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TMI Blog1971 (3) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... Keeling Road, New Delhi, on the basis of the balance-sheet value ? " The facts in the case of assessment of Shri Mela Ram in I.T.R. No. 34 of 1966, are the same as in the case of his partner, Ralya Ram, in I.T.R. No. 35 of 1966, and are as follows : Shri Mela Ram, who will hereafter be described as " the assessee ", and his brother, Ralya Ram, are two partners of the firm, M/s. Ralya Ram Mela Ram of Delhi having equal shares. Amongst assets, the said firm owns property known as No. 2, Keeling Road, New Delhi, which will hereafter be described as " the property ". The site on which the said property stands consists of land measuring 1.4 acres. It was taken on perpetual lease from the Government in 1933 by the firm of Ralya Ram Mela Ram on payment of a premium of Rs. 4,700. The firm thereafter constructed 1 1/2 storeyed building thereon covering 1/3rd of the area of the plot in 1935-36 at a cost of Rs. 1,22,296. A portion of the building is used by the two partners for their residence while the remaining portion is used as office of the firm. The total cost of this property to the firm was Rs. 1,26,996. In the balance-sheet of the firm as on March 31, 1961, which is the valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer had unfettered discretion to value the assets of the business either under section 7(1) or under section 7(2)(a) of the Act and that it was open to him to value some of the assets of the business under section 7(1) and the remaining assets of the property same business under section 7(2)(a) of the Act. According to the Tribunal, section 7(1) is a general provision while section 7(2)(a) is a special provision and that under the normal rules of construction the special provision, where applicable, excludes the general one. The Tribunal was also of the view that the Act does not provide any rules or principles to guide the Wealth-tax Officer as to when he can value the assets of business under section 7(1) and when he can do so under section 7(2) and that in the absence of any such guiding and governing principles, the absolute and unfettered discretion allegedly vested in the Wealth-tax Officer was likely to degenerate into discrimination and would offend the prohibition contained in article 14 of the Constitution. According to the Tribunal, such construction had to be avoided. The Tribunal was also of the opinion that if the construction suggested by the revenue were ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than the assets mentioned in clauses (i), (ii) and (iii) thereof. Section 3 relates to the charge of wealth-tax in respect of the net wealth of every individual, Hindu undivided family and company on the corresponding valution date, at the rate or rates specified in the Schedule. Section 4 provides for addition of certain items for computing the net wealth of an individual while section 5 deals with exemptions in respect of certain assets. Section 6 relates to an individual who is not a citizen of India or an individual or a Hindu undivided family not resident in India or resident but not ordinarily resident in India or a company which is not a resident of India during the year ending on the valuation date. It is only section 7 which deals with the determination of the value of the assets other than cash. It will be seen that according to section 3, there are only th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p assets is to value the assets as a whole and then to determine the partner's share, but the procedure for valuing the net wealth of the firm is what is laid down in rule 2. In the present case, the amount of capital contributed by each partner is Rs. 55,160.52 while so far as the residue of the net wealth of the firm is concerned it has to be allocated among the partners in accordance with the agreement of partnership or in the absence of such agreement in the proportion in which the partners are entitled to share profits. The agreement between the two partners has not been placed on record, but the statement of the case makes it plain that both of them have equal shares. It is, therefore, the sum total of the amount so allocated to a partner which has to be treated as the value of the interest of that partner in the firm. The separate valuation of one of the assets of the business will, therefore, not make any difference even though the business is valued as a whole. From all accounts the two partners have equal shares in the partnership and, as such, there is nothing wrong about No. 2, Keeling Road, being treated as belonging to them in equal shares. The question that still r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, has not been drawn. On the other hand, the two parts of section 7 have been regarded as alternative provisions. Reading the two parts of section 7 together, what we find is that the Wealth-tax Officer has been given a discretion either to value each of the assets on the basis of its open market value or take the net value of the assets of the business 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 method, namely, by valuing each of the assets, he will have to determine the market value of the assets on the valuation date. On the other hand, if he follows the second method he will have to take the net value of the assets of the business as a whole, having regard to the balance-sheet of such business and to make such adjustments therein as the circumstances of the case may require. The asset, whether in business or otherwise, has a value. For the purposes of the wealth-tax, it is the real value of the asset that has to be determined. In other words, what price it would fetch, if sold in the open market. That would be the value of the asset on the valuation date. The main object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57. These assets were shown in the balance-sheet issued by the assessee from time to time at the added value less depreciation calculated on the original cost. In the balance-sheet of the relevant accounting year also the said amount was shown as the value of the fixed assets. In connection with the assessment for wealth-tax, it was contended on behalf of the assessee that the appreciated value on revaluation of the assets at Rs. 2,60,52,357 was done for other purposes and that it did not represent the real value of the assets. Apart from this argument, there was nothing on the record to show that the said figure did not represent the correct value of the assets. It was held that under section 211 of the Companies Act, every balance-sheet must give a true and fair view of the state of its affairs as at the end of the financial year. When the assessee itself had shown the net value of the assets at a certain figure, the Wealth-tax Officer rightly accepted the same as no one could know better the value of its assets than the assessee itself. It was open to the assessee to convince the authorities under the Act that the said figure was inflated for acceptable reasons, but no such atte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet which has to be accepted by the Wealth-tax Officer. The argument does not appear to us to be correct. What the Supreme Court was concerned in that case was to find the total value of the fixed assets. Whereas the assessee had shown in its return the value of the said assets at Rs. 7,69,435, their actual value was Rs. 60,53,811 as shown in the balance-sheet. The power conferred upon the Wealth-tax Officer to make adjustments as the circumstances of the case may require was for the purpose of arriving at the true value of the assets of the business. It was open to the assessee in any particular case to establish after producing relevant materials that the value given to the fixed assets in the balance-sheet was artificially inflated. It was also open to the assessee to establish by acceptable reasons that the written down value of any particular asset represented the proper value of the asset on the relevant valuation date. But, in the absence of any such material to demonstrate that the written down value was the real value, the Wealth-tax Officer was fully justified in a normal case in taking the value given by the assessee itself to its fixed assets in its balance-sheet for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 7(2)(a) but while doing so it was and by Hegde J. (as his Lordship then was) that the Wealth-tax Officer could proceed to make the valuation under sub-section (2) and take the balance-sheet of the business as the basis for making the valuation and make such adjustments as he considered necessary. The learned judge rejected the view that when a global valuation is made under section 7(2)(a) the valuation given in the balance-sheet is conclusive of the matter, and there is no competence in the Wealth-tax Officer or the Tribunal to travel outside the balance-sheet for' inding out the true value of the assets. In Commissioner of Wealth-tax v. Raipur Manufacturing Co. Ltd., it was said that when acting under section 7(2) a discretion has been given to the Wealth-tax Officer to make adjustments in the valuation as given in the balance-sheet as the circumstances may require. A written down value may be more approximate to the price which an asset would fetch if sold in the open market. But in a case where assets have appreciated in value, the written down value cannot be considered to represent the price which the asset would fetch if sold in the open market on the valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The order of the Tribunal was held to be correct. It may be mentioned here that the assessee in that case did not deal in shares of companies only. It also had income from dividends, properties and a share in the partnership firm of Radheylal Garg and Co. The question regarding valuation of the shares held by the assessee was one of the items of business of the family. The assessee insisted that the procedure provided by section 7(2)(a) of the Act and not that provided by section 7(1) should be followed. But the contention was not accepted and it was not said that the Wealth-tax Officer was bound to follow the procedure provided in section 7(2)(a) and was not free to have recourse to the provisions of section 7(1) of the Act. The case of Kikabhai Bhagubhai v. Commissioner of Wealth-tax, decided by the High Court of Gujarat relates to two firms, namely, Kikabhai Bhagubhai and Ramprasad Kantilal Bhagat. Both these firms were dealers in shares and kept regular books of account for their respective share businesses and for other activities. In the case of Kikabbai Bhagubhai the value of the shares in stock shown in the balance-sheet as on the valuation date, i.e., November 8, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(a) it is open to the Wealth-tax Officer to make necessary adjustments in the balance-sheet if the circumstances of the case so require. Mr. Sharma further contended that under section 7(2)(a) the determination of the net value of the assets of a business as a whole is based on the balance-sheets being kept in view, but it does not follow from this that the balance-sheet is all in all and it is not open to the Wealth-tax Officer to travel outside the balance-sheet. The words used in sub-section (2)(a) of section 7 are " having regard to the balance-sheet of such business as on the valuation date. " According to Mr. Sharma, the meaning of the words " having regard to the balance-sheet " is that the Wealth-tax Officer has to keep the balance-sheet in view. According to the Privy Council's decision in Ryots of Garabhandho v. Zamindar of Parlakimedi, the expression " have regard to " or " having regard to " has no more definite or technical meaning than that of ordinary usage, and it only requires that the provisions to which regard must be had should be taken into consideration. This view of the Privy Council was approved by the Supreme Court in Karam Singh Sobti v. Pratap Chand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer should take the balance-sheet into consideration and not that he is bound by it. It is thus clear that the Wealth-tax Officer had the option to proceed under section 7(1) to value each asset separately. In the present case what he did was to value one of the assets of the business under section 7(1) while the valuation of the other assets was allowed to remains as in the balance-sheet. If the Wealth-tax Officer could do so in respect of each asset of the business separately under section 7(1) he could also do so in respect of one of the assets of the said business. The Tribunal said that if the intention of the legislature was to invest the Wealth-tax Officer with a discretion to resort to the method of valuation under section 7(1) in a case which is normally covered by section 7(2) it would have certainly provided rules to guide his discretion lest it may degenerate into discrimination in violation of article 14 of the Constitution. The argument, if we may say so, with great respect, is not sustainable. The section, as it stands, gives sufficient guidance to the Wealth-tax Officer. There is provision in it for two alternative methods of valuing the assets and there is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ud on the part of the assessee. According to him, the same principle should apply also to the case of individuals as well as partners, particularly when it has been found that the accounts are reliable and there is no reason to suspect any fraud on the part of the firm. It is no doubt true that this is the ordinary method which the Wealth-tax Officer is required to apply, particularly in the case of companies. But does it imply that merely because this is the ordinary method of valuing the assets of a business as a whole, it should be treated as a direction from the Central Board of Revenue that the Wealth-tax Officer must follow that particular method ? To interpret the said circular as laying down a rule of law with regard to the meaning of section 7(2)(a) would make the provisions of the section which empower the Wealth-tax Officer to make adjustments in the balance-sheet, if the circumstances of the case so require, wholly nugatory. We, therefore, do not read the said circular to have the meaning that Mr. Karkhanis would like to ascribe to it. We may mention here that the legislature itself had the same intention when it substituted by Act No. 46 of 1964 for the words " the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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