V.S. Desai, J.
1. This is a reference under section 27(1) of the Wealth-tax Act and the question which is referred thereunder is as follows :
'Whether on the facts and in the circumstances of the case, the assessee was entitled to claim deduction on account of accumulated depreciation allowance in its fixed assets, not written off in the books but allowed by the Department in the income-tax assessments for the purpose of computing the net wealth under section 7 of the Wealth-tax Act for the assessment year 1957-58 ?'
2. The assessee is a limited company and we are concerned in the present case with the assessment year 1957-58, for which the relevant valuation date is the 31st December, 1956. The assessee in the return which it submitted, gave the net value of its assets allowing for the depreciation in their value. In this return, it appears, the book value was given of the assets. After the return was submitted, there was correspondence entered into between the Wealth-tax Officer and the assessee. The Wealth-tax Officer intimated to the assessee that he wanted the market value of each of the assets on the date of valuation. The assessee then submitted to the Wealth-tax Officer a fresh computation of its wealth as on 31st of December, 1956. In this statement the assessee gave its total wealth on the global valuation basis adopting two different methods of computation. According to both the methods adopted in this statement, the total wealth, which it wanted to be substituted in the original return submitted by it, came to Rs. 15,19,462. The Wealth-tax Officer thereafter made his assessment order in which he added to the figure of total wealth as computed by the assessee a further sum of Rs. 1,397 on account of the difference between the provision of taxation made by the assessee and the advance tax which it had already paid and arrived at the figure of Rs. 15,20,859 for the total wealth of the assessee. On the basis of the said figure arrived at for the total wealth of the assessee, he made the assessment and issued a notice of demand. Against the said order of assessment the assessee went in appeal to the Appellate Assistant Commissioner. The contention, which was raised before the Appellate Assistant Commissioner, was that the Wealth-tax Officer should have allowed an adjustment to the extent of Rs. 8,70,000 in the computation of the net wealth of the assessee since that was the total amount of the depreciation in the value of the assets. It was urged that in the income-tax assessments of the assessee the said amount of depreciation had been allowed by the income-tax department as the proper depreciation amount and in the balance-sheet of the assessee company the said amount was also duly shown by a note at the end of the balance-sheet as the arrears of depreciation. The Appellate Assistant Commissioner took the view that since the assessment of the assessee was made on the global valuation of the assets under section 7(2)(a) of the Wealth-tax Act, the Wealth-tax Officer should have, in view of the balance-sheet of the company submitted before him, taken into consideration the amount of depreciation shown in the note to the balance-sheet. It was argued before the Appellate Assistant Commissioner that in the accounts of the assessee company, the block of assets had not been fully depreciated to bring it on par with the written down value on account of the sustained loss in the past or on account of the inadequacy of the profits. The company in its accounts had not provided for a depreciation fund and, consequently, the depreciation amount had not been shown as a liability on the liabilities side of the balance-sheet. It was for these reasons that the arrears of depreciation were shown by a note at the end of the balance-sheet. The Appellate Assistant Commissioner took the view that in the circumstances as explained on behalf of the assessee, the mere circumstance that the assets had not been actually depreciated in the account or that the depreciation was not taken to a depreciation fund set up in the accounts did not disentitle the assessee from contending that in arriving at the net value of its assets, the depreciation should have been taken into account. The Appellate Assistant Commissioner, accordingly, held that in the circumstances of the case the assessee would be entitled to have the amount of the depreciation deducted from the book value of the assets as shown in the balance-sheet except to the extent of the initial depreciation, if any, which might have been allowed in the income-tax assessment. In the view that he took of the matter, he directed the Wealth-tax Officer to modify the assessment accordingly. The department then took an appeal from the said order of the Appellate Assistant Commissioner to the Tribunal. The Tribunal agreed with the view taken by the Appellate Assistant Commissioner and dismissed the appeal. At the instance of the department, the Tribunal then drew up a statement of the case and referred to this court the question, which we have already stated above.
3. Before we proceed to deal with the question, it will be desirable to refer to some of the provisions of the Wealth-tax Act. Section 2(m) defines the expression 'net wealth' to mean the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, 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 all the debts owed by the assessee on the valuation date other than certain specified amount of debts. Assets, which are required to be included in the net wealth of the assessee, are specified in section 4 of the Act, Section 3 is the charging section, which provides that subject to the other provisions contained in the Act, the charging of wealth-tax will be on the net wealth of the assessee on the corresponding valuation date. Under section 7, the modes of determining the value of the assets is given. In sub-section (1) of section 7, which gives the first method of calculation, the value of any asset, other than cash, is estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch is sold in the open market on the valuation date. Sub-section (2) of the section provides for the global valuation method. That sub-section provides as under :
'7. (2) Notwithstanding anything contained in sub-section (1), - (a) 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 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 the circumstances of the case may require'.
4. Clause (b) of sub-section (2) provides for the method to be adopted in the case of a company, which is not resident in India. Section 14 provides for the return of wealth. Under this section returns are required to be filed before the 30th day of June of the corresponding assessment year or where an individual notice has been issued by the Wealth-tax Officer within the period prescribed but such notice. Section 15 provides that if returns are not furnished within the time allowed by section 14 or if further returns or revision of returns already filed is desired, returns or revised returns, as the case may be, may be filed at any time before assessment. Section 16 provides for the assessment of the returns submitted and under sub-section (1) of the said section the Wealth-tax Officer, if he is satisfied, without requiring the presence of the assessee or production by him of any evidence that a return made under section 14 is complete, is entitled to accept the said return and assess the net wealth of the assessee and determine the amount payable by him as wealth-tax. Under section 46 the Central Board of Revenue is given power to make rules for carrying out the purposes of this Act including the power to make rules providing for the manner in which the market value of any asset may be determined and the form in which the returns under the Act shall be made and the manner in which they shall be verified. Under the rules framed in pursuance of the said rule-making power, the form of return of net wealth is provided, which, in the case of an assessee carrying on business, is Form B, Part I of this form deals with assets located in India. It divides the assets into three sections. Section A, which is of immovable property, requires the total value to be given of the immovable properties as per annexure I. Section B, which movable property, requires the total value to be given as per annexure II and Section C relates to all assets of which the total value is required to be given as per annexure III. Annexure I requires the description of the property to be given together with its annual value and estimated capital value on the valuation date; annexure II, which relates to movable property, is divided into six parts, the first of which relates to fixed assets, such as plant, machinery, etc., and requires the description of the asset to be given together with its value. The second part cover investments, such as stock, debentures, etc., the third part is of current assets comprising of stores, spare-parts, loose tools, sundry debtors, works-in-progress, stock-in-trade and miscellaneous current assets; the fourth part is of loans and advances, the fifth is of cash on hand and at bank and the sixth of other movable assets, which are not included in items 1 to 5 and on which wealth-tax is payable. Annexure III deals with secured loans, unsecured loans and current liabilities and ascertained liabilities treated as contingent liabilities, etc.
5. Now, in the present case, the original return, which was filed by the assessee, was in Form B. He had therein given his assets located in India under Part I of the return as per the annexures I, II and III. In giving the value of the assets in the case of fixed assets, the assessee had given the book value of the fixed assets after allowing for the depreciation, which had been allowed by the income-tax department. Under rule 3, an assessee, carrying on a business, was required to file along with the return in Form B a copy of the balance-sheet and also a copy of the auditor's report, if any. The assessee had duly filed a copy of the balance-sheet along with its return. After the receipt of the said return, the Wealth-tax Officer had informed the assessee that he wanted the market value of each of the assets of the company as on the date of the valuation. The assessee informed the Wealth-tax officer that the return submitted by it was on global valuation basis and it had also shown the value of the assets in accordance with its balance-sheet, and the depreciation of Rs. 8,70,000, which it had shown in valuing the fixed assets was depreciation, which had been properly allowed to it in the income-tax assessments in respect of the said fixed assets. There was some further correspondence relating to the valuation of the assets made by the assessee in the returns filed by it and ultimately on 8th February, 1958, the Wealth-tax Officer informed the assessee that it should file the details of the market value as on 31st December, 1956, on or before the 13th February, 1958. The accountant of the assessee, it appears had an interview with the Wealth-tax Officer thereafter and subsequent thereto on 27th February, 1958. The accountant of the assessee wrote to the Wealth-tax Officer that with reference to the interview, which he had with the Wealth-tax Officer on 13th February, 1958, he was sending a statement of fresh computation of wealth as on 31st December, 1956, which he hoped would be found to be in order by the Wealth-tax Officer. He also subsequently endorsed on the said letter that the return of wealth-tax already submitted may be treated as revised in accordance with the fresh computation. It is this fresh computation, which gave the value of the total wealth at Rs. 15,19,462. The Wealth-tax Officer accepted this value and making some slight adjustments thereto on account of the provision for tax and the advance tax paid by the assessee, assessed the total wealth at the figure of Rs. 15,20,829.
6. Now, the assessee's complaint is that in holding that the net wealth of the assessee was Rs. 15,19,462 the Wealth-tax Officer is in error since he has not allowed the assessee the depreciation of Rs. 8,70,000. The valuation of the fixed assets, which the assessee had given in its fresh computation at Rs. 21,56,655 was subject to a deduction of Rs. 8,70,000 on account of depreciation. The Wealth-tax Officer, however, has not allowed the said depreciation but taken the value of the fixed assets at the book value which is wrong. This contention of the assessee has been accepted by the Appellate Assistant Commissioner and the Tribunal.
7. Mr. Joshi, learned counsel for the revenues, has argued that the Appellate Assistant Commissioner and the Tribunal are wrong in the view that they have taken. He points out that in the first place the assessee itself by the revised return, which it filed, has given the figure of Rs. 15,19,462 as its total wealth on the date of the valuation. The Wealth-tax Officer has accepted the said figure stated in the return as the correct figure and proceeded to make assessment thereon. The assessee's return thus having been accepted by the Wealth-tax Officer the assessee has no right to complain about the said assessment by way of an appeal from the said assessment order. Mr. Joshi says that under section 16(1), the Wealth-tax Officer, if he is satisfied with the return submitted by the assessee, can accept the said return without any further inquiry and make an assessment on the total wealth as computed by the assessee in his return. This is what the Wealth-tax Officer has done in the present case on the revised return filed by the assessee. There is, therefore, no question of the assessee being entitled to claim anything by way of deduction on the return filed by it.
8. Now, in our opinion, this argument cannot be entertained. No contention was raised before the Appellate Assistant Commissioner or before the Tribunal that the assessee's claim to the deduction on account of the depreciation is not permissible in view of the revised return filed by the assessee. Both before the Appellate Assistant Commissioner and the Tribunal the claim of the assessee to the said deduction has been heard and decide on merits. The contention, therefore, that the assessee was not entitled to the deduction because, in view of the revised return submitted by it, there was no scope for such deduction cannot arise on the order of the Tribunal in the present case. We need not, therefore, consider the further question as to whether this contention is sound on merits.
9. Mr. Joshi has next argued that the assessee was not entitled to the said depreciation even on merits. The depreciation, which is allowed by the income-tax authorities in the income-tax assessment, may not, according to him, be proper to be allowed in the computation of the total wealth of the assessee. For the purpose of assessing the net wealth under the Wealth-tax Act, the value of the assets is that which they would fetch, if sold in the open market on the date of the valuation. An asset, though it might have been used in business for a time, may still have appreciated in market value on the date of valuation.
10. Now, it is true that an asset, which a company might have purchased in the past and which, it might have used in its business for an interval of time, may still at a subsequent date fetch, if sold in the open market, a price greater than that which was paid for it by the company at the time of its purchase. Under section 7 of the Wealth-tax Act, however, the Wealth-tax Officer is entitled to follow either of the two methods mentioned therein for the calculation of the value of the assets in the case of an assessee carrying on business. He may under sub-section (1) of the said section proceed to determine the market value. He may, on the other hand, under sub-section (2) of the said section, proceed on the global valuation basis of valuing the assets of the business as a whole. Now, when he chooses to adopt the second method, viz., that of assessing the assets of the business as a whole, the section requires him to have regard to the balance-sheet of such business as on the valuation date as the basis for the valuation. He is required to take the balance-sheet and make such adjustments therein as the circumstances of the case may require. Now, in the present case, the Wealth-tax Officer has proceeded to make the valuation on the global valuation basis under sub-section (2) (a) of section 7. He was, therefore, required to have the balance-sheet of the business as the basis for making the valuation subject to such adjustments as he would find necessary. Now, in the balance-sheet, the valuation of the assets was given at Rs. 21,56,655. There was also stated in the note to the balance-sheet the estimated arrears of depreciation at Rs. 8,70,000. The Wealth-tax Officer in arriving at the net value of the assets had, therefore, to have regard to the facts that there was a book value of the assets shown at Rs. 21,56,655 and there was a reference in the balance-sheet to the accumulated arrears of depreciation to the extent of Rs. 8,70,000. He was required, in view of these disclosures contained in the balance-sheet, to see what adjustments were required to be made to the book value of the assets shown in the balance-sheet in the light of the depreciation mentioned in the note. It appears, however, that the Wealth-tax Officer took the book value of the assets without allowing any depreciation. It is not clear from the assessment order passed by him as to why he did not allow the amount of depreciation claimed by the assessee. It, however, appears from the manner in which the matter was contested before the Appellate Assistant Commissioner and the Tribunal that the reason for disallowance was because in the balance-sheet the fixed assets stood at the book value and the depreciation had not been accounted for by setting up a depreciation fund and taking the amount to that fund. When the matter went before the Appellate Assistant Commissioner, he took the view that the book value of the assets shown in the company's books would not be the correct value of the said assets on the date of the valuation and that the amount of depreciation, which had been allowed by the income-tax authorities minus such initial depreciation as might have been included in the said amount was the proper deduction or adjustment to be made from the book value of the assets in order to arrive at the net value of the assets as on the date of valuation.
11. Mr. Joshi's argument is that there was no scope for allowing the amount of Rs. 8,70,000 from the book value of the assets even when the valuation was to be made adopting the method of global valuation contained in section 7(2)(a). That section requires the balance-sheet to be taken as the basis for arriving at the net value of the assets. The note at the foot of the balance-sheet is not a part of the balance-sheet referred to in the provision of sub-section (2) (a) of section 7. What is meant by the balance-sheet within the meaning of the said provision is the balancing figures of assets and liabilities contained in the balance-sheet. According to Mr. Joshi, therefore, there was no scope whatsoever to allow the amount of Rs. 8,70,000 by way of adjustment in the present case.
12. Now, we are not impressed by this argument of Mr. Joshi. Merely because provision for the depreciation does not occur in the balancing figures of assets and liabilities in the balance-sheet, it does not mean that the estimated arrears of depreciation mentioned in the note at the foot of the balance-sheet do not form a part of the balance-sheet. As has been pointed out by the Appellate Assistant Commissioner, the circumstance that the figure of Rs. 8,70,000 does not appear in the balancing figures of the assets and liabilities in the balance-sheet because the company had neither profits nor a fund against which the amount of depreciation could be balanced in the balance-sheet. The argument, therefore, that because the figure of Rs. 8,70,000 does not find a place in the balance-sheet, the Wealth-tax authorities were not entitled to take into account the said amount of depreciation in making the global valuation under section 7(2) (a) of the Wealth-tax Act, cannot be accepted.
13. It is no doubt true that it cannot be an invariable rule that simply because depreciation has been allowed under the Indian Income-tax Act, the same has got to be allowed in determining the net value of the assets on the date of valuation. It must depend upon the facts and circumstances of each case as to whether it should properly bed allowed or not in arriving at the net value of the assets. Normally, of course, if an asset is used in business for a length of time, it is bound to suffer from wear and tear and consequently depreciates in value. It may, however, be that by reason of the increasing price of the assets, the increase in price the subsequent years of the said asset may more than off-set the depreciation caused by the wear and tear of the asset and it may as will be that the market value of the asset in spite of its wear and tear at a given date may be more than the price for which it was bought initially. There must, however, be circumstances to show that. No such material appears to have been either brought before the authorities or considered by them. It cannot, therefore, be said that the Appellate Assistant Commissioner and the Tribunal were wrong when they took the view that in view of the depreciation allowed by the income-tax authorities the assessee was entitled to have a certain deduction made from the book value of the assets for the purpose of arriving at the net value of the assets on the date of the valuation in the present case. It may be pointed out that the Appellate Assistant Commissioner in considering what deduction of amount of the depreciation should be properly allowed to the assessee has observed that barring the initial depreciation, which has no connection with the wear and tear of the machinery, the rest of the depreciation, whatever it may be, which is referable to the wear and tear of the assets, should properly be allowed in the present case.
14. It cannot be said that the said view taken by the Appellate Assistant Commissioner and the Tribunal is in any way erroneous or contrary to law. It cannot be contended, not is it contended as a matter of law that in each and every case, irrespective of the facts and circumstances thereof, all depreciation, which has been allowed by the income-tax department, has got to be allowed in the computation of the total wealth. It must depend upon the facts and circumstances of each case. The question that is framed in the present case and which we are required to answer is whether on the facts and circumstances of the case the assessee was entitled to claim deduction of the depreciation allowance allowed to it by the income-tax department for the purpose of computing the net wealth of the assessee. For the reasons, which we have already stated, the assessee was entitled to the said depreciation allowance.
15. The result, therefore, is that the question referred to us by the Tribunal must be answered in the affirmative. We answer it accordingly. The department will pay the costs of the assessee.
16. Question answered in the affirmative.