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TMI Blog1990 (6) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... luation date should also be taken on accrual basis instead of on cash basis ?" The assessee is a solicitor. He has been carrying on the profession as solicitor himself and also as a partner in a number of solicitor firms at Bombay. The proceedings relate to his wealth-tax assessment for the assessment years 1967-68 and 1968-69, the relevant valuation dates being March 31, 1967, and March 31, 1968, respectively. The assessee as well as the solicitor firms in which the assessee was a partner maintained accounts on cash basis under which outstanding fees receivable but not actually received are not credited in the books and consequently do not appear as assets in the balance-sheet. The Wealth-tax Officer took the view that such outstanding fees represented "assets" within the meaning of section 2(e) of the Wealth tax Act, 1957, and were includible in the net wealth. Estimating the out standing fees in the case of the assessee as also in the case of the said firms, he computed the assessee's share in the outstanding fees on the two valuation dates at Rs. 75,000 on ad hoc basis and included the said amount in the assessee's net wealth. The Appellate Assistant Commissioner deleted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52, CWT v. Pachigolla Narasimha Rao [1982] 134 ITR 640 (AP) and the Calcutta High Court in Dipti Kumar Basu v. C WT [1976] 105 ITR 450 and disapproved the view taken by the Orissa High Court (CWT v. Vysyaraju Badreenarayana Moorthy Raju [1971] 79 ITR 330) in that case which came up before the Supreme Court and the Karnataka High Court in A. T. Mirji v. CWT [1980] 126 ITR 93. Relevant observations of the Supreme Court quoted in that judgment read thus (at page 456 of 152 ITR) : ". . . The system of accounting, mercantile or cash or hybrid, is of no relevance for the purpose of determining the assets of the assessee. That appears to be plain from the definition of 'net wealth' which speaks of 'the aggregate value ... of all the assets' belonging to the assessee on the valuation date. All the assets of the assessee, barring those expressly excepted by the statute, are to be taken into account, and it is immaterial whether the assessee employs one system of accounting or another. There is clear indication that the assets to be considered are not circumscribed by any consideration of the particular system of accounting adopted by the assessee. The assets are not confined to cash. Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) thereof. His submission was that rule 2C(a) referred to debts due to the assessee and in case a part of the debt had been allowed to be written off under section 36 of the Income-tax Act, 1961, the amount of the debt would be taken as the amount of debt as reduced by the deduction allowed under section 36. According to Shri Dastur, this could happen in the case of a person maintaining accounts on mercantile basis only and when the outstanding fees could be termed as "debts due". In other words, his submission is that rule 2C(a) cannot apply to outstanding fees unless they fall within the meaning of the expression "debts due" and in cases of persons following the cash system of accounting. In the absence of evidence, he argued, it was not possible to say that the outstanding fees represented " debts due" to the assessee as distinct from debts owing to the assessee. As to the question whether such an asset could be included under rule 2C(d), Shri Dastur relied on this court's judgment in the case of CIT v. Smt. T. P. Sidhwa [1982] 133 ITR 840 for the proposition that it could not. The question in that case was whether the rental income received by a person from a house property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income was received by the person from house property and as such was assessable under the group of sections dealing with income from house property. The position in this case on Shri Dastur's own statement is that clause (a) of rule 2C applies only to a person who follows the mercantile system of accounting. If the assets of the assessee are to be included in his net wealth irrespective of the system of accounting, as laid down by the Supreme Court, there is no escape from the conclusion that rule 2C(d) will apply and cover the outstanding fees due to the assessee, as his assets. Another submission of Shri Dastur in this regard was that while including the outstanding fees as an asset in the net wealth, tax payable thereon should have been taken into account at the stage of inclusion itself. This submission, though attractive, is fallacious. Firstly, the assessee had not challenged this figure before the Wealth-tax Officer or the Appellate Assistant Commissioner. The question could not possibly arise before the Tribunal as the Department and not the assessee had come up in appeal before the Tribunal. The dispute has all through been as to whether that amount should or should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment orders about the claim as regards the deduction on account of liability accrued but not disclosed in the books of account or the balance-sheet. It is, therefore, not possible to say whether such a claim was at all made before him. The Appellate Assistant Commissioner has also not considered this claim. It may be that a claim was made before him but he did not consider it necessary to deal with it as he was deleting the outstanding fees from the net wealth itself. But, in the absence of the grounds of appeal before him, it is not possible to say precisely what in fact was the situation before him. The Tribunal has, however, following its earlier decision in the case of V. M. Shah held that it would be inconsistent to include all assets including outstanding fees on accrual basis but to take into account the liability on cash basis. However, so far as the question of law is concerned, we have no difficulty in holding that in view of the provisions of rule 2F and on a parity of, reasoning that the outstanding assets not disclosed in the balance-sheet are includible in the net wealth of the assessee, outstanding liabilities incurred but not included in the balance-sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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