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2012 (10) TMI 338 - HC - Wealth-taxIncome received in advance is an Asset or not Assessee is running a tutorial institute. As regards the fee received from students, it is stated that the assessee charged the full fee for the entire course of study which ran to different years. Question is whether Fee receipts are to be treated as Income or Asset. Held that - Method of maintaining the account on cash or mercantile system has no bearing on the issue. In this case the assessee had maintained the account only on cash system has no bearing on the issue. The asset as on the valuation date would have to be taken into consideration in the matter of assessment under Wealth Tax Act. Thus when the fee for the course was collected from students each as on the registration date, Contention of assessee that he had held the sums in trust which were actually due for the future is not tenable. Fees received has to be treated as Asset and not Income. As decided by Court in case of of Vysyaraju Badreenarayana Moorthy Raju 1985 (3) TMI 2 - SUPREME COURT Receipts are to be treated as Asset as on the valuation date and are not be treated as Income Appeal is allowed in favour of Revenue.
Issues:
1. Treatment of fees received as asset by the assessee. 2. Relevance of accrual of income in wealth tax assessments. Analysis: Issue 1: Treatment of fees received as asset by the assessee The case involved the question of whether the amounts received as fees by the assessee from students should be considered as its asset. The assessee, running a tutorial institute, had historically disclosed the entire fee in the year of receipt. However, for the year ending 31.3.92, the assessee showed only the prorata income relevant for that period, treating the balance as advance. The Assessing Authority included this advance fee as part of the net wealth of the assessee, leading to a series of appeals. The Income Tax Appellate Tribunal held that the advance fees should not be treated as income in the year of receipt unless accrued as income in that year. The Tribunal emphasized that if the receipts were not income, the assessee had no accrued right, and thus, it could not be considered an asset for wealth tax purposes. The Revenue, disagreeing with this interpretation, filed an appeal. Issue 2: Relevance of accrual of income in wealth tax assessments The Revenue argued that the system of accounting, whether mercantile, cash, or hybrid, was irrelevant in determining the assets of the assessee for wealth tax assessments. Citing a Supreme Court decision, the Revenue contended that all assets of the assessee, except those expressly exempted, should be considered, regardless of the accounting method employed. The Apex Court highlighted that the value of assets should be based on the estimated open market value, including rights that accrue to the assessee. The assessee, on the other hand, argued that the advance fees received should not be considered an asset, as they were held in trust for students and were refundable under certain circumstances. The assessee maintained that since the advance fee was not treated as income in the year of receipt, it should not be included as an asset. However, the Court held that the method of maintaining accounts, in this case, did not affect the assessment under the Wealth Tax Act, and the advance fees should be considered assets. In conclusion, the Court allowed the Tax Case Appeal, setting aside the order of the Income Tax Appellate Tribunal. The decision of the Apex Court supported the Revenue's position that the advance fees received should be considered assets for wealth tax assessment purposes.
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