1968 (7) TMI 10 - HC - Wealth-tax

Valuation of the assets - balance-sheet, relevant to the valuation date - assessee adopted the written down value in its return for wealth-tax and claimed, a deduction of the difference between the written value and the book value of the assets - held that, Tribunal proceeded on the wrong basis that, once the global method u/s 7(2)(a) is adopted, the balance-sheet could not be departed from and individual assets cannot at all be separately valued for any reason

Summary

Issues Involved:
1. Deduction of the difference between book value and written down value of buildings, plant, and machinery under Section 7(2) of the Wealth-tax Act.
2. Deduction of liability for payment of tax.

Detailed Analysis:

Issue 1: Deduction of the difference between book value and written down value of buildings, plant, and machinery under Section 7(2) of the Wealth-tax Act

The primary issue revolves around whether the assessee is entitled to a deduction in the computation of net wealth for the difference between the book value and the written down value of buildings, plant, and machinery. In both references, the assessees claimed deductions based on the written down value for income-tax purposes, but the Wealth-tax Officer and the Tribunal rejected these claims, adhering strictly to the book value shown in the balance-sheet.

The court clarified that Section 7 of the Wealth-tax Act prescribes two methods for valuing assets: individual valuation and the global method. The global method, which uses the balance-sheet as a basis, is adopted for convenience. However, the court emphasized that the balance-sheet is not conclusive and adjustments may be necessary. Specifically, Section 7(2)(a) allows the Wealth-tax Officer to make adjustments to the balance-sheet valuation as circumstances require.

The court referred to prior cases, including Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax and Loyal Textile Mills Ltd. v. Commissioner of Wealth-tax, to underline that the Wealth-tax Officer must consider adjustments if the balance-sheet does not reflect the true value of assets. The court stated, "It is for the assessee to show that the balance-sheet does not represent the real or true value of the assets and the value is something different."

The court disagreed with the Tribunal's view that no adjustments could be made once the global method was adopted. Instead, it held that the Wealth-tax Officer should consider any relevant materials presented by the assessee that justify adjustments to the balance-sheet values. The court concluded that the Wealth-tax Officer must give the assessee an opportunity to demonstrate why adjustments are necessary and to what extent.

Issue 2: Deduction of liability for payment of tax

The second issue in both references concerns the deduction of liabilities for payment of tax. This issue is already covered by authoritative decisions in Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax and H. H. Setu Purvati Bayi, Maharani of Travancore v. Commissioner of Wealth-tax, both of which favor the assessee. Consequently, the court answered this question in favor of the assessee.

Conclusion:

The court answered the first question in each reference in favor of the assessee, stating that the Wealth-tax Officer should allow for adjustments to the balance-sheet values if justified by the circumstances. The second question, regarding the deduction of tax liabilities, was also answered in favor of the assessee based on established precedents. The Tribunal was instructed to dispose of the appeals afresh, considering the possibility of remitting the matters to the Wealth-tax Officer for further examination. The court awarded costs to the assessee, with counsel's fees set at Rs. 250 in each case.