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TMI Blog1977 (12) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax assessments in respect of the three years and the three assessees were made on the basis of global method of valuation on the basis of the figures in the respective balance-sheets. It is not necessary to refer to the details of the contentions with regard to the deductibility of contingencies reserve, development reserve, tariffs and divdends control reserve and gratuity reserve and it is sufficient to state that the case of the three assessees was that the amount standing in the balance-sheet under the heads contingencies reserve, development reserve, tariffs and dividends control reserve and gratuity reserve were liable to be excluded for the purposes of computation of the net wealth of the assessee-companies. In view of the decision of the Supreme Court in Standard Mills Co. Ltd. v. Commissioner of Weath-tax [1967] 63 ITR 470, the question of deductibility of gratuity reserve, which was decided against the company, was not required to be referred. So far as the three other kinds of reserves were concerned, it was contended on behalf of the assessees before the Tribunal that these reserves, that is, contingencies reserve, development reserve and tariffs and dividends control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed in clauses IV and V of the Sixth Schedule. Clause VA of the Sixth Schedule also requires the licensee to create a reserve to be called development reserve to which is to be appropriated in respect of each accounting year a sum equal to the amount of the income-tax and super-tax calculated at rates applicable during the assessment year for which the accounting year of the licensee is the previous year, on the amount of the development rebate to which the licensee is entitled for the accounting year under clause (vi-b) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922. The proviso to clause VA is not material. The Tribunal declined to accept the contention of the assessees that the amount standing in these reserves was liable to be excluded from the computation of net wealth. A further contention of the assessees before the Tribunal was that the amount standing in the consumers' benefit account which is created in accordance with the requirement of the latter part of clause II of the Sixth Schedule was also liable to be excluded because, according to the assessees, it was not in the nature of a reserve but that the amount represented a clear liability and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of setting up of the second unit must have commenced prior to 1st April, 1957, and, therefore, units Nos. 1 and 2 were not eligible for exemption on that ground and unit No. 3 was also not eligible for exemption since the work commenced after the relevant valuation dates. Further, it was contended before the Tribunal on behalf of the revenue that no separate accounts had been maintained in respect of each of the four units and actually one single account was maintained for all the three units of Trombay project and at the end of the relevant accounting year only separate trial balances were drawn up by apportioning the expenses and the receipts on a proportionate basis. The case of the revenue appeared to be that each of the three companies should have maintained separate accounts in respect of that part of the unit or units as is attributable to it. The Tribunal after referring to the provisions in section 5(1)(xxi) took the view that the three units at Trombay were independent of one another and that they were all new and separate units and so also was the Carnac receiving station which was situated at some miles away from the Trombay unit. The Tribunal further held that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re liable to be deducted ? (2) Whether in computing the net wealth of the assessees, the amount credited to the consumers' benefit account is liable to be deducted ? " With regard to the deductibility of income-tax and corporation tax and the additional taxes the questions referred were : " (3) Whether in computing the net wealth of the company the provision for payment of income-tax and super-tax in respect of the year of account as reduced by the advance tax paid is liable to be deducted ? (4) Whether in computing the net wealth of the company the provision for payment of additional taxes according to Finance (No. 2) Bill, 1957, and the tax under the Wealth-tax Bill, 1957, is liable to be deducted ? " The last question which is referred at the instance of the revenue is : " (5) Whether, on the facts and in the circumstances of the case, the portion of the net wealth of the companies employed in the Trombay Units Nos. 2 and 3 and the Carnac receiving station was exempt under section 5(1)(xxi) of the Act ?" It is not disputed both on behalf of the assessees and the revenue, that so far as the controversy relating to contingencies reserve and development reserve is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e discharged which is directed by the State Government. The learned counsel has emphasised the fact that since the amount is under no circumstances utilisable by the company for its own purposes, it cannot be treated as an asset of the company. Support was sought for this argument from the entries made in the balance-sheet where, according to the learned counsel, the amount standing against the entry " consumers' benefit account " is shown under the head " current liabilities and provisions " while so far as the contingencies reserve, the development reserve and the tariffs and dividends control reserve were concerned, the learned counsel contends that these amounts were shown as part of the assets of the company. Strong reliance was placed by the learned counsel on the decision of this court in Amalgamated Electricity Co. Ltd. v. Commissioner of Income-tax [1974] 97 ITR 334 (Bom), and attention was particularly invited to the observations of the Division Bench in that case where with reference to the amount which is transferred to the consumers' benefit reserve, the Division Bench has observed that the amounts transferred to consumers' benefit reserve are at no time available to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des for two alternative ways of dealing with a part of the excess of the clear profit over the reasonable return. After making allowance for one-third of the excess which is to be at the disposal of the undertaking and one-half of the remaining out of the excess which is to be appropriated to a reserve which shall be called tariffs and dividends control reserve, clause II provides that the remaining shall either be distributed in the form of a proportional rebate on the amounts collected from the sale of electricity and meter rentals or it can be carried forward in the accounts of the licensee for distribution to the consumers in future in such manner as the State Government may direct. The intention of this clause is very clear that since there is a restriction on the extent of the clear profit to be earned by the licensee, if there is a certain excess earned in one particular year of account, in order to give effect to clause I it is provided that a rebate should be granted to the consumers. The effect of granting the rebate is not that there is any actual distribution of any amount by the, licensee to the consumers but that the recovery of the price of electricity from the consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Wealth-tax Act, the question as to whether a particular asset is a part of the net wealth of the assessee or not will have to be determined solely with reference to the definition of "net wealth " in section 2(m) of the Wealth-tax Act. Under section 2(m) " net wealth " is defined as meaning the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date, including the 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. The debts which are to be left out for the purposes of this computation referred to in subclauses (i), (ii) and (iii) of clause (m) of section 2 of the Wealth-tax Act are not relevant for the present purpose. An asset has been defined in section 2(e), which, so far as the material years are concerned, would mean property of every description, movable or immovable. Therefore, the only criterion for determining whether a particular item can be included as a part of the net wealth of an assessee is to find out whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of real income. It was held to be deductible on the ground that it was not available at any time for the licensee for any of its purposes. This consideration, therefore, weighed with the Division Bench in coming to the conclusion that for the purposes of computing the real income of the assessee, that amount was liable to be excluded. Utilisability of an asset cannot, however, be relevant for the purpose of the computation of net wealth in view of the definition of net wealth in section 2(m) of the Act. It will not, therefore, be possible to accept the contention of the assessee that merely because the amount is not utilisable, it should be excluded from the net wealth of the assessee. An alternative argument was then advanced by Mr. Dastur that since, for the computation of the net wealth, from the total assets of the assessee the value of all debts owed has to be deducted, in any case, the amount which is set apart in the consumers' benefit fund must be treated as debt owed. Our attention was invited to the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax [1966] 59 ITR 767, where the Supreme Court was dealing primari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch obligation is said to be created, it would be difficult to hold that there is a debt owed by one person to the other. In the instant case, it is difficult to appreciate how any particular consumer could enforce any right to claim any particular amount of rebate at any particular point of time because it is exclusively left either to the assessee or to the State Government to decide if and when the amount will be distributed to the consumers and in what form. We are, therefore, not inclined to accept the contention of the assessee that the amount standing in the consumers' benefit fund should be treated as a debt owed. Consequently, the amount standing in the consumers' benefit fund was clearly liable to be included as a part of the net wealth of the assessee. Question No. 2 would, therefore, have to be answered in the negative and against the assessee. So far as questions Nos. 3 and 4 are concerned, it is not disputed that they are covered by two decisions of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commr. of Wealth-tax [1966] 59 ITR 767 and H. H. Setu Parvati Bayi v. Commr. of Wealth-tax [1968] 69 ITR 864. In Kesoram Industries' case, [1966] 59 ITR 76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of substantial expansion of its undertaking ". There are certain conditions provided in the proviso which must be satisfied before such exemption can be claimed. Those conditions are : " (a) Separate accounts are maintained in respect of such unit ; and (b) The conditions specified in clause (d) of section 45 are complied with in relation to the establishment of such unit." There is a further proviso which provides that the exemption shall apply to any such company only for a period of five successive assessment years commencing with the assessment year next following the date on which the company commences operations for the establishment of such unit. We are not concerned in this case with this proviso. There is a finding by the Tribunal that the conditions in clauses (a) and (b) have been satisfied. The correctness of those findings had not been put in issue. But the only contention is whether the units can be said to have been set up only on the date on which they were completed and went into operation or whether they can be said to have been set up prior to 1st April, 1957, that is, the point of time when the project was commenced. In Ramaraju Surgical Colton Mills ..... X X X X Extracts X X X X X X X X Extracts X X X X
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