1964 (10) TMI 108 - HC - Wealth-tax

Summary

Issues Involved:
1. Adjustment of the value of depreciable assets in the balance-sheet.
2. Deduction of accrued liability for gratuity in computing net wealth.

Analysis:

Issue 1: Adjustment of the Value of Depreciable Assets in the Balance-sheet

The primary question was whether, in ascertaining the net value of the depreciable assets of the assessee-company, adjustments could be made in accordance with section 7(2) of the Wealth-tax Act by substituting the written down value computed under the Indian Income-tax Act for the value of the block assets as shown in the balance-sheet.

The court referenced the decision in Commissioner of Wealth-tax v. Raipur Manufacturing Co. Ltd. [1964] 52 ITR 482, which held that the Wealth-tax Officer has the power to make adjustments in the valuation given in the balance-sheet if the circumstances of the case require it. However, in the present case, there was no evidence to show that the value of the fixed assets as shown in the balance-sheet was not the true value or that circumstances existed which required any adjustment. Therefore, the value of the depreciable assets as shown in the balance-sheet was not liable to be adjusted with reference to the written down value as per the income-tax records.

The court noted that the contention raised by Mr. Kaji regarding a note in the balance-sheet about depreciation to the extent of Rs. 1,91,805 was not permissible as it was not covered by the question referred to the court and was not raised before the revenue authorities or the Tribunal. The court concluded that the value of the fixed assets as shown in the balance-sheet should be taken as Rs. 23,21,726 without any adjustment.

Conclusion: The court answered the first question in the negative, stating that the value of the depreciable assets as shown in the balance-sheet was not liable to be adjusted with reference to the written down value as per the income-tax records.

Issue 2: Deduction of Accrued Liability for Gratuity in Computing Net Wealth

The second question concerned whether the sum of Rs. 77,820, being the accrued liability to gratuity estimated by the assessee in terms of two agreements, is a proper deduction in ascertaining the net wealth for the assessment year 1957-58.

The court observed that the amount claimed by the assessee by way of deduction in respect of gratuity payable to the clerks and technicians under these two agreements could not be said to be a debt owing by the assessee on the valuation date since the gratuity was not payable on the valuation date but was contingent upon certain conditions. However, the court referenced its judgment in Commissioner of Wealth-tax v. Ajit Mills Ltd. [1965] 55 ITR 556, which held that even a contingent liability can be taken into account while computing the net wealth of the assessee under section 7(2)(a). The estimated value of the contingent liability would be a permissible deduction.

The Tribunal had incorrectly assumed that an accrued liability existed on the valuation date under the two agreements and directed the assessment to be modified accordingly. The court clarified that the correct principle was to deduct the estimated value of the contingent liability under the two agreements as on the valuation date. The court reframed the question to reflect this principle accurately.

Conclusion: The court reframed the second question as: "Whether the liability in respect of gratuity under the two agreements dated 22nd June, 1949, and the 2nd July, 1952, is an allowable deduction in computing the net wealth of the assessee under section 7(2)(a) of the Wealth-tax Act?" The court answered this in accordance with its judgment, allowing the estimated value of the contingent liability as a deduction.

Final Judgment:
The court concluded that the value of the depreciable assets as shown in the balance-sheet should not be adjusted with reference to the written down value as per the income-tax records. Additionally, the estimated value of the contingent liability for gratuity under the two agreements is an allowable deduction in computing the net wealth of the assessee. Each party was ordered to bear its own costs of the reference.