1974 (1) TMI 13 - HC - Wealth-tax

Penal Interest Penal Interest Reduction Or Waiver Reduction Or Waiver Revision By Commissioner Revision By Commissioner Waiver Of Interest Waiver Of Interest

Issues Involved:
1. Justification of the Appellate Tribunal's direction to allow depreciation as per income-tax records for valuing assets under section 7(2) of the Wealth-tax Act.
2. Justification of the Appellate Tribunal's allowance of additional depreciation in arriving at the value of assets under section 7(2) of the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Justification of the Appellate Tribunal's Direction to Allow Depreciation as per Income-tax Records:
The primary issue revolves around whether the Appellate Tribunal was justified in allowing depreciation as per income-tax records when the actual amount written off in the books was less. The Tribunal had relied on the Bombay High Court's decision in CWT v. Indian Standard Metal Company Ltd., which allowed the deduction of accumulated depreciation not written off in the books but allowed by the department in the income-tax assessments.

The High Court of Madhya Pradesh, however, observed that the Tribunal should have followed the precedent set by the Madhya Pradesh High Court rather than the Bombay High Court, particularly since the matter pertains to an assessee taxable in Madhya Pradesh. The court referred to its own decision in Hira Mills Ltd. v. CWT, which emphasized that the valuation in the balance-sheet is not conclusive and adjustments must be made based on the material presented. The Supreme Court's ruling in Kesoram Industries and Cotton Mills Ltd. v. CWT was also cited, which stated that the Wealth-tax Officer is not bound by the balance-sheet figures and can make necessary adjustments to ascertain the true value of the assets.

Thus, the High Court concluded that the Tribunal was not justified in allowing depreciation as per income-tax records when the actual amount written off in the books was less. The correct market value should be determined by making necessary adjustments as per section 7(2)(a) of the Wealth-tax Act.

2. Justification of the Appellate Tribunal's Allowance of Additional Depreciation:
The second issue pertains to whether the Appellate Tribunal was justified in giving allowance in respect of additional depreciation in arriving at the value of the assets under section 7(2) of the Wealth-tax Act. The Tribunal had allowed additional depreciation based on the view that the depreciation allowed under the Indian Income-tax Act, 1922, should be considered for wealth-tax purposes.

The High Court agreed with the Bombay High Court's view that accumulated depreciation could be deducted from the total valuation. However, it clarified that the depreciation allowable under the Income-tax Act is not automatically relevant for wealth-tax purposes. The valuation must be arrived at in accordance with the requirements of section 7(2) of the Wealth-tax Act, which allows for adjustments based on the balance-sheet but does not make the balance-sheet value sacrosanct.

The court referred to its earlier decision in Central India Machinery Manufacturing Co. Ltd. v. CWT, which held that initial and additional depreciation permissible under the Income-tax Act could not be taken into account for determining the net valuation of assets under section 7(2)(a) of the Wealth-tax Act. The court reiterated that while the balance-sheet might serve as a basis, adjustments must be made to reflect the true value of the assets.

Therefore, the High Court concluded that the Appellate Tribunal was justified in giving allowance in respect of additional depreciation, provided it adheres to the provisions of section 7(2)(a) of the Wealth-tax Act and makes necessary adjustments to arrive at the correct valuation.

Conclusion:
1. The Appellate Tribunal was not justified in giving directions to allow depreciation as per income-tax records when the actual amount written off in the books was less.
2. The Appellate Tribunal was justified in giving allowance in respect of additional depreciation in arriving at the value of the assets under section 7(2) of the Wealth-tax Act.

The reference was returned to the Income-tax Appellate Tribunal for passing a further consequential order in accordance with the High Court's opinion, with no order as to costs.

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