1980 (3) TMI 18 - HC - Wealth-tax

Summary

Issues Involved:
1. Valuation of Agricultural Lands
2. Inclusion of Accrued Interest in Net Wealth

Summary:

1. Valuation of Agricultural Lands:
The assessee, an individual owning agricultural lands and engaged in money-lending business, returned a net wealth of Rs. 1,51,872 for the assessment year 1971-72 based on the valuation by an approved valuer. The Wealth-tax Officer (WTO) rejected this valuation and estimated the value at Rs. 2,27,000. The Appellate Assistant Commissioner (AAC) accepted the assessee's complaint regarding the WTO's valuation of agricultural land.

2. Inclusion of Accrued Interest in Net Wealth:
The assessee did not include Rs. 25,768 of accrued interest on loans in the net wealth, as the accounts were maintained on a cash basis. The WTO added this accrued interest to the net wealth. The AAC upheld this inclusion, but the Income-tax Appellate Tribunal reversed it, directing the deletion of the accrued interest from the net wealth. The revenue sought a reference to the High Court u/s 27(1) of the W.T. Act, 1957.

The High Court examined whether the accrued interest of Rs. 25,768 is includible in the net wealth for the assessment year 1971-72, considering rules 2B and 2C of the Wealth-tax Rules. The Tribunal had applied r. 2B(1), stating the omitted asset's value should be determined under this rule since the accrued interest was less than 20% of the total loans' value.

The High Court noted that s. 7(2) of the Act, which allows for an alternative valuation method based on the balance-sheet, applies only to business assets and not to a mix of business and non-business assets. The WTO had followed s. 7(1) for valuation, which mandates estimating the value of each asset individually. The court held that accrued interest is an "asset" u/s 2(e) and must be included in the net wealth, regardless of the cash basis accounting. The court cited precedents affirming that accrued interest forms part of the asset for wealth-tax purposes.

Conclusion:
The High Court ruled in favor of the revenue, holding that the accrued interest of Rs. 25,768 is includible in the net wealth of the assessee. The assessee was ordered to pay costs, with an advocate's fee of Rs. 250.