9911796707
TMI Blog1988 (5) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm in which the assessee is partner exceeds more than 20% of its book value, as contemplated in rule 2B(2) of the Wealth-tax Rules, 1957 ?" The assessee was a partner in the firm, Sagarmal Daga and Co. In the jewellery account of the said firm for the assessment year 1972-73, the assessee declared a profit of Rs. 2,31,450 on sales of Rs. 9,64,234 giving gross profit rate of 24%. The Wealth-tax Officer adopted the mode of valuation in accordance with clause (a) of sub-section (2) of section 7 for determining the net value of the business assets as a whole and took the view that since the gross profit rate was in excess of 20%, the provision contained in rule 2B(2) of the Wealth-tax Rules, 1957, was attracted. While reaching this conclusion, the Wealth-tax Officer conceded that the gross profit alone could not be made the basis for determining the market value of the closing stock even though it was an important factor and, therefore, some deduction should be made from the gross profit rate. The deduction allowed was 4%,. The profit rate remaining above 20% even after this deduction, rule 2B(2) was applied. Accordingly, the Wealth-tax Officer estimated the market value of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to invoke the aid of rule 2B(2). It, field that there being no definite evidence for that purpose, rule 2B(2) was not attracted. Aggrieved by the Tribunal's order, these references have arisen at the instance of the Revenue to answer the above quoted common question of law. Learned counsel for the Revenue contended that the burden was on the assessee and not on the Revenue to show that the market value did not exceed the valuation shown in the balance-sheet of the closing stock by more than 20% ; even if the burden was on the Revenue, the same was discharged when the gross profit rate exceeding 20% was shown in the firm's account books ; the assessee had special knowledge of the facts and, therefore, also, the burden was on him ; and that rule 2B(2) was attracted on these facts alone. In reply, it was contended on behalf of the assessee that the burden to prove the existence of facts attracting rule 2B(2) was on the revenue and not on the assessee. It was further contended that there being no positive material to hold that the market value exceeded by more than 20% the value shown in the balance-sheet, the Wealth-tax Officer could not reach that conclusion on the basis of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been contributed by them. The residue of the net wealth of the firm or association shall be allocated among the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association, or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits. The sum total of the amounts so allocated to a partner or member shall be treated as the value of the interest of that partner or member in the firm or association. 2A. Determination of the net value of assets of business as whole.-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. Adjustments in the value of an asset disclosed in the balancesheet. - (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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the purposes of assessment under the Income-tax Act, 1961, by more than 20 per cent., the value of that asset shall, for the purposes of rule 2A, be taken to be its market value. In other words, unless the determination of the market value on the basis of definite material is at an amount exceeding 20 per cent. of the value disclosed in the balance-sheet, no occasion arises for invoking rule 2B(2) and the value disclosed in the balance-sheet has to be accepted for the purpose of wealth-tax assessment. This, in short, is the cumulative effect of these statutory provisions. The first question now is of onus of proof. When the assessee relies on the valuation of the closing stock shown in the balance-sheet of the firm and the mode of determination of market value adopted is that provided under section 7(2)(a) of the Act, it does appear obvious to us that the burden lies on the Revenue, if it seeks to invoke the aid of rule 2B(2), to show that the market value exceeds by more than 20 per cent. the valuation disclosed in the balance-sheet. Obviously, the onus lies on the party which would fail if no evidence is led by either side. If the balance-sheet and books of account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-sheet value, the burden lies on the Wealth-tax Officer to prove on the basis of relevant material that the real market value exceeds by more than 20 per cent. the balancesheet value so as to justify invoking the aid of rule 2B(2). Unless this burden is discharged by the Revenue, the condition precedent for invoking the aid of rule 2B(2) is not satisfied. In our opinion, this is the correct position with regard to the question of burden of proof on which divergent stands have been taken by the two sides before us. From the above conclusion relating to onus of proof, it follows that unless the Wealth-tax Officer determines the market value at an amount exceeding 20 per cent. of the balance-sheet value on the basis of relevant material, the occasion to invoke rule 2B(2) cannot arise. We have, therefore, to examine this position. The Wealth-tax Officer held rightly that the gross profit rate alone cannot be made the basis for determining the market value of the closing stock. Thus, even according to the Wealth-tax Officer, the gross profit rate was only a relevant factor and not by itself sufficient to hold that the market value can be determined by adding the gross profit rate str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, obvious that where the only material available is the gross profit rate and there is no positive material to indicate the extent of deduction which has to be made therefrom for the purpose of arriving at figure which alone can be added to the cost price for determining the market value, there is no definite evidence to determine the market value on the sole basis of gross profit rate. This conclusion flows even from the reasoning adopted by the Wealth-tax Officer and the principle indicated in the Wealth-tax Officer's order. It is, therefore, clear that unless there be any positive material or discernible principle justifying computation of the percentage of deduction at the figure applied, it has to be held that there is no positive material to hold that the market value exceeds by more than 20% the value of the closing stock disclosed in the balance-sheet even though the gross profit rate appears to exceed the figure of 20 per cent. In the present case, no basis is indicated in the order of the Wealth-tax Officer for computing the deduction at 4% only and no material to justify that figure has been pointed out. Since the onus of proof is on the Revenue, the same has to be di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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