1969 (9) TMI 25 - HC - Wealth-tax

Wealth Tax Act, 1957 - Whether in determining the break-up value of the shares held by the assessee in Messrs. Hind Mills Ltd. and Messrs. Shree Hanuman Sugar Mills Ltd., the Income-tax Tribunal was justified in holding that the valuation of the depreciable assets of the companies concerned should be based on their income-tax written down values in place of their balance-sheet values - Held, yes

Issues Involved:
1. Determination of the break-up value of shares based on written down values versus balance-sheet values.
2. Deduction of proposed but not declared dividends from the gross value of assets.
3. Deduction of agricultural income-tax paid under protest from the gross value of assets.

Detailed Analysis:

1. Determination of the Break-up Value of Shares Based on Written Down Values Versus Balance-Sheet Values:
The primary issue was whether the depreciable assets of the companies should be valued based on their written down values as per income-tax records or their balance-sheet values. The Tribunal directed that the written down values should be considered as the balance-sheets did not reflect any depreciation due to the paucity of profits. The Tribunal relied on a prior judgment involving another shareholder of the same companies, where it was noted that no depreciation had been provided in the balance-sheets due to lack of funds.

The High Court upheld the Tribunal's decision, noting that the balance-sheets did not correctly represent the value of the depreciable assets. The court emphasized that there was no evidence contradicting the written down values shown in the income-tax assessments. The court referenced a recent judgment (Commissioner of Wealth-tax v. Srimati Radha Debi M. Nopany) which supported the Tribunal's approach in considering written down values in the absence of evidence to the contrary. The court concluded that the Tribunal was justified in its decision, answering the question in the affirmative and in favor of the assessee.

2. Deduction of Proposed but Not Declared Dividends from the Gross Value of Assets:
The second issue was whether the liabilities for dividends proposed but not declared as of the valuation date should be deducted from the gross value of the assets. The Tribunal had directed the Wealth-tax Officer to allow such deductions. However, the High Court, referencing the Supreme Court's judgment in Keshoram Industries & Cotton Mills Ltd. and a prior decision of the same court (Commissioner of Wealth-tax v. Rajendra Singh Singhi), answered this question in the negative and in favor of the revenue. No arguments were advanced by the parties on this issue before the court.

3. Deduction of Agricultural Income-tax Paid Under Protest from the Gross Value of Assets:
The third issue revolved around whether the agricultural income-tax paid by the company, which was under litigation, should be deducted from the gross value of the assets. The Tribunal had directed that the amount paid under protest should be deducted, considering it a factor that prospective buyers would take into account.

The High Court noted that as of the relevant valuation date, there was no existing liability for the payment of this sum, and the company was entitled to a refund, which was shown on the assets side of the balance-sheet. The court emphasized that the balance-sheet did not indicate any doubt about the company's ability to recover the sum from the government. The court reasoned that a prospective buyer would not consider this as a factor affecting the market value of the shares since there was no existing liability on the valuation date. Thus, the court answered this question in the negative and against the assessee.

Conclusion:
The High Court provided a detailed analysis of each issue, ultimately ruling in favor of the assessee on the first issue and in favor of the revenue on the second and third issues. Each party was directed to bear its own costs.

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