1983 (5) TMI 71 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the right to exploit a cinema film in a particular territory for a period of time is an asset on the relevant valuation date.
2. If such a right is an asset, whether its value has to be included in the computation of net wealth of the firm and consequently of its partners.
3. The applicability of rules 2B and 2C of the Wealth-tax Rules in valuing the said asset.
4. The necessity of making a reference to the Valuation Officer under section 16A of the Wealth-tax Act.

Detailed Analysis:

1. Whether the right to exploit a cinema film in a particular territory for a period of time is an asset on the relevant valuation date:

The tribunal considered the definition of 'assets' under the Wealth-tax Act, which is inclusive and very wide, covering property of every description. It was established that the right to exploit a film is an incorporeal right and constitutes stock-in-trade for a film distribution business. The Supreme Court in CIT v. A. Krishnaswami Mudaliar held that the value of the rights in the film for the unexpired period represents the closing stock and must be considered for determining income. Hence, the right to exploit a film is indeed an asset.

2. If such a right is an asset, whether its value has to be included in the computation of net wealth of the firm and consequently of its partners:

The tribunal clarified that the charge under the Wealth-tax Act is imposed on the valuation of assets minus debts, determined as per section 7. For businesses maintaining regular accounts, the Wealth-tax Officer (WTO) may determine the net value of the assets of the business as a whole, considering the balance sheet and making prescribed adjustments. The WTO had added the value of the rights to exploit certain films to the net wealth of the firm and its partners, but the tribunal found this approach inconsistent with the prescribed rules.

3. The applicability of rules 2B and 2C of the Wealth-tax Rules in valuing the said asset:

The tribunal examined rules 2B and 2C, which provide for adjustments in the value of assets disclosed and not disclosed in the balance sheet, respectively. Rule 2B was deemed inapplicable as the asset was not disclosed in the balance sheet. Rule 2C, which applies to assets not disclosed in the balance sheet, was scrutinized. The tribunal referred to the Special Bench decision in N. M. Shah, which held that adjustments under rule 2C are only for assets required to be disclosed according to the system of accounting. Since the cost of acquisition of film rights was treated as revenue expenditure and fully written off as per rule 9B of the Income-tax Rules, no asset remained to be disclosed in the balance sheet.

4. The necessity of making a reference to the Valuation Officer under section 16A of the Wealth-tax Act:

The tribunal noted that the assessee argued the WTO should have referred the valuation to the Valuation Officer. However, since the tribunal decided the appeals on the basic issue of whether the asset should be included in the net wealth, it found it unnecessary to delve into this subsidiary argument.

Conclusion:

The tribunal concluded that although the right to exploit a film is property, it is not an asset whose value can be added by adjusting the balance sheet under section 7(2)(a). The WTO's addition of the value of unexploited film rights to the net wealth of the firm and its partners was unjustified. Consequently, the appeals were dismissed, upholding the order of the Appellate Assistant Commissioner (AAC).