COMMISSIONER OF WEALTH TAX Vs. TUNGABHADRA INDUSTRIES LTD

JUDGEMENT

(1.) IN this reference under s. 27(1) of the WT Act, 1957, the question referred to the Court is:

(2.) THE facts taken from the statement of the case are as follows: THE relevant assessment years are 1957-58, 1958-59 and 1959-60 and the valuation dates for these applications are 30th Sept., 1956, 30th Sept., 1957, and 30th Sept., 1958. In assessing the net wealth of the assessee, the WTO proceeded under s. 7(2)(a) of the WT Act and included in the computation the entire balance sheet value of the assets without any adjustment. THE assessee contended that so far as the fixed assets were concerned they should be assessed at their written down value and not on the basis of the value as shown in the balance sheet. This contention of the assessee was rejected by the WTO. THE appeal to the AAC was not successful. THE Tribunal however took the view that, if the WTO proceeds under sub-s. (2) of s. 7, he must make adjustments for depreciation of the values from the balance sheet figures. THE Tribunal noted "the balance sheet of a company does not indicate the market value of the assets. THE assets, other than stock, usually are valued at cost . . . THE balance sheet value of the assets must be regarded as something entirely distinct from the market value thereof. In a large business it is almost impossible to value each particular asset at the market price from year to year. THE legislature appears to have, therefore, provided that in the case of a running business the ITO may adopt the balancesheet value. THE legislature, however, empowered the WTO to make necessary adjustments in the balance sheet value, so that it might conform, as nearly as may be, to the value of the assets to the business . . . In determining this value in respect of fixed and depreciable assets there is no reason why an adjustment cannot be made in respect of the normal wear and tear due to effluxion of time, if no adjustment has been made in the balance sheet in that regard. THE words of sub-s. (2), far from being rigid, leave ample room for such adjustment if the circumstances of the case so demand. In fact, the Central Board of Revenue in its circular No. 3 W. T. of 1957, dt. 28th Sept., 1957, directs that depreciation may be allowed for in appropriate cases in computing the bulk valuation of business assets under s. 7(2) . . . THEre is, therefore, no warrant for the view that in a computation under s. 7(2) no adjustment whatever can be made for depreciation. In the income-tax assessments depreciation is calculated upon the original cost in a scientific and systematic manner with due regard to the nature of the asset. THErefore, the written down value as determined in the income-tax assessment may be taken as the fair index of the net value of the business assets in most cases . . . In this particular case, it appears, the assessee did not make any reserve for depreciation and the assets are old dating back from the inception of the business long ago. In these circumstances, in our opinion, it would be fair to adopt the written down value of the assets as the value thereof for all the years under appeal and we direct accordingly."

(3.) IN this case the assessee claimed that since the full amount of depreciation which was admissible under the INdian IT Act was not provided for in the balance sheet, the same should be deducted from the value of the assets in order to arrive at the net wealth. The WTO rejected this contention observing that deduction of depreciation allowable under the IT Act did not determine the market value of the goods and, for the purpose of wealth-tax assessment, the value of the assets as estimated by the assessee itself should be accepted. Excluding the value of the land, the total value of the fixed assets as shown in the balance sheet in this case amounted to Rs. 60,53,811, but the assessee had shown in its return the value of the same at Rs. 7,69,435 only on the basis of the written down value for income-tax purposes. The WTO observed that "it is common knowledge that the value of imported machinery has increased considerably during the last few years and that on the valuation date I do not think their value should be less than that provided for in the balance sheet.