1978 (9) TMI 38 - HC - Wealth-tax

Summary

Issues:
1. Competency of the Wealth-tax Officer to revalue shares in reassessment proceedings.
2. Treatment of initial depreciation reserve as a liability while computing the value of shares under rule 1D of the Wealth-tax Rules.

Detailed Analysis:
1. Competency of the Wealth-tax Officer:
The case involved the reassessment of an individual's wealth for the assessment years 1969-70 and 1970-71 due to certain assets escaping assessment. The Wealth-tax Officer (WTO) adopted the method prescribed by rule 1D of the Wealth-tax Rules to value shares and included assets omitted in the original assessment. The Tribunal held that the WTO had the authority to assess other items of assets that had escaped assessment earlier, not just the ones for which proceedings were initiated. The Tribunal also found that the WTO did not have fresh information to justify revaluing the shares of M.P. Sugar Mills. The High Court did not address this issue as it became academic due to the decision on the second question.

2. Treatment of initial depreciation reserve:
Rule 1D specifies the method for computing the market value of unquoted equity shares, with the second Explanation detailing the assets and liabilities to be disregarded. Clause (c) of the Explanation excludes reserves set apart for depreciation from liabilities. The Tribunal agreed with the assessee that the initial depreciation reserve should be added to the liabilities while valuing the shares. The High Court concurred, stating that the term "depreciation" in clause (c) encompasses all types of depreciation reserves and should be considered a liability. Consequently, the High Court answered the second question in favor of the assessee, holding that the initial depreciation reserve could not be excluded from the set of liabilities.

In conclusion, the High Court ruled in favor of the assessee on the treatment of the initial depreciation reserve as a liability while computing the value of shares, rendering the first question regarding the competency of the Wealth-tax Officer moot. The decision was based on the interpretation of the relevant provisions of the Wealth-tax Rules and upheld the Tribunal's findings in favor of the assessee. The assessee was awarded costs amounting to Rs. 200.