1975 (5) TMI 11 - HC - Wealth-tax

Summary

Issues Involved
1. Whether the 'outstandings' due to the firm constituted assets the value of which was required to be included in its net wealth for the purpose of assessing the assessee's interest therein.
2. Whether the value of the 'outstandings' should be reduced by the estimated tax payable by the firm and the assessee.
3. Whether the principle and method of valuation of the outstandings as adopted by the Appellate Assistant Commissioner were correct.

Detailed Analysis

Issue 1: Inclusion of 'Outstandings' as Assets
The primary issue revolves around whether the 'outstandings' due to the firm should be considered as assets for the purpose of computing the net wealth of the assessee. The Tribunal held that these 'outstandings' are indeed assets. The court examined various legal definitions and precedents to determine whether these 'outstandings' qualify as "debts" or "assets."

According to the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, a debt is defined as "a sum of money which is now payable or will become payable in future by reason of a present obligation." The court found that the moment a solicitor renders professional services, he is entitled to his fees, making the 'outstandings' a present obligation, thus qualifying as debts.

The court also referenced the Supreme Court's decision in Ahmed G. H. Ariff v. Commissioner of Wealth-tax, which stated that property includes every possible interest a person can hold and enjoy, thereby affirming that the 'outstandings' are assets.

Issue 2: Reduction by Estimated Tax Payable
The second issue concerns whether the value of the 'outstandings' should be reduced by the estimated tax payable by the firm and the assessee. The court noted that no income-tax is payable by the firm on these outstandings on the valuation date due to its cash system of accounting, and section 2(m) of the Wealth-tax Act does not allow for such deductions. Consequently, the court rejected the contention that the value of the 'outstandings' should be reduced by the estimated tax payable.

Issue 3: Principle and Method of Valuation
The third issue pertains to the correctness of the principle and method of valuation of the outstandings as adopted by the Appellate Assistant Commissioner. The court upheld the principle and method of valuation used, noting that section 7(1) of the Wealth-tax Act provides that the value of any asset, other than cash, shall be estimated to be the price it would fetch if sold in the open market on the valuation date. The court referenced the Bombay High Court's interpretation in Commissioner of Wealth-tax v. Purshottam N. Amersey, which was approved by the Supreme Court, stating that it should be assumed there is an open market for the asset.

The court also addressed the argument that the assessee might not remain in the firm on the date of realization of these outstandings, stating that the Wealth-tax Act is concerned with the net wealth on the valuation date, and these outstandings were assets on that date.

Conclusion
The court concluded that the 'outstandings' are indeed assets that should be included in the net wealth of the assessee. The value of these 'outstandings' should not be reduced by the estimated tax payable, and the principle and method of valuation adopted by the Appellate Assistant Commissioner were correct. The court made no order as to costs.