1988 (5) TMI 29 - HC - Wealth-tax

Summary

Issues Involved:
1. Justification of the Tribunal's decision based on the burden of proof regarding market value exceeding 20% of book value.
2. Application of Rule 2B(2) of the Wealth-tax Rules, 1957.
3. Determination of market value of closing stock.
4. Onus of proof regarding the valuation of closing stock.

Detailed Analysis:

1. Justification of the Tribunal's Decision Based on the Burden of Proof Regarding Market Value Exceeding 20% of Book Value:
The Tribunal held that the burden was on the Wealth-tax Officer to show that the market value exceeded by more than 20% the valuation given in the balance-sheet to invoke Rule 2B(2). The Tribunal concluded that there was no definite evidence to support this and thus, Rule 2B(2) was not attracted. The High Court affirmed this, stating that the burden lies on the party which would fail if no evidence is led by either side. Since the Wealth-tax Officer did not provide sufficient positive material to prove that the market value exceeded the book value by more than 20%, the Tribunal's decision was justified.

2. Application of Rule 2B(2) of the Wealth-tax Rules, 1957:
Rule 2B(2) states that if the market value of an asset exceeds its book value by more than 20%, the market value should be taken for wealth-tax purposes. The Wealth-tax Officer attempted to apply this rule by using the gross profit rate as an indicator of market value. However, the Tribunal and the High Court found that the gross profit rate alone was not a sufficient basis for determining market value. The Wealth-tax Officer's method of deducting 4% from the gross profit rate to estimate the market value was not supported by any discernible principle or positive material.

3. Determination of Market Value of Closing Stock:
The Wealth-tax Officer used the gross profit rate to estimate the market value of the closing stock, deducting 4% from the gross profit rate to account for expenses. This method resulted in a market value exceeding the book value by more than 20%. However, the Tribunal and the High Court found that there was no positive material to justify this deduction or the resulting market value. The High Court emphasized that the actual deduction from the gross profit rate is a question of fact and must be based on actual figures, which were not provided in this case.

4. Onus of Proof Regarding the Valuation of Closing Stock:
The High Court reiterated that the burden of proof lies on the party challenging the balance-sheet value. In this case, since the Wealth-tax Officer was challenging the book value provided by the assessee, the burden was on the Revenue to prove that the market value exceeded the book value by more than 20%. The High Court cited precedents, including CWT v. Tungabhadra Industries Ltd. and CWT v. Hindustan Motors Ltd., to support this position. The Revenue failed to provide sufficient positive material to discharge this burden.

Conclusion:
The High Court concluded that the Tribunal's view was justified. The Tribunal correctly held that the condition precedent for invoking Rule 2B(2) was not satisfied due to the lack of positive material proving that the market value exceeded the book value by more than 20%. Consequently, the references were answered in the affirmative, against the Revenue, and in favor of the assessee.