R. L. SANGANI, J. M.: These two appeals by assessee relates to asst. yrs. 1976-77 and 1977-78, for which relevant valuation dates are 31st Dec., 1975 and 31st Dec., 1976 respectively. By order dt. 6th April, 1974, Director, Enforcement Directorate, New Delhi imposed penalty of Rs. 5,00,000 on assessee under s . 23(1)(a) of Foreign Exchange Regulation Act, 1947 for contravention of provisions of ss. 4(1) and 5(1)(a) of said Act. It was mentioned in said order that penalty imposed should be deposited by assessee at Bombay Officer of Directorate within 45 days of date of issue of said order. Foreign Exchange Regulation Appellate Board by order dt. 17th Jan., 1980, confirmed said order of penalty and dismissed appeal of assessee. assessee filed further appeal under s. 24EE of Act to High Court. High Court stayed recovery of amount on condition of furnishing of security by assessee. High Court has not yet disposed of said appeal. assessee claimed deduction of said amount of Rs. 5,00,000 in both assessment years on ground that it represented debt owned by assessee on relevant valuation dates. WTO as well as AAC has disallowed said claim. In disallowing said claim, WTO in his order for asst. yr. 1976-77 has observed as follows: "This penalty was levied by Enforcement Directorate. However, assessee has denied penalty and has appealed against its imposition to High Court. Since amount has still not been paid and matter is pending before Court this liability is disallowed." While dismissing appeal of assessee, ld. AAC in his common order for both years has observed as follows: "Since appellant still disputes imposition of penalty, it cannot be said that liability has become final. Furnishing of security before High Court does not amount to payment of penalty or acceptance of liability. It is settled principle that liability will arise in year when such liability will arise in year when such liability becomes final. As High Court has to decide about liability of appellant to pay penalty, I hold that liability has not arisen to assessee so far." assessee has now come in appeals before us and his contention is that in circumstances of case, said amount represented debt owned by assessee on relevant valuation dates and, as such, said amount should have been allowed as deduction. ld. representative for department relied on reasons given in order of AAC. We have considered rival submissions and facts on record. Sec. 2(m) of WT Act, 1957, so far as relevant, defines "net wealth" as amount by which aggregate value of all assets is in excess of aggregate value of all debts owed by assessee on valuation date. Cls. (i), (ii) and (iii) of s. 2(m) enumerate those debts, which would not be taken into account for computing net wealth. scheme which emerges from ss. 2(m) and 3 of Wt Act clearly shows that all debts other than those which fall within exclusionary part of s. 2(m), owned by assessee have to be deducted from aggregate value of assets belonging to him on valuation date. In other hands, in order to get disqualified for purposes of deduction, debt must fall within exclusionary part. In present case, admittedly none of three clauses in exclusionary part of s. 2(m) is applicable. Consequently, assessee would be entitled to claim deduction of said amount provided that said amount represented "debt owed by assessee on valuation date". As already indicated, Director, Enforcement Directorate, New Delhi, had imposed penalty of Rs. 5,00,000 on 6th April, 1974 under s. 23(1)(a) of Foreign Exchange Regulation Act for contravention of provisions of ss. 4(1) and 5(1)(a) of said Act and assessee had been directed to pay penalty imposed within 45 days of date of issue of said order. This clearly indicates that assessee had incurred liability to pay said amount on 6th April, 1974. assessee had not paid said amount prior to relevant valuation dates. Consequently that amount represented debt owed by assessee on relevant valuation dates. order of Director, Enforcement Directorate, was confirmed subsequently by Foreign Exchange Regulation Appellate Board. This subsequent event confirmed conclusion that liability to pay said amount had come into existence prior to relevant valuation dates. said liability was statutory liability in circumstances, there can be no escape from conclusion that said amount represented debt owned by assessee on relevant valuation dates. question then is whether facts that assessee had not subsequently paid said amount and that assessee had obtained order staying recovery of said amount on furnishing security from High Court by filing appeal would make any difference. view expressed by WTO as well as ld. AAC is that this would make difference. We are unable to agree with this view. On account of said order date for payment of penalty stands postponed to future date and that future date is date on which High Court would finally dispose of appeal. said order does not obliterate debt itself. Consequently, it cannot be said that because of stay order said account did not represent debt owed by assessee on relevant valuation dates. Similarly fact that assessee has challenged legality of imposition of penalty by filing appeal before High Court would not take that amount out of category of "debt owned by assessee of relevant valuation dates". order imposing penalty remains binding on assessee till it is vacated by High Court. High Court had not vacated said order prior to date of assessment order or even at stage of arguments before us, High Court had not decided appeal of assessee. Consequently, debt which was created on account of order of Director, Enforcement Directorate, continued to exist. Another reason given by ld. AAC is that said amount had not been paid by assessee. fact that said amount had not been paid by assessee could also not take said amount out of ambit of debt owned by assessee on relevant valuation date. As already stated, assessee has given security for payment of said amount and factum of non-payment is irrelevant as far as point at issue is concerned. We may mention here that position would have been different if order of Director, Enforcement Directorate, imposing penalty had been order of Director, Enforcement Directorate, imposing penalty had been vacated by Appellate Board and government had filed appeal before High Court challenging cancellation of said order. If in that even assessee had claimed deduction on ground that cancellation of penalty had not become final, his claim would have been liable to rejected. However, in present case, enforceable order of penalty existed not only on relevant valuation dates but also on date of assessment order. Consequently, mere fact that assessee was contesting legality of penalty by filing appeal before High Court, would not mean that liability had not crystallised. reason given by WTO as well as AAC are wholly unsustainable. We may usefully refer to decision of Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC). In that case, sales-tax liability in respect of relevant accounting year had been raised against assessee after filing of return and assessee claimed deduction in respect of that liability, although no provision had been made in books of accounts. claim was based on ground that liability had been incurred in relevant accounting year and as assessee was maintaining its accounts mercantile system, assessee was entitled to deduction in respect of that liability. On behalf of revenue one of grounds on which right to claim deduction was challenged was that assessee had filed appeal against order of sales-tax assessment and assessee was disputing liability to pay said tax. Supreme Court held that assessee was entitled to deduction of amount of sales-tax which it was liable to pay during relevant accounting year and that said liability did not cease to be liability because assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as said liability was not finally reduced or wiped out. said decision arose in proceeding for assessment for income- tax. However, basic principle laid down there would be applicable in wealth-tax proceedings also. That principle is that where there is statutory liability to pay any amount, that liability did not cease to be liability merely because assessee had filed appeal before higher authorities to get rid of that liability. In other words, disputed liabilities are not necessarily contingent, in nature. When this principle is applied to facts of present case, it must be held that amount representing penalty was debt owned by assessee on relevant valuation dates inspite of fact that assessee had filed appeal before High Court and had obtained stay of operation of order on furnishing security. Reliance was paced on behalf of department on decision in CWT vs. Kantilal Manilal (1973) 88 ITR 125 (Guj) and Kesoram Industries & Cotton Mills Ltd. vs. CWT (1966) 59 ITR 767 (SC) in support of contention that unpaid and disputed liability did not amount to debt owed by assessee on relevant valuation date. We have carefully considered these decision. In case of Kantilal Manilal all has been laid down is that if final assessment order quantifying tax payable is available on date of assessment of wealth- tax proceedings that amount should be taken as debt owed by assessee and that amount as per return should not be taken to be such amount. principle enunciated in said decision is not applicable to facts of present case. In case of Kesoram Industries & Cotton Mills Ltd. (supra) it has been laid down that term "debt owed" within meaning of s. 2(m) of WT Act, 1957 could be defined as "the liability to pay in praesenti or in futuro ascertainable sum of money". amount with which we are concerned would certainly come within this definition. Consequently, this decision confirms view which we have already taken. It is of no assistance to department. For reasons given above, we set aside order of ld. AAC and direct WTO to treat amount of Rs. 5,00,000 as debt owed by assessee on relevant valuation dates and allow deduction in respect thereof for ascertaining net wealth. In result, appeals are allowed. *** SUSHILKUMR R. RUJA v. SECOND WEALTH TAX OFFICER