1969 (1) TMI 6 - HC - Wealth-tax

Net wealth - Can the assessee be assessed to wealth tax on the basis of the balance sheet without debiting to the assets the depreciation due under in the Income tax Act for the preceding years, but not reduced from the block - Held, no

Issues Involved:
1. Adjustment for depreciation under the Income-tax Act for preceding years not debited to the block account in the balance-sheet for computing net wealth.
2. Valuation of assets under section 7(1) versus section 7(2) of the Wealth-tax Act.
3. Discretion of the Tribunal in making adjustments for depreciation.

Detailed Analysis:

1. Adjustment for Depreciation under the Income-tax Act for Preceding Years Not Debited to the Block Account in the Balance-sheet for Computing Net Wealth:

The primary question referred to the court was whether, under the facts and circumstances, it is justified in law to adjust for depreciation due under the Income-tax Act for preceding years but not debited to the block account in the balance-sheet for computing the net wealth of the assessee. The assessee, a limited company manufacturing sugar, maintained regular accounts and claimed that adjustments for depreciation on fixed assets should be made. The Wealth-tax Officer and the Appellate Assistant Commissioner refused to make such adjustments for depreciation for the years prior to the valuation date. However, the Tribunal directed the Wealth-tax Officer to recompute the net wealth after making the necessary adjustments for depreciation due under the Income-tax Act for preceding years but not accounted for in the balance-sheet.

2. Valuation of Assets under Section 7(1) Versus Section 7(2) of the Wealth-tax Act:

Section 3 of the Wealth-tax Act imposes tax on the net wealth of the assessee, with valuation methods provided under section 7. Section 7(1) requires the value of any asset to be the price it would fetch if sold in the open market on the valuation date. However, section 7(2) offers an alternative method for assessees carrying on business with regularly maintained accounts, allowing the Wealth-tax Officer to determine the net value of the assets as a whole based on the balance-sheet, making necessary adjustments as required. The revenue authorities adopted the method under section 7(2) for the assessee, who contended that the balance-sheet showed assets at cost without accounting for depreciation. The Tribunal held that adjustments for depreciation should be made for a proper valuation of the assets.

3. Discretion of the Tribunal in Making Adjustments for Depreciation:

The Tribunal exercised its discretion under section 7(2) to allow adjustments for depreciation, considering the circumstances of the case. The Tribunal's decision was based on the condition that the machinery was old, purchased second-hand, and operated by steam, making it less valuable than modern electric-powered machinery. The Tribunal's discretion in making such adjustments was upheld, as the law under section 7(2) allows adjustments as circumstances require. The Tribunal's decision to compute depreciation according to the Indian Income-tax Act was deemed appropriate, given the circumstances. The court emphasized that while the written-down value may not always represent the market value, it provides a fair idea of the asset's value unless there are abnormal circumstances.

In conclusion, the Tribunal's discretion in allowing depreciation adjustments under the Income-tax Act was upheld, and the court answered the referred question in the affirmative, validating the Tribunal's approach in the specific circumstances of the case.

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