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TMI Blog1987 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... . (1) is answered in the affirmative, whether liabilities should also be adjusted in the balance-sheet on accrual basis ? " The assessment years with which we are concerned are the assessment years 1964-65 to 1969-70. The assessee was during the previous years relevant to these assessment years, a partner of the firm of M/s. C. M. Shah & Co., Chartered Accountants, and had a 45% share therein. The firm maintained its accounts on cash basis and upon that basis, drew up its balance-sheets and profit and loss accounts for the years under reference. In his wealth-tax returns for these years, the assessee valued his 45% share in the firm on the basis of the balance-sheets. The Wealth-tax Officer required the assessee to inform him of the approx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining 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 may be prescribed... " Rule 2 of the Wealth-tax Rules, 1957, deals with the valuation-of interest in partnership. Sub-rule (1) thereof is relevant and may be quoted : " 2. (1) The value of the interest of a person in a firm of which he is a partner or an association of persons of which he is a member, shall be determined in the manner provided herein. The net wealth of the firm or the association on the valuation date shall first be determined. That portion of the net wealth of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing the total income of the assessee for the relevant year for the purposes of assessment under that Act, the amount of the debt as reduced by the deduction to be allowed; (b) in the case of goodwill purchased by the assessee for a price, its market value or the price actually paid by him, whichever is less; (c) in the case of managing agency rights purchased by the assessee for a price, its market value or the price actually paid by him, whichever is less ; (d) in the case of any other asset, its market value on the valuation date." It is interesting to note that in section 5 which deals with exemptions in respect of certain assets, clause (xa) was introduced by the Finance Act, 1983, with effect from April 1, 1984. It states: " i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The last date of the previous year as defined under the Income-tax Act was the valuation date. The figure of net wealth of the assessee at the end of the previous year took into account the financial activities of the assessee during that previous year. His financial activities during that period determined how his net wealth on a particular valuation date differed from his net wealth on the immediately preceding valuation date. The system of accounting, mercantile or cash or hybrid, was of no relevance for the purpose of determining the assets of the assessee. That appeared to be plain from the definition of "net wealth" which spoke of "the aggregate value... of all the assets " belonging to the assessee on the valuation date. All the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforementioned judgment by suggesting that it was delivered in a case where the provisions of section 7(1) had been applied. There is a misapprehension here. A reading of the judgment of the Orissa High Court shows that it was a case where the provisions of section 7(2)(a) had been applied. In any event, the Supreme Court's judgment is cast in wide terms and would apply regardless of whether the assessment was made under the provisions of section 7(1) or (2). Mr. Palkhivala drew our attention to rule 2A whereunder, when the Wealth-tax Officer determines under section 7(2)(a), as here, the net value of the assets of the business as a whole, having regard to its balancesheet, he is obliged to make the adjustments set out in rules 2B to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly is whether the words "asset not disclosed in the balance-sheet " can be read in the manner in which Mr. Palkhivala invites us to do. Under section 2(e), assets include property of every description, movable or immovable. What has to be seen in the context of rule 2C, in our opinion, is whether any asset has not been shown in the balance-sheet. If there is an asset as defined and it has not, for good reason or otherwise, been shown in the balance-sheet, the Wealth-tax Officer is entitled to apply the provisions of rule 2C. The word " disclosed " therein only means shown. It must follow that the Wealth-tax Officer was entitled in the instant case to apply the provisions of rule 2C. It may well be true that, upon this interpretation, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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