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TMI Blog1970 (5) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and machinery. If that depreciation is taken into account the value of the respective assets was Rs. 34,93,999 and Rs. 88,07,047. One year later, i.e., on the 31st March, 1956, the same assets were valued at respectively Rs. 4,99,540, Rs. 1,08,40,840 and Rs. 1,89,23,449. That valuation also was without taking into consideration the depreciation for the year ending 31st March, 1956, in respect of buildings, plant and machinery. If that depreciation is taken into account then the value of those assets was Rs. 1,06,58,717 and Rs. 1,84,21,064. The increase in the value of these assets after making allowance for small additions made in the assets was due to the revaluation of the assets made by the company before the 31st March, 1956. The increase in the value on account of revaluation was to the tune of Rs. 2,83,871, Rs. 72,31,204 and Rs. 98,67,481 in the case of land, buildings and machinery, respectively. The directors of the company in their annual report for the year ending 31st March, 1956, noted that these assets had been revalued so as to indicate a true picture of their value and that the revaluation had given due consideration to the depreciation which the buildings, pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wealth-tax Officer. He expressed the view that if assets were revalued periodically at a figure different from their previous book value and depreciation was not provided for in the accounts to the extent admissible under the Income-tax Act it was because the company itself wished to show the correct value of the assets in its books and that it was not open to the company to contend only for purposes of wealth-tax that the figures in its own accounts were not correct and did not represent the true statement of its affairs. The Appellate Assistant Commissioner also rejected the company's contention that the depreciation should be deducted at least on the revalued figures of the assets to arrive at the correct value of the assets on the valuation date, i.e., 31st March, 1957, and his reason was that section 7(2) of the Wealth-tax Act did not permit the Wealth-tax Officer to make an alteration in the figures of the balance-sheet to reduce the figures of assets by depreciation not deducted in the accounts. The matter then went up before the Tribunal. The decision of the Tribunal is given by its order dated the 29th July, 1961. It upheld the action of the wealth-tax authorities in det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaking through Ramaswami J., made the following order, whose material portion is as follows : " It is evident that the High Court was in error in holding that the case was governed by the principle laid down in Tungabhadra Industries case. As we have already shown, section 7(1)(a) of the Act contemplates that the book value in the balance-sheet should be taken as the primary basis of valuation and if any adjustment is required the Wealth-tax Officer may make such adjustments in the valuation as given in the balance-sheet as the circumstances of the case require it to be done. In the present case the Appellate Tribunal has proceeded on the footing that the written down value should be treated as the basis of valuation in the first instance and has, therefore, misdirected itself in law. The High Court has committed the same error in answering the first question in the affirmative, in favour of the assessee. It is, therefore, necessary that the case must go back to the High Court for rehearing according to the principle of law laid down by this court in Kesoram Industries case. For these reasons we set aside the judgment of the High Court dated January 29, 1965, and remand the case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question, it was therefore that the Supreme Court in fact answered the question in the negative, for otherwise the Supreme Court would not have answered the question and then remanded the case back to us. No doubt, discretion is given to us to reframe the question. We have the same materials today as the Supreme Court had before it and the Supreme Court did not think fit to alter the frame of the question on the basis of these very records which we have before us. We cannot in such circumstances arrogate to ourselves the task of reframing the question for any useful purpose. Besides, question No. 1, as framed, does raise the actual controversy in this case. It expressly raises the question of competition between balance-sheet value and the written down value under section 7(2) of the Wealth-tax Act and whether one could be substituted by the other. In fact, we invited both the learned counsel for the revenue and learned counsel for the assessee to suggest any possible reframing of the question in any other language and none could suggest any alteration which could improve the frame of the question in the present reference before us. No alternative frame of question No. 1 could, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specially when as this remand order does not indicate any supplementary statement of facts. The appeal to the Supreme Court in these matters is governed by section 29 of the Wealth-tax Act read with section 27(6) of the Wealth-tax Act. We have already quoted section 27(6) of the statute. We shall now quote section 29 of the Wealth-tax Act which, inter alia, reads as follows : " (1) An appeal shall lie to the Supreme Court from any judgment of the High Court delivered on a case stated under section 27 in any case which the High Court certifies as a fit case for appeal to the Supreme Court. (2) Where the judgment of the High Court is varied or reversed on appeal under this section, effect shall be given to the order of the Supreme Court in the manner provided in section 21(6)." Section 29 of the Wealth-tax Act does not expressly provide for any remand in such cases by the Supreme Court. Section 29(2) speaks of ing or reversing the order of the High Court. The question is whether a remand is within the words " varied or reversed on appeal " under section 29(2) of the Wealth-tax Act. Section 29 of the Wealth-tax Act speaks of the appeal to the Supreme Court only in respect of a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mand, as question No. 1 has been answered in the negative by the Supreme Court, we shall proceed to answer question No. 2. Question No. 2, as set out above, pointedly asks whether normal depreciation in the fixed assets could be included as a consideration for allowance in arriving at the net value under section 7(2) of the Wealth-tax Act between the two points of time, viz., between the date of revaluation of the assets by the assessee himself and the valuation date under the Wealth-tax Act. The second step itself provides the first step in the answer. Section 7(2)(a) of the Wealth-tax Act reads as follows : " Notwithstanding 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." Section 7(2)(a) has been slightly modified in 1965, after the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Wealth-tax Officer it would fetch if sold in the open market on the valuation date. The next feature of section 7(2) of the Act is that the Wealth-tax Officer can make " such adjustments therein " meaning thereby adjustments in the value of the assets of the business having regard to the balance-sheet. The next feature is that such adjustments have to be made either as " the circumstances of the case may require " or now " as may be prescribed ". It is now prescribed by rule 2B of the Wealth-tax Rules introduced in 1965 stating : " 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." Sub-rule (2) of rule 2B, which follows, provides : " 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assets and the value of those assets should be readjusted accordingly for the purpose of section 7(2) of the Wealth-tax Act. For these reasons, we answer question No. 2 in the affirmative but subject to the interpretation that we have given to section 7(2) of the Wealth-tax Act, and that is primarily in favour of the assessee. In conclusion, it remains for us to refer to some of the cases dealing with the respective weights of the balance-sheet values and the written down values. There is a good deal of case law on the subject. The ground is quite explosive at the present moment. The remand order says that we should decide these questions in the light of Kesoram's case. We shall, therefore, take up Kesoram's case first. Subba Rao J., delivering the majority judgment in that case, after setting out the provisions of section 7 of the Wealth-tax Act, at pages 771-72, observed : " When the assessee himself has shown the net value of the assets at a figure, the Wealth-tax Officer, in our view, rightly accepted it, as no one would know better the value of assets than the assessee himself. It was open to the assessee to convince the authorities that the said figure was inflated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of the wealth-tax. In no unmistakable terms the Supreme Court lays down that it is a question of fact in each case as to whether the depreciation has to be taken n into account in ascertaining the true value of the assets and the onus of proofs is on the assessee who must produce reliable materials to show that the written down value of the assets and not the balance-sheet value is the true value. See the observations of the Supreme Court at page 200. We shall also make a reference to two other cases. One is the decision in Commissioner of Wealth-tax v. Bally Jute Co., a decision of a Division Bench of this court. There, Banerjee J., with whom Masud J. agreed, observed at page 196 : " In the view that I take I answer the question referred to this court in the following manner, namely, that, in the facts and circumstances of the case, for the purpose of computing the wealth under section 7(2)(a) of the. Wealth-tax Act, the Tribunal was right in directing that the value of the depreciable assets should be included in the net wealth after allowing normal depreciation in place of the balance-sheet value. " This accords with the view that we are taking in this matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t possible. It is for the Commissioners to express in the money value attributed by them to the asset their estimate, and this is a conclusion of fact to be drawn from the evidence before them. " This observation fill be found at page 544. The two other decisions of this court, to which I was a party, are the unreported decisions in Commissioner of Wealth-tax v. Mohanlal Nopani and Commissioner of Wealth-tax v. Smt. Radha Devi Nopani , delivered, respectively, in September, 1969, and July, 1969, being Matters Nos. 360 of 1966 and 223 of 1966, respectively, dealing with this problem of comparative valuation in the balance-sheet value and the written down value. They noticed all these recent decisions including those of the Supreme Court. The view that we are taking in this case is in accordance with the view taken there. In conclusion, it will not be inappropriate to emphasize one aspect of this legal problem as will be seen from the growing volume of case law on the subject dealing with the question, viz., what is the proper value to be taken under section 7 of the Wealth-tax Act and the perpetual and endless debate about the question whether the balance-sheet value or the writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the relevant sections dealing with balance-sheets, profit and loss account under the Companies Act there is any reference to the market value of any asset being entered in the balance-sheet in express terms. Section 209 of the Indian Companies Act describes the books to be kept by the company. Section 210 of the Act provides for the annual accounts and balance-sheets and what they should contain. Section 211 of the Indian Companies Act provides the form and content of the balance-sheet and profit and loss account but does not expressly indicate that such form and content of the balance-sheet and profit and loss account should show what would be the price of each and every asset if it was sold in the open market, an objective which the Wealth-tax Officer has to bear in mind in valuing the asset for wealth-tax under the Wealth-tax Act under section 7 of that statute. Therefore, while the written down value for the income-tax purpose with respect to depreciation may not be wholly decisive for the purpose of the Wealth-tax Act valuation in search of an open market value, yet the implicit faith in the balance-sheet that we are developing that it represents a kind of open market valu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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