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Commissioner of Wealth-tax, Bombay City I Vs. Belvandi Sugar Farm Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberWealth-tax Reference No. 7 of 1962
Judge
Reported in[1965]58ITR433(Bom)
ActsWealth Tax Act, 1957 - Sections 7(2) and 27(1)
AppellantCommissioner of Wealth-tax, Bombay City I
RespondentBelvandi Sugar Farm Private Ltd.
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateJ.P. Pandit, Adv.
Excerpt:
.....been taken into consideration either by the appellate assistant commissioner or the tribunal. the assessee-company had placed before the taxation authorities material on the basis of which the assessee-company desired to establish that the said two debts had become bad. it was neither contended before the appellate assistant commissioner that the capital of the debtor-companies had not been subscribed, nor was it contended that there were any recoverable debts due to the debtor-companies, out of which the debts due to the assessee-company could be satisfied. even before the tribunal it has not been contended on behalf of the department that the findings recorded by the appellate assistant commissioner were in any manner vitiated because all the relevant material had not been taken into..........concerns, dahanukar sons (pvt.) ltd. and worli chemical works (pvt.) ltd., were indebted to the assessee-company. in the assessee-company's balance-sheet as on 30th september, 1956, on the assets side under the head 'loans and advances' (unsecured) the debts of the aforesaid two debtors were shown. the debt due from dahanukar sons (pvt.) ltd. was shown as amounting to rs. 2,29,417 and that due from the worli chemical works (pvt.) ltd. was shown as amounting to rs. 1,29,548. against the entry relating to both these debts on the assets side, there was a remark 'considered doubtful'. in the balance-sheet for the next year, i.e., as on 30th september, 1957, under the same head on the assets side, i.e., under the head of 'loans and advances' (unsecured), the amount of debt due from.....
Judgment:

Tambe, J.

1. This is a reference at the instance of the Commissioner of Wealth-tax under section 27(1) of the Wealth-tax Act and the question referred to us relates to the construction of section 7(2)(a) of the Act.

2. The assessee is a private limited company doing business of manufacture and sale of sugar. We are here concerned with two assessment years 1957-58 and 1958-59, the relevant valuation dates for these two years being 30th September, 1956, and 30th September, 1957, respectively. It appears, at the material time two concerns, Dahanukar Sons (Pvt.) Ltd. and Worli Chemical Works (Pvt.) Ltd., were indebted to the assessee-company. In the assessee-company's balance-sheet as on 30th September, 1956, on the assets side under the head 'Loans and Advances' (unsecured) the debts of the aforesaid two debtors were shown. The debt due from Dahanukar Sons (Pvt.) Ltd. was shown as amounting to Rs. 2,29,417 and that due from the Worli Chemical Works (Pvt.) Ltd. was shown as amounting to Rs. 1,29,548. Against the entry relating to both these debts on the assets side, there was a remark 'considered doubtful'. In the balance-sheet for the next year, i.e., as on 30th September, 1957, under the same head on the assets side, i.e., under the head of 'Loans and Advances' (unsecured), the amount of debt due from Dahanukar Sons (Pvt.) Ltd. was shown at Rs. 1,69,384 and that due from Worli Chemical Works (Pvt.) Ltd. was shown at Rs. 1,30,383. Again in this balance-sheet also against both these items there was a remark 'considered doubtful.'

3. In both these years the assessee-company claimed that the aforesaid two amounts should be excluded from the computation of wealth of the assessee-company inasmuch as it was not possible to recover any amount from these debtors. The claim of the assessee was rejected. The view taken by the Wealth-tax Officer in his own words wa :

'Apart from the question whether the amount is recoverable or not the claim cannot be considered in view of section 7(2) under which the wealth is being computed by taking the balance-sheet as a whole. The claim is, therefore, not allowed.'

4. The assessee-company filed two appeals against the order of the Wealth-tax Officer. The Appellate Assistant Commissioner disagreed with the view taken by the Wealth-tax Officer that it was not open to the Wealth-tax Officer to go into the merits of the claim made by the assessee-company that the said debts were irrecoverable. In his opinion section 7(2)(a) in terms empowers the Wealth-tax Officer to make such adjustments in the balance-sheet as the circumstances of the case may require. The Appellate Assistant Commissioner, after examining the evidence the evidence that had been tendered before him, came to the conclusion that in the assessment year 1957-58 the debt due from Dahanukar Sons Private Ltd. had become had become bad only to the extent of Rs. 1,69,334 and not to the extent of Rs. 2,29,417 as claimed by the assessee. As regards the other debt, viz., the debt owned by Worli Chemical Works (Pvt.) Ltd., the Appellate Assistant Commissioner came to the conclusion that the entire debt and become bad and, therefore, the value of that asset had become nil in the said assessment year 1957-58. In this view of the matter, he directed the Wealth-tax Officer to exclude from the value of the assets the two amount of Rs. 1,69,334 and Rs. 1,29,548. For the next assessment year, i.e., 1958-59, the Appellate Assistant Commissioner accepting the claim of the assessee in its entirely directed the exclusion from the value of the assets the said two amounts of Rs. 1,69,334 and the amount of Rs. 1,30,383. It may, at this stage, be stated that as regards the debt from Worli Chemical Works (Pvt.) Ltd., there is a slight variation of the amounts in the balance-sheet of these two years. In the balance-sheet as on 30th September, 1956, the figure is shown at Rs. 1,29,548 while in the balance-sheet as on 30th September, 1957, the amount is shown at Rs. 1,30,383. There is a slight increase of the amount. The reason for the increase of the amount has not been mentioned in the statement of the case, but it has been assumed at the hearing that the increase represented the interest for that year.

5. Against the said two orders of the Appellate Assistant Commissioner, appeals were taken by the department to the Tribunal. The contention raised by the department before the Tribunal, as summarised by the Tribunal, wa :

'It is vehemently argued on behalf of the department that the Appellate Assistant Commissioner has gone completely wrong behind the figures shown on the balance-sheet of the assessee-company, because, admittedly, the valuation of the assets had been done on the global method, i.e. on the basis of the balance-sheet figures as such, and since the debts in question had been shown as assets on the face of the balance-sheets, no further adjustments could be made by the Wealth-tax Officer. According to the departmental representative, section 7(2)(a) gives power to the Wealth-tax Officer only in respect of making such adjustments as are necessary to include or to exclude items either on the liabilities side or on the assets side with reference to the other provisions of the Act, but so far as valuation of the assets and liabilities is concerned, he has got no hand in the matter to increase or decrease the value thereof.'

6. The contention raised by the department was rejected by the Tribunal. The Tribunal took the view that the language used in section 7(2)(a) in terms permitted the Wealth-tax Officer to make adjustments in the balance-sheet as the circumstances of the case may require. The appellate Assistant Commissioner was, therefore, perfectly justified in taking into consideration the material placed before him in arriving at his conclusion as to the real worth of these two items. The Tribunal further, after examining the material, which was on record, came to the conclusion that the Appellate Assistant Commissioner had taken into consideration all relevant facts concerning the financial position of the two debtor-companies in arriving at the real worth of the said two debts shown by the assessee-company on the assets side. The Tribunal, further, after considering the material, which was before the Appellate Assistant Commissioner, confirmed the findings of the Appellate Assistant Commissioner that the debt due from Dahanukar Sons (Pvt.) Ltd. had become bad to the extent of Rs. 1,69,384 in the relevant assessment years and the debt due from Worli Chemical Works (Pvt.) Ltd. had become bad in its entirety. On these findings, the Tribunal dismissed the two appeals. On applications made by the department, a joint reference has been made by the Tribunal stating the case on the following question :-

'Whether, on the facts and in the circumstances of the case, in determining the net value of the assets of the company's business as a whole under section 7(2)(a) of the Wealth-tax Act, having regard to its balance-sheet as on the valuation dates, adjustments by way of exclusion of debts, considered doubtful, were permissible for the assessment 1957-58 and 1958-5 ?'

7. Now, Mr. Joshi, learned counsel for the revenue, in the course of the argument did not support the stand taken on behalf of the department before the Tribunal as to the powers of the wealth-tax authorities. The only contention raised by him before us was that the finding of the Appellate Assistant Commissioner as well as the Tribunal that the said two debts had become bad to the extent found by these two authorities was not warranted in law and was, therefore, vitiated. The argument of Mr. Joshi is that all the relevant material and circumstances, which were necessary to be taken into consideration in ascertaining whether the debts had become bad or not, have not been taken into consideration either by the Appellate Assistant Commissioner or the Tribunal. Accordance to Mr. Joshi, it is not possible to say whether any amount is recoverable from a limited company till the company had gone or taken into liquidation. It may be that the capital of the company had not been fully subscribed. In that case, on liquidation, the unsubscribed capital would be called in and would be available for making payments to the company's creditors. It may be that the company had advanced money to others and amounts are owed to the company. Those amounts also would be recovered in liquidation and would be available for payment to the creditors. These circumstances have not been taken into consideration by the Appellate Assistant Commissioner or the Tribunal.

8. We do not say the argument, in abstract, is without merit, but, in the context of the facts of this case, we find it difficult to entertain this contention, which Mr. Joshi has raised before us, inasmuch as, in our opinion, the contention does not arise out of the order of the Tribunal. The assessee-company had placed before the taxation authorities material on the basis of which the assessee-company desired to establish that the said two debts had become bad. The Wealth-tax Officer did not took into the material and apply his mind to the merits, because in his view, the provisions of section 7(2)(a) did not permit him to do so, when he was proceeding to make the valuation of the assets of the company on a global basis under section 7(2)(a), having regard to the balance-sheet of the company. The Appellate Assistant Commissioner did not agree with the view taken by the Wealth-tax Officer and he went into the merits of the case and examined the material which had been tendered by the assessee-company. It was not urged on behalf of the department before the Appellate Assistant Commissioner that there was any other material, which was required to be taken into consideration in this case. It was neither contended before the Appellate Assistant Commissioner that the capital of the debtor-companies had not been subscribed, nor was it contended that there were any recoverable debts due to the debtor-companies, out of which the debts due to the assessee-company could be satisfied. Now, the Appellate Assistant Commissioner's order went against the department and it was the department that had filed the appeal before the Tribunal. Even before the Tribunal it has not been contended on behalf of the department that the findings recorded by the Appellate Assistant Commissioner were in any manner vitiated because all the relevant material had not been taken into consideration or because the legal position was misconceived in ascertaining whether the debts due had become bad or not. No suggestion even was made before the Tribunal that the capital of the debtor-companies had been fully subscribed or that any amounts from its debtors had to be recovered by these debtor-companies. On the other hand, the only contention that was raised on behalf of the department, which we have reproduced in full, from the order of the Tribunal above, related only to the construction of section 7(2)(a). The order of the Tribunal had gone against the department and it is at the instance of the Commissioner of Wealth-tax that this reference has been sought. In the reference application also there appears to be no challenge to the finding of fact of the Tribunal that the said two debts had become bad to the extent found by the Tribunal. The question referred to us is not whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the said two debts owned by the two debtor-companies to the assessee-company had become bad. On the other hand, the question, which has been referred to us, relates to the construction of section 7(2)(a). In the circumstances, in our opinion, it is not possible for us to entertain the contention raised by Mr. Joshi before us.

9. Now, turning to the construction of section 7(2)(a), the stand of the department before the Tribunal was that the section conferred power on the Wealth-tax Officer only in respect of making such adjustments as are necessary to include or to exclude items either on the liabilities side or on the assets side with reference to the provisions of the Act. But so far as the valuation of the assets and liabilities are concerned, he has no authority to increase or to decrease the value thereof. The aforesaid construction sought to be put on the said provisions of section 7(2)(a) cannot be accepted in view of the language used in section 7(2)(a). The provisions of section 7(2)(a) have been recently considered by us in two decisions in Commissioner of Wealth-tax v. Indian Standard Metal Company Ltd. and commissioner of Wealth-tax v. Standard Mills Co. Ltd. In our opinion, it is not necessary to go over the same ground covered by us in these two decisions, especially inasmuch as the power of the wealth-tax authorities to make adjustments in respect of the increase or decrease in the value of the assets shown in the balance-sheet has not been challenged before us. The decision in Commissioner of Wealth-tax v. Indian Standard Metal Co. Ltd. is an instance where we have upheld the reduction of the value of the assets by allowing a deduction of accumulated arrears of depreciation.

10. In our opinion, therefore, the answer to the question referred to us will have to be in favour of the assessee, and against the department.

11. In the result, the answer to the question referred to us is in the affirmative. The Commissioner shall pay the costs of the assessee.

12. Question answered in the affirmative.


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