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TMI Blog1965 (9) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... the difference between the depreciation already provided by the company itself in its books and the aggregate sum of normal depreciation and extra shift allowance that had been allowed up to the chargeable accounting period ? " The period for which the assessment had been levied is the assessment year 1957-58 for which the valuation date is 30th of September, 1958. The facts as set out in the statement of the case are as follows : The assessee is a public limited company and for the year of assessment it returned a total wealth of Rs. 24,16,488 and claimed a deduction of Rs. 18,14,564 towards the difference between the depreciation allowed under the Income-tax Act and the depreciation deducted by the assessee from the value of its assets according to the method of accounting followed by it. The Wealth-tax Officer did not admit the claim of the assessee to deduct the aforesaid amount towards depreciation but what he adopted is what is known as the global valuation method under section 7(2)(a) of the Act by determining the net value of assets of the company as shown in the balance-sheet. The assessee's contention was that apart from the depreciation which has been deducted in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 7 of the Act, under which the assets of the company are being valued, is as follows : " 7. (1) The value of any asset, other than cash, for the purposes of this Act shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. (2) Not withstanding anything contained in sub-section (1),-- (a) where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as the circumstances of the case may require..... " It would appear from a reading of sub-section (1) and sub-section 2(a) that the Wealth-tax Officer has a discretion either to value each of the assets of the company or take the net value of the assets as a whole having regard to the balance-sheet of such business subject to such adjustments as he may consider necessary. If he follows the first of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on allowed under the Income-tax Act as a basis for the deduction of further depreciation to arrive at the net value of the assets. It appears to us clear that the allowances permitted under the Income-tax Act are notional allowances, varying from time to time according to the exigencies of the revenue, and the interests and promotion of the industry by the Finance Acts. They do not represent the market value of the asset at the end of each year. It may be that if this notional depreciation is allowed for over a number of years, the asset may have absolutely no value for income-tax purposes or its value may be zero. None the less that will not represent the real state of affairs. The asset has a value and it is a business asset. For the purposes of the wealth-tax, what has to be determined is what is the real value of that asset. In other words, what price it would fetch, if sold in the market. That would be the value of the asset on the valuation date. It could not be the intention of the legislature to vest a discretion in the Wealth-tax Officer to choose the market value or the value less the income-tax depreciation which may be either the market value or less than the market val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or normal depreciation at the rate permissible for the purpose under the provisions of section 10 of the Income-tax Act. When permitting such depreciation, the income-tax authorities, as far as possible, try to give a deduction for depreciation which would approximate with the depreciation which an asset was likely to suffer by reason of use or by lapse of time, other conditions remaining equal. Where the conditions change, it would not be possible to say that the written down value represents the price of that asset in the open market. There are numerous assets prices of which have either increased or decreased and it cannot invariably be the rule that the written down value should be the value which the Wealth-tax Officer is under obligation to take in determining the value of an asset." Again at page 521, the Bench observed in relation to section 7(2) : " It is urged that this power has to be exercised in order that the price of assets as shown in the balance-sheet may equate with the written down value of such assets as appearing in the records of the income-tax department. There is no warrant for such a conclusion. The written down value may be far from the real value of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot generally available in India and for which there is a great demand. No such uncommon feature was found in that case. On the facts of that case, they accepted the written down value because no special circumstances existed which would show that the written down value did not represent the real value. A review of these cases leaves no doubt that where the Wealth-tax Officer adopts the global valuation, he has to take the balance-sheet as the basis and make such adjustments as may be necessary. This does not however, mean that apart from the values given in the balance-sheet, the power given to him to make the necessary adjustments must, as a matter of course, compel him to adopt the written down value or the depreciation allowed under the Income-tax Act. The written down value, of an asset on the valuation date is one thing and the total depreciation allowed in a number of years for the purpose of arriving at the written down value under the Income-tax Act is another. In this case, the balance-sheet itself would show that a depreciation allowance of nearly Rs. 15 1/2 lakhs has been allowed before arriving at the net valuation of the assets. It is apparent, therefore, that after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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