1976 (3) TMI 6 - SC - Wealth-tax

Whether in view of the provisions of section 7(2) of the Wealth-tax Act, an adjustment could be made in ascertaining the net value of the depreciable assets of the assessee-company by substituting the written down value of the assets computed under the Indian Income-tax Act for the value as shown in the balance-sheet - question is answered in the negative, against the assessee and in favour of the revenue

Summary

Issues:
Valuation of depreciable assets for wealth tax assessment based on balance-sheet values versus written down values under the Indian Income-tax Act.

Analysis:
The judgment by the Supreme Court involved a dispute regarding the valuation of depreciable assets for wealth tax assessment. The primary issue revolved around whether the written down value of assets computed under the Indian Income-tax Act should replace the value as shown in the balance-sheet for determining the net wealth of the assessee. The case pertained to assessment years 1957-58, 1958-59, and 1959-60. The Wealth-tax Officer initially determined the value of assets based on balance-sheet figures. However, the Appellate Tribunal directed the use of written down values for inclusion in the net wealth. The High Court, following a previous decision, ruled in favor of the assessee. The Supreme Court, referencing previous judgments, emphasized that the onus is on the assessee to prove that the balance-sheet values do not reflect the true asset value. Mere paucity of profits leading to lower depreciation in the balance-sheet does not automatically warrant the adoption of written down values. The court highlighted the need for the assessee to provide reliable evidence to establish the actual asset value, irrespective of what is shown in the balance-sheet.

Furthermore, the court discussed the provisions of Section 7(2)(a) of the Wealth-tax Act, which allow adjustments in asset values based on circumstances disclosed by the assessee. The judgment underscored that the written down value should only be accepted if supported by acceptable reasons and reliable material demonstrating its accuracy. The court rejected the notion that written down values should always override balance-sheet values, emphasizing the need for a case-by-case evaluation. Additionally, the court differentiated between the balance-sheet value and the real value of assets, indicating that the former is not conclusive and can be challenged with appropriate evidence.

The judgment also referenced a decision concerning the carrying forward of depreciation allowances under the Indian Income-tax Act, highlighting the necessity for the depreciation to align with the actual asset value. The court emphasized that the burden lies on the assessee to substantiate the true asset value with credible evidence. The judgment concluded by setting aside the High Court's decision, ruling against the assessee, and in favor of the revenue. The appeals were allowed with costs awarded to the revenue.