); " ...... where a debt is established in praesenti, it is not snflicient objection to say that the exact amount of the debt will be the subject of a calculation which has not yet been made and, it may be, cannot yet be made." This question fell to be decided again in Dawson v. Preston (Law Society, Garnishee) (3 ). The question there was whether a sum representing damages paid to legal aid fund could be attached by D a creditor of a legally aided plaintiff. At the time when the garJr. nishee order was sought to be issued, a part of the decree amount was with the Law Society, subject to any charge conferred ori the Law Society to cover the prescribed deductions which rel)lained to be quantified, e.g., deduction for the taxed costs of the action. The Court held that there was an existing debt although the payment of the debt was deferred pending the ascertainment of the F amount of the charge in favour of the Law Society. Ormerod, J., observed : " ...... that is· merely a question of ascertaining the debt which has to be paid over to the assisted person and does not prevent that debt from being an existing G debt at the material date." This decision also recognized that, if there was a liability in praesenti, the fact that the amount was to be ascertained did not make it any the less a debt. In Dunlop & Ranken Ltd. v. Bendall Steel Structures Ltd. H (Pitchers Ltd.-Garnishees) (4) it was held that the issuing of the (I) [1949] 2 All. E.R. 94. 96. (3) (1955] 3 All. E.R. 314, 318. (2) [1915] 3 K.B.D. 499. (4) [1957] l W.L.R. 1102, 1104. • • • I ......::: .. f··--"'.:.;.~ ' ' KESORAM INDUSTRIES v. COMMR. w. TAX (Subba Rao; J:) 701~ A architect's certificate was just as much a necessity for investing a cause of action in sub-contractors as it was in the main. contracts, and the judgment debtors hall no right to be paid, and therefore there was no debt, until the architect had certified the amount to be paid for the work ordered by the garnishees. On that. reason-· ing it was held that no garnishee order should have been made. B Strong reliance was placed on this decision in support of the contention of the Revenue that there could not be a debt if the ascertainment of the debt depended upon a certificate to be issued by a third par\y. But a perusal of the judgment shows that in such contracts a certificate by the architect was a condition for imposc D E ing a liability and that, therefore, till such a condition was complfod with there could not be any debt. This decision does not throw any light on the question that now arises before us. The principle of the matter is well put in the Annual Practice, 1950, at p. 808, thus : "But the distinction must be borne in mind between the case where there is an existing debt, payment whereof is deferred, and a case where both the debt and its payment rest in the future. In the former case there is an attachable debt, in the latter case there is not. If for instance, a sum of money is payable on the happening of a contingency, there is no debt owing or accruing. But the mere fact that the amount is not ascertained does not show that there is no debt." In our view this is a full and accurate statement of law on the· subject and the said statement is supported by English decisions we have discussed earlier. F We shall now notice some of the decisions 0f the Indian Courts on this aspect. A special Bench of the Madras High Court in Sabju Sahib v. Noordin Sahib(') hdd that a claim for unliquidated sum of money was not a debt within the meaning of the Succession Certificate G Act, 1889, s. 4(1 )(a). The claim was to have an account taken of the partnership business that was carried on between the de-- ceased and others and to have the share of the deceased paid over to him as the representative of the deceased. Shephard, Officiating C.J., said : H "It is quite clear that this is not a debt, for there was ~t t?e time of the death no present obligation to pay a llqu1dated sum of money. The claim is one about whicfr -··--- ----·--- ---- (!) (!899) I.LR. 22 Mad. 139, 141. 702 SUPREME COURT REPORTS [ 1966] 2 S.C.R. there is no certainty; it may turn out that there is nothing due to the plaintiff." Subramania Ayyar, J., did not consider that claim as a debt for . the reason that the liability arising from the obligation of a partner to account to the other partners could not be held to be a debt in A the accepted ordinary legal sense of the term for the obvious reason A that the liability was not in respect of a liquidated sum. An obli- . gation to account does not give rise to a debt, for the liability to. pay will arise only after the accounts were taken and the liability was ascertained. In the context of the Succession Certificate Act, such an obligation was rightly held not to be a debt. The decision of a Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee(1) throws considerable light on the connotation of the word "debt". Jenkins, C.J., defined that word thus : · " ...... I take it to be well established that a debt c is a sum of money which is now payable or will become D payable in future by reason of a present obligation." Mookerjee, J., quoted the following passage with approval from the judgment of the Supreme Court of California in People v. Arguello (2) : "Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the fonner that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds : solvendum in praesenti and solvendum in futuro, ............. . A sum of money which is certainly and in all events payab1'.) is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt, or does not become a debt until the contingency has happened." This passage brings out with clarity the essential characteristics of a debt. It also indicates that a debt owing is a debt payble in future. It also distinguishes a d.ebt from a liability for a sum payable upon a contingency. E F G A Full Bench of the Madras High Court in Doraisami PadayaH