1986 PLP 614 (PTD)

HEGDE, J.--The assessee is a pubic limited company, engaged in the manufacture and- sale of plywood products. Due to losses and insufficiency of profits in the past, depreciation was not provided for in full in the accounts in respect of the assets of the company. In the balance-sheet of the assessee-company as on March 31, 1959, the fixed assets had beer, shown as under: Fixed assets (at book value) Gross block Rs.48,40,077 Less: depreciation 25,66,473 22,73,604 The total of the assets, inclusive of the above sum, was Rs.51,60,

817. The following note has been appended to this balance-sheet 6by the directors: "It has not been possible to provide the full depreciation till March 30, 1959, on the fixed assets." The statutory auditors of the assessee had also referred to this aspect in the following wards: "Provision in full has not been made for depreciation on fixed assets to March, 31, 1959." The balance-sheet as on March 31, 1958, also contained a similar note. The net value of these assets as on March 31, 1957, was Rs.21,21,460 and the value after allowing depreciation as contemplated under the Indian Income-tax Act was Rs.10,54,

878. In respect of the valuation date as on March 31, 1959, the Wealth Tax Officer took the gross assets at Rs.51,60,817 as shown in the balance-sheet as on that date. He allowed certain deductions for arriving at the net wealth. A copy of the Wealth Tax Officer's order is annexure "A" and forms part of the case. The assessee appealed to the Appellate Assistant Commissioner. The assessee urged that the value, for purposes of the Wealth Tax Act, of the fixed assets should be taken to be their written-down value computed for purposes of income-tax, and not the book value, the reason there for, being that, in the books, the assets had been shown at a higher value, the normal depreciation, due partly to insufficiency of profits in some years, not having been charged against in the accounts. The Appellate Assistant Commissioner held that: .. the correct position seems to be to start with the book value as on March 31, 1957, that being the starting point for wealth tax assessments. Thereafter, where the depreciation charged, as in this case, is less than that allowable under the Income-tax Act (excluding development rebate) the necessary adjustment should be made in order to arrive at the written down value of the assets for purposes of global valuation." A ropy of the order of the Appellate Assistant Commissioner is Annexure "B" and forms part of the case. The company took the matter on appeal to the Appellate Tribunal. The Appellate Tribunal held that the asset valuation based on the balance-sheet was a qualified one, the deficiency in depreciation had to be supplied and in this se the reliable valuation would only be the written down value as, adopted by the Wealth Tax Officer. The Appellate Tribunal did not agree with the Appellate Assistant Commissioner in limiting the period from 31st March, 1957, for ascertaining the written down value as, in its opinion, the date of coming into force of the Wealth Tax Act could not have any bearing on the valuation of the assets as such, and it was not as though the company had provided full depreciation up to 31st March, 1957, and that the book value as on that date would be the result. On the consideration that no other asset stated in the balance-sheet required any modification, the current assets, having been stated to be at values realisable in the ordinary course of business, the Tribunal held that the written down value of fixed assets as on 31st March, 1957, which the assessee said was Rs.10,54,878 should be taken as the basis for arriving at the value as on the 31st March, 1959. A copy of the Tribunal's order is Annexure "C" and forms part of the case." After setting out of statement of case as above, Hegde, J. continued: This is a reference made under section 27 (3) of the Wealth Tax Act, to be hereinafter referred to as the "Act". The question of law referred is: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's decision regarding the valuation to be adopted of the fixed assets is correct in law?" The assessment year with which we are concerned in this case is 1959-60, the relevant valuation date being March 31, 1959. The controversy in this case is as regards the true scope of section 7 (2) (a) of the "Act". In determining the net wealth of the assessee, the Tribunal has adopted as the basis the valuation of the assets as shown in they balance-sheet, but modified that figure by taking into consideration the depreciation mentioned in the balance-sheet but not given deduction to for want of profits. It is contended on behalf of the revenue 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 the Tribunal had no competence to travel outside the balance-sheet for finding out the true, value of the assets. Is this contention correct? From the facts of the case it is seen that though the assessee was valuing his assets in the balance-sheet, it was noted therein that the entire depreciation could not be deducted because of the deficiency in profits. This contention of the assessee has not been negatived either by the Wealth Tax Officer or the Appellate Assistant Commissioner. The Tribunal has accepted that position as correct. It is not the case of the revenue that the depreciation allowed by the Tribunal is in any manner excessive. What is urged on behalf of tile revenue is that, when a valuation is made under section 7 (2) (a), the valuation shown in the balance-sheet should be taken as conclusive. We think that this contention is untenable. "Net Wealth" is defined in section 2 (m) thus: "Net wealth means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever lotced, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of ail the debts owed by the assessee on the valuation date other than,-- (i) debts which under section 6 are not to be taken into account; (ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth tax is not payable this Act; ...." Section 3 is the charging section. Section 4 mentions what assets should be taken into consideration in computing the net wealth. Then we come to section

7. Section 7 (1) says: "The value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth Tax Officer it would fetch if sold in the open market on the valuation date." According to this section, one method of valuation is to ascertain the market value of the assets other than cash. Section 7 (2) provides for an alternative method. That section, to the extent material for our present purpose, says: "Where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth Tax Officer may, instead of determining separately the value of each assets 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 the circumstances of the case may require." The basis mentioned in section 7 (2) (a) is an alternative basis. The Wealth Tax Officer is not compelled to adopt that basis. It is felt to his discretion to adopt that basis or not. He may, if he so chooses, proceed to value the business assets on the basis of the market value as provided under section 7 (1). The basis provided under that provision can be adopted only where the assessee is carrying on a business fort which accounts are maintained by him regularly. In that event, the business assets will have to be valued as a whole. In such a case the valuation may be made having regard to the balance-sheet of such business as on the valuation date. While adopting that basis, the Wealth Tax Officer may make such adjustments in the valuation in question as the circumstances of the case may require. Therefore, the counsel for the revenue is not right in his contention that while valuing business assets under section 7 (2) (a), the valuation made in the balance-sheet is conclusive of the matter. The valuation made in the balance-sheet will have to be adjusted by taking into consideration the circumstances of each case. We are of the opinion that the interpretation placed by the Tribunal on section 7 (2) (a) is correct. Our view in this regard accords with the view taken by the Bombay High Court in Commissioner of Wealth Tax v. Indian Standard Metal Company Ltd. (1963) 49 I T R 832, wherein the court laid down that in computing the value of the assets of a business for the purposes of wealth tax, the Wealth Tax Officer is entitled to follow either of the two methods mentioned in section 7 of the Act, viz. he may either determine the market value of the assets under subsection (1) of section 7 or, he may proceed on the global valuation basis of valuing the assets of the business as a whole under subsection (2) of section

7. If he proceeds to make the valuation on the global valuation basis under subsection (2), he must take the balance-sheet of the business as the basis for making the valuation and make such adjustments as he considers necessary. For the reasons mentioned above, our answer to the question referred is in the affirmative and in favour of the assessee. The revenue shall pay the costs of the assessee. Advocate's fee Rs.250. M.B.A. Question answered in affirmative.