1967 (4) TMI 25 - HC - Wealth-tax

Computing the net-wealth - Tribunal was right in directing that the value of the depreciable assets should be included in the net wealth after allowing normal depreciation in place of the balance-sheet value. The Tribunal was not, however, right in directing the WTO to do so according to the computation for the purposes of income-tax assessment

Issues Involved:
1. Whether the value of depreciable assets should be included in the net wealth after allowing for normal depreciation as computed for income-tax purposes or as per the balance-sheet value.

Detailed Analysis:

1. Wealth-Tax Officer's Decision:
The Wealth-tax Officer rejected the assessee's claim for deduction based on depreciation not provided in the books according to Income-tax Act rates. The Officer emphasized that under section 7(2)(a) of the Wealth-tax Act, the choice between valuing each asset separately or determining the value of the assets of the business as a whole lies with the Wealth-tax Officer. The Officer adopted the global method of valuation as per the balance-sheet and denied the deduction claimed by the assessee.

2. Appellate Assistant Commissioner's Decision:
The Appellate Assistant Commissioner upheld the Wealth-tax Officer's decision, stating there is no provision in the Wealth-tax Act to take the written down value (W.D.V.) of depreciable assets for computing net wealth. The valuation should be either the open market value or the net value of the assets as a whole based on the balance-sheet. The Commissioner found no merit in the assessee's contention that depreciation should be allowed as per income-tax assessments.

3. Tribunal's Decision:
The Tribunal allowed the assessee's appeal, reasoning that the depreciation provided in the books was much lower than what was allowable under the Income-tax Act. The Tribunal held that section 7(2) of the Wealth-tax Act requires the Wealth-tax Officer to make necessary adjustments to the balance-sheet value to reflect the true value of depreciable assets. The Tribunal directed that the value of depreciable assets should be included in the net wealth after allowing for normal depreciation as computed for income-tax purposes.

4. High Court's Analysis:
The High Court referred to section 7(2)(a) of the Wealth-tax Act, which allows the Wealth-tax Officer to adopt the balance-sheet value of assets but also make necessary adjustments if the balance-sheet value does not represent the real value. The Court emphasized that the valuation is not sacrosanct and adjustments should be made to reflect true depreciation. The Court cited previous judgments, including Commissioner of Wealth-tax v. Tungabhadra Industries Ltd., which supported the idea that written down value could be a fair indicator of real value but not necessarily the same as depreciation under the Income-tax Act.

5. Conclusion:
The High Court concluded that the Tribunal was correct in directing the Wealth-tax Officer to include the value of depreciable assets in the net wealth after allowing for normal depreciation. However, the Tribunal erred in mandating that the depreciation should be computed as per income-tax assessments. The valuation should be made under section 7(2)(a) with appropriate adjustments, which need not be identical to those for income-tax purposes.

6. Final Judgment:
The High Court answered the reference by stating that for computing wealth under section 7(2)(a) of the Wealth-tax Act, the value of depreciable assets should be included in the net wealth after allowing for normal depreciation, but not necessarily as computed for income-tax purposes. The judgment did not award costs as the success was only partial.

Separate Judgments:
Both judges, Banerjee J. and Masud J., agreed on the judgment.

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