1977 (12) TMI 19 - HC - Wealth-tax

Summary

Issues Involved:

1. Deductibility of contingencies reserve, development reserve, and tariffs and dividends control reserve in computing net wealth.
2. Deductibility of the amount credited to the consumers' benefit account in computing net wealth.
3. Deductibility of provision for payment of income-tax and super-tax as reduced by advance tax paid.
4. Deductibility of provision for payment of additional taxes according to Finance (No. 2) Bill, 1957, and tax under the Wealth-tax Bill, 1957.
5. Exemption of net wealth employed in Trombay Units Nos. 2 and 3 and Carnac receiving station under section 5(1)(xxi) of the Wealth-tax Act.

Detailed Analysis:

1. Deductibility of Contingencies Reserve, Development Reserve, and Tariffs and Dividends Control Reserve:

The court confirmed that the amounts in the contingencies reserve, development reserve, and tariffs and dividends control reserve are includible in the net wealth of the assessee. This decision aligns with the Division Bench decision in Commissioner of Wealth-tax v. Bombay Suburban Electric Supply Ltd. [1976] 103 ITR 384, which held that these reserves were assets belonging to the company. The court also referred to its recent decision in Wealth-tax Reference No. 2 of 1968, where it was held that tariffs and dividends control reserve must be included for computing net wealth. Consequently, Question No. 1 was answered in the negative and against the assessee.

2. Deductibility of the Amount Credited to the Consumers' Benefit Account:

The court rejected the argument that the amount in the consumers' benefit account should be excluded from net wealth. The court reasoned that the amount set aside for consumers' benefit, while not immediately utilizable by the assessee, still forms part of the company's clear profits. The court emphasized that the mere restriction on the utilization of an asset does not affect its ownership, which is crucial for determining net wealth under section 2(m) of the Wealth-tax Act. The court also dismissed the alternative argument that the amount should be considered a debt owed, as there was no enforceable right for consumers to claim this amount. Consequently, Question No. 2 was answered in the negative and against the assessee.

3. Deductibility of Provision for Payment of Income-Tax and Super-Tax:

The court held that the provision for payment of income-tax and super-tax, as reduced by the advance tax paid, is deductible in computing net wealth. This decision was based on the Supreme Court's ruling in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax [1966] 59 ITR 767, which established that the liability to pay income-tax is a present liability, even though it becomes payable after quantification. Consequently, Question No. 3 was answered in the affirmative and in favor of the assessee.

4. Deductibility of Provision for Payment of Additional Taxes:

The court held that the provision for payment of additional taxes according to Finance (No. 2) Bill, 1957, and the tax under the Wealth-tax Bill, 1957, is deductible in computing net wealth. This decision was supported by the Supreme Court's ruling in H. H. Setu Parvati Bayi v. Commissioner of Wealth-tax [1968] 69 ITR 864, which clarified that the wealth-tax liability crystallizes on the valuation date. Consequently, Question No. 4 was answered in the affirmative and in favor of the assessee.

5. Exemption of Net Wealth Employed in Trombay Units Nos. 2 and 3 and Carnac Receiving Station:

The court upheld the Tribunal's finding that Trombay Units Nos. 2 and 3 and the Carnac receiving station were new and separate units set up after the commencement of the Wealth-tax Act, thereby qualifying for exemption under section 5(1)(xxi). The court referenced the Supreme Court's decision in Commissioner of Wealth-tax v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478, which defined "set up" as being ready to commence operations. Consequently, Question No. 5 was answered in the affirmative and in favor of the assessee.

Summary of Answers:

- Question No. 1: Answered in the negative and against the assessee.
- Question No. 2: Answered in the negative and against the assessee.
- Question No. 3: Answered in the affirmative and in favor of the assessee.
- Question No. 4: Answered in the affirmative and in favor of the assessee.
- Question No. 5: Answered in the affirmative and in favor of the assessee.

Costs:

Having regard to the fact that both parties have succeeded partly and failed partly, there will be no order as to costs.