1990 (9) TMI 115 - AT - Wealth-tax

Summary

Issues Involved:
1. Valuation of the shares of different assessees in the movable and immovable properties.
2. Valuation of immovable properties (lands and buildings).
3. Valuation of movable properties (plant and machinery).

Detailed Analysis:

1. Valuation of the Shares of Different Assessees in the Movable and Immovable Properties:
The common question in these appeals relates to the value of the shares of different assessees in the movable and immovable properties of certain concerns of the Vadi Lal group in various years. The appeals also involve the valuation of the same properties of the same concerns and are disposed of by a consolidated order.

2. Valuation of Immovable Properties (Lands and Buildings):
The valuations of the lands and buildings belonging to M/s Vadi Lal Ice Factory and M/s Vadi Lal Dairy Frozen Food Industries were challenged. It was submitted on behalf of the assessees that the valuation of immovable properties pending assessment at the time of the insertion of the new valuation rules by the Direct Tax Laws (Amendment) Act, 1989, effective from April 1, 1989, should be made in accordance with those Rules. The Tribunal directed the WTO to revalue the immovable properties of the two concerns in accordance with Schedule III of the amended Rules, considering the applicability of Rule 8.

3. Valuation of Movable Properties (Plant and Machinery):

(i) M/s Vadi Lal Ice Factory:
- The factory is engaged in the production of ice and cold storage of commercial perishable materials.
- The assessees had not relied upon any valuation report, and the WTO referred the valuation of their shares to the Valuation Officer (VO), who used the straight-line method of depreciation.
- The VO estimated the fair market value based on the replacement cost of machinery and allowed reductions for depreciation, limited marketability, joint ownership, and the corrosive effect of machinery.
- The valuations for various years were confirmed by the learned CIT(A) in appeals.

(ii) M/s Vadilal Dairy Frozen Food Industries:
- The firm is engaged in manufacturing and marketing various varieties of ice-cream.
- The WTO referred the valuation of the plant and machinery to the VO, who adopted the straight-line method of depreciation.
- The VO considered the condition of the machinery, the corrosive effect, and the limited marketability in making his estimations.
- The valuations for various years were confirmed by the learned CIT(A) in appeals.

Arguments and Observations:
- Mr. J.P. Shah argued that the VO's method of estimating the value of machinery did not lead to a correct estimation of the fair market value. He suggested that the VO should have relied on the written-down value as per balance sheets.
- The Supreme Court and Allahabad High Court have held that the written-down value is not a good indicator of the fair market value for the purpose of valuation under the Wealth Tax Act.
- The WTO was justified in referring the valuation to the VO, who adopted a fair method of valuation.
- The VO's method of valuation, including the straight-line method of depreciation, was approved by the Tribunal.
- Specific arguments regarding the valuation of certain assets and the corrosive effect of Ahmedabad water were considered, but the Tribunal found no justification for further reducing the valuation.
- The Tribunal allowed a 10% deduction for obsolescence and limited marketability, considering the rapid technological advances and the nature of the ice cream and food freezing industry.

Conclusion:
The appeals were partly allowed for statistical purposes, with the question of valuation of immovable properties remitted to the WTO for valuation in accordance with the new rules. The method of valuation adopted by the VO for movable properties was approved, with specific deductions allowed for obsolescence and limited marketability.