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TMI Blog1991 (9) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier decision of the Tribunal in the assessees' case in respect of the issue involved in ground No. 1 requires reconsideration. The Division Bench, therefore, requested the President of the Income-tax Appellate Tribunal to constitute a larger Bench and refer the following question : "Whether, the value of eggs in incubator in the case of hatchery, is includible in the net wealth?" That is how the appeals have come up for hearing before this Bench. 3. The facts in brief are that the assessees are carrying on business in partnership under the name and style of M/s. Kegg Farms. The business of the partnership is that of running a hatchery. In working out the value of their respective interest in the said firm for wealth-tax purposes, the assessee claimed before the Wealth-tax Officer that the eggs, which are kept in incubators for hatching, should not be considered as according to them, such eggs have no commercial value. In this connection reliance was placed on the order of the Tribunal dated15-10-1981in their own case in respect of the assessment year 1974-75 in W.T.A. Nos. 1528 and 1529/Del./80. 4. In the case of Shri Vinod S. Kapur, the Wealth-tax Officer rejected the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above firm has to be determined on the basis on balance sheet in accordance with rules 2 and 2-A to 2-G. According to Rule 2-B, which deal with the adjustments in the value of the asset disclosed in balance sheet there is no provision for reducing the value of an asset shown in the balance sheet except an asset on which depreciation is admissible under income-tax rules and where the W.D.V. has to be taken and where no depreciation is admissible the book value has to be taken. Since there is no provision for depreciation in the income-tax rules on eggs they have to be taken on book value according to rule 2-B(i). Under rule 2-B(ii) there is provision for increasing any value of the asset where the market value of an asset exceeds its WDV or its book value, as the case may be, by more than 20%. However, there is no provision to reduce the book value of an asset if the market value of an asset was less than the book value. Hatching eggs do not fall in the category of any of the assets mentioned in rule 2-D whose value is not to be taken into account. In view of the above position the value of the hatching eggs cannot be excluded from the assets of the balance sheet for purposes of v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial value merely on the ground that they ceased to be edible. In this connection, he also pointed out that such eggs were considered as a part of the stock and profits are being worked out on that basis for income-tax purposes. He also submitted that the issue involved, should not be considered on the basis as to whether the eggs are edible or not but should be considered from the commercial point of view. In this connection, he referred to section 7(1) of the WT Act, 1957 and submitted that the issue involved should be considered on the basis of the price such eggs would fetch if sold in the open market on the valuation date. According to him, one has to visualise a situation where a dissolution of partnership takes place on the valuation date and what the partners would put the value of such eggs in order to determine their respective interest in the partnership assets. Again, how much the assessees would charge for the eggs kept in incubators, from the willing buyer of M/s. Kegg Farm as a running concern. Viewed from this angle, it is difficult to believe that the eggs kept in incubators would have no value on the valuation date. He, therefore, strongly urged that the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 'assessee' for limited purpose of ascertaining the interest of the partners therein. In view of the provisions of rule IA(m) of the Wealth-tax Rules, 1957 read with section 2(m) of the Wealth-tax Act, 1957, the eggs kept in incubators are the assets of the firm. In this view of the matter, we have to consider the price that such eggs would fetch if sold in the open market. According to him, rule 2D(d) of the Wealth-tax Rules, 1957 talks of amount and not asset. Therefore, there is no scope of ignoring totally the value of the eggs kept in incubators which are undoubtedly the assets of the firm and shown in the balance sheet as such. 10. We have carefully considered the rival submissions of the parties as well as the material already brought on record to which our attention was drawn. In our view, the stand taken on behalf of the revenue is well founded and should be, accepted. At the outset, it is necessary to keep in view the issue involved, namely, valuing the interest of the assessees in the partnership business. 11. First of all, let us advert to the relevant provisions/rules touching the issue involved. The provisions of section 4(1)(b) of the Act is the starting point a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as on the valuation date and making such adjustments therein as may be prescribed." The next provisions concern with the issue involved are rules 2A to 2G of the Wealth-tax Rules, 1957. For the sake of completing our order, the said rules are reproduced below: "2A. Where the Wealth-tax Officer determines under clause (a) of sub-section (2) of section 7 the net value of the assets of the business as a whole having regard to the balance sheet of such business, he shall make the adjustments specified in rules 2B, 2C, 2D, 2E, 2F and 2G. 2B. (1) The value of an asset disclosed in the balance sheet shall be taken to be--- (a) in the case of an asset on which depreciation is admissible, its written down value; (b) in the case of an asset on which no depreciation is admissible, its book value; (c) in the case of closing stock, its value adopted for the purposes of assessment under the Income-tax Act, 1961, for the previous year relevant to the corresponding assessment year. (2) Notwithstanding anything contained in sub-rule (1) where the market value of an asset exceeds its written down value or its book value or the value adopted for purposes of assessment under the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable under the Act: Provided that where it is not possible to calculate the amount of debt so utilised, it shall be taken as the amount which bears the same proportion to the total of the debts owed by the assessee as the value of that asset bears to the total value of the assets of the business. Explanation : Provision for any purpose other than taxation shall be treated as a reserve. 2F. Any debt relating to the business owed by the assessee, which is not disclosed in the balance sheet, shall be allowed as a deduction for the purposes of rule 2A: Provided that a contingent liability shall not be treated as a debt owed. 2G. (1) Notwithstanding anything contained in rules 2B, 2D and 2E but subject to sub-rule (2), where the Wealth-tax Officer is of the opinion that any asset or liability which is a debt owed by the assessee, shown in a balance sheet does not really pertain to the business as such, lie may exclude the value of the asset or the debt for the purposes of rule 2A. (2) The value of any such asset or debt shall be taken into account for the purposes of assessment of wealth-tax under any provision of the Act other than sub-section (2) of section 7, if it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the eggs kept in the incubators have no market value and are therefore, to be excluded does not accord with the treatment given to it by the partners. The argument that such eggs were inedible and, therefore, have no value do not carry the assessee's contention any further in as much as irrespective of the fact whether they are edible or not those eggs have a value because if a business is to be sold as a going concern in the market, the eggs in the incubators are also sold along with the other assets as a going concern and they are not left out as of no value on the ground that they are inedible. 13. Further rule 2(1) clearly contemplates the determination of the net wealth of the partnership as if there is a distribution of assets assuming dissolution of the firm on the date of valuation. In case the firm is dissolved on the valuation date, it is not as if the partners do not place any value on the eggs kept in the incubators and will exclude it totally as of no value. Whatever may be the value placed upon that asset in the balance sheet, they are bound to take that value into account for the purpose of distribution of assets or ascertainment of their rights. May be that value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m to us to be the correct appreciation of law. 15. It is an admitted fact that the issue involved in ground No. 2 is highly debatable. In fact, both the parties have relied on a number of reported decisions of various High Courts on this issue. After considering the decision of the Hon'ble Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300, some of the High Courts have decided the issue in favour of the revenue while some of the other High Courts have decided the issue in favour of the taxpayers. The Departmental Representative relied upon the following decisions: Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608 (Mad.), CWT v. Purushotham Pai [1978] 114 ITR 270 (Kar.), CWT v. Nand Lal Jalan [1980] 122 ITR 781 (Pat.), Smt. Ganga Devi v. CWT [1987] 166 ITR 325 (Raj.) and CWT v. I. Butchi Krishna [1979] 119 ITR 8 (Ori.). On the other hand, the learned counsel relied upon : Juggilal Kamlapat Bankers v. WTO [1984] 145 ITR 485 (SC) and CWT v. Mira Mehta [1985] 155 ITR 765 (Cal.). Thus the judicial view on this matter is highly contested. One argument that the Departmental Representative raised before us was that according to the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter, the direction issued by the learned Commissioner of Wealth-tax on this point appears to be in full conformity with the aforesaid decision of the Tribunal. Here again the Departmental plea fails." We are in full agreement with the aforesaid conclusion arrived at by the Tribunal. In this view of the matter, we have no hesitation in upholding the order of the Commissioner of Wealth-tax (Appeals) on this issue. 16. The issue raised in ground No. 3 is no longer res integra and is now well settled by the decisions of the Supreme Court in the cases of CWT v. K.S.N. Bhatt [1984] 145 ITR 1, Vadilal Lallubhai v. CWT 140 ITR 7 (sic) and CWT v. Vimlaben Vadilal Mehta [1984] 145 ITR 11. The settled law on the subject is that in computing the net wealth of the assessee for wealth-tax, the liabilities towards income-tax wealth-tax and gift-tax which are crystallised on the relevant valuation date as determined in the respective assessment orders as liabilities are to be deducted even though those assessment orders are finalised after the valuation date. It is the quantification of the tax liabilities by the ultimate judicial authority which will determine the amount of the debt owe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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