1990 (3) TMI 123 - AT - Wealth-tax

Additional Tax, Amnesty Scheme, Cinema Theatre, Debt Owed, Net Wealth, Tax Liability, Valuation Officer

Issues Involved:

1. Proper deductions before determining the average net yield of the property.
2. Disallowance of claim for liability towards payment of additional income-tax and wealth-tax.

Issue-wise Detailed Analysis:

1. Proper Deductions Before Determining the Average Net Yield of the Property:

The primary issue in these appeals is to determine the proper deductions to be allowed before calculating the average net yield of the property, which is a cinema theatre called "Devi 70 MM." The assessee had the asset valued by a registered valuer at Rs. 54,50,000 as of 31-3-1982, but the Wealth-tax Officer referred the valuation to the Valuation Cell of the Income-tax Department. The District Valuation Officer preliminarily estimated the value at Rs. 72.67 lakhs using the income capitalization method, which the assessee objected to on several grounds.

The assessee argued that the life of the building should be reduced due to the modern trend favoring video and TV, which would reduce the number of cine-goers. The urban land ceiling laws and development programs would also affect the asset's future value. Moreover, the life of a cinema hall should not be compared to a residential building due to its constant use. The assessee also contended that expenses towards interest on loans, proprietor's risk, labor, and skill should be excluded while capitalizing the net profit.

The Tribunal found that the best method of valuation for cinema houses is the income capitalization method. It was noted that deductions such as interest on capital, remuneration for the owner's risk, and entrepreneurship should be allowed. The Tribunal allowed 12% of the gross income towards the owner's risk and entrepreneurship and 15% interest on Rs. 70,000 as working capital. Additionally, municipal tax was considered a yearly outgoing and deductible.

Ultimately, the Tribunal determined the value of "Devi 70 MM" for the assessment years 1982-83 to 1986-87 at Rs. 6,00,000 for each year, allowing the assessee's appeal proportionately.

2. Disallowance of Claim for Liability Towards Payment of Additional Income-tax and Wealth-tax:

The second issue is the disallowance of the assessee's claim for liability towards payment of additional income-tax and wealth-tax for the assessment years 1982-83 to 1986-87. The Wealth-tax Officer disallowed these liabilities on the grounds that they arose from the Amnesty returns filed by the assessee, which were not outstanding liabilities as of the relevant valuation dates.

The Tribunal examined the legal principles governing the accrual of tax liabilities. It referred to several Supreme Court decisions, including CWT v. J.K. Cotton Mfrs. Ltd. and CWT v. K.S.N. Bhatt, which clarified that a tax liability crystallizes on the last day of the previous year for income-tax and on the valuation date for wealth-tax. The quantification of the liability by an assessment order does not create the liability but merely quantifies it.

The Tribunal concluded that the additional tax liabilities arising from the Amnesty returns should be deemed to have become debts on the relevant valuation dates. Therefore, these liabilities should be allowed as deductions from the wealth-tax assessments for the assessment years 1982-83 to 1986-87. The amounts, subject to verification by the Wealth-tax Officer, were specified as follows:

- 1982-83: Rs. 3,59,539
- 1983-84: Rs. 4,01,739
- 1984-85: Rs. 7,10,086
- 1985-86: Rs. 4,44,839
- 1986-87: Rs. 4,45,969

The Tribunal allowed the appeals partly, granting relief to the assessee on this point.

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