1. In this reference made under section 27(1) of the Wealth-tax Act, 1957, to this court by the Appellate Tribunal, the following question of law has been referred for determination :
'Whether, on the facts and in the circumstances of the case, for computing the net wealth of the assessee under section 7(2)(a) of the Wealth-tax Act, the values of the block assets of the assessee-company should be taken at the figures as they appear in the relevant balance-sheet or at their depreciated or written down values as determined by the income-tax authorities for income-tax purposes ?'
2. The assessee which is a textile mill, is a limited company and the question relates to the assessment year 1957-58, the relevant valuation date being December 31, 1956. It appears that in its balance-sheet as on December 31, 1956. the assessee-company had shown the value of its assets namely, building, plant and machinery at Rs. 12,46,154 and Rs. 42,76,156, respectively. While returning its net wealth the assessee-company had returned the values of the building and plant and machinery, not at the figures in the relevant balance-sheet, but at figures which were less that their balance-sheet figures by Rs. 1,26,829, Rs. 2,22,000 and Rs. 4,84,991, the first and the last figures being the initial depreciation on building and plant and machinery, respectively, and the second figure being the normal depreciation on plant and machinery.
3. It was contended on behalf of the assessee-company before the Wealth-tax Officer that it was allowed initial depreciation on these assets for income-tax purposes but that the initial depreciation that was allowed to it had not been adjusted in its block accounts and still it was entitled to make those adjustments and return their true and market value for Wealth-tax purposes., The Wealth-tax Officer rejected the said contention. After adopting the global method of valuation indicated in section 7(2)(a) of the Act he adopted the figures as mentioned in the balance-sheet as on the relevant valuation date to be the market value for the purposes of wealth-tax and he was of the view that when the global method was adopted, no adjustments, as were claimed, could be made.
4. The assessee carried the matter in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner did not accept the view of the Wealth-tax Officer that in global method of valuation of assets no adjustments could be made in the figures shown in the balance-sheet. According to him for wealth-tax purposes the market value of assets had to be taken into account and not their book values which might be less or more according to the method of showing the value of the assets in balance-sheet. He pointed out that, in general, the value of the assets are shown in the balance-sheet in two different methods. One method was to show the depreciated value of the assets in the balance-sheet and the other was to show the book values subject to a depreciation fund which was shown as a liability on the liabilities side of the balance-sheet. However, according to the Appellate Assistant Commissioner even when the second method was followed, the depreciation fund may not be sufficiently provided for, in which even the assets would appear in the balance-sheet at inflated figures. According to him, that exactly had happened in the case mention of showing the values of the assets in the balance-sheet, had shown inflated values of its assets. He further took the view that whatever method was adopted by the assessee, the principle of valuation of assets remained the same and it did not vary according to the method followed by the assessee. He accordingly directed that the depreciated or written down values of the assets which were adopted by the Income-tax Officer for income-tax purposes, without taking into consideration the initial depreciation, should be taken to be their market values.
5. Feeling aggrieved by this order of the Appellate Assistant Commissioner the Wealth-tax Officer preferred an appeal to the Tribunal and a Full Bench of the Tribunal who heard the matter agreed with the view taken by the Appellate Assistant Commissioner that ordinary depreciation should be allowed to be deducted from the cost price of the assets for the purpose of ascertaining the net wealth of an assessee as on the valuation date. The Tribunal observed that as regards the initial depreciation, as that allowance did not affect the value of the assets, could not be taken into account. In the result, the Tribunal affirmed the order passed by the Appellate Assistant Commissioner. At the instance of the revenue the question set out at the commencement of the judgment has been referred to us for our opinion.
6. Mr. Joshi, appearing for the revenue, has contended before us that beyond baldly claiming that the depreciated values of the assets which had been accepted by the Income-tax Officer for Income-tax purposes, should be taken to be the value of the assets for wealth-tax purposes, no explanation whatsoever was offered by the assessee as to why in its balance-sheet as on December 31, 1956, the assessee-company had shown these assets at their book value and not the depreciated value and in the absence of any material being placed before the taxing authorities or the Tribunal, the Tribunal ought to have accepted the contention of the revenue that while adopting the global method of valuation under section 7(2)(a), the valuation as shown in the balance-sheet as on the valuation date should be accepted to be the value of those assets for the purpose of wealth-tax inasmuch as, ordinarily, the assessee was the best person to know the market value of its assets while preparing the balance-sheet. In support of this contention strong reliance was placed by him on two decisions of the Supreme Court, one in the case of Birla Jute Mfg. Co. Ltd. v. Commissioner of Wealth-tax : 82ITR142(SC) and the other in the cased of Commissioner of Wealth-tax v. Aluminium Corporation of India Ltd. : 85ITR167(SC) . According to him in both these cases the Supreme Court has clearly expressed the view that section 7(2) of the Wealth-tax Act merely requires the Wealth-tax Officer to have regard to the balance-sheet in ascertaining the value of the assets for the purpose of the Act; that the valuation of the assets in the balance-sheet is not conclusive and it is open to the assessee to satisfy the authorities under the Wealth-tax Act that the valuation shown in the balance-sheet is not correct; but in the absence of such proof, the Wealth-tax Officer will be justified in proceeding on the basis that the value shown in the balance-sheet is correct because no one can know the value of the assets of a business more than those who are in charge of the business. The court held that the value of the assets shown in the balance-sheet can justifiably be made the primary basis of valuation for the purpose of the Wealth-tax Act which in other words means that it can be taken as prima facie evidence of the value of the assets. Relying on these two decisions he contended that in the instant case beyond making a bald claim that the depreciated written down value of the assets which had been accepted by the Income-tax Officer for income-tax, no material had been placed before the wealth-tax authorities by the assessee-company to satisfy them that the valuation of the assets as shown in the balance-sheet as on December 31, 1956, was not quite correct or was on the high side, and in the absence of any such material being placed before the wealth-tax authorities, the Tribunal ought to have affirmed the Wealth-tax Officer's order and not the one that was passed by the Appellate Assistant Commissioner.
7. We may point out that the two Supreme Court decisions on which reliance was placed by Mr. Joshi before us are clearly distinguishable from the facts of the instant case inasmuch as in both those decisions it was a case where the assessee was required to revalue its assets for certain purposes and such revalued assets were shown in the balance-sheet of the company, which is not the case before us. We may also point out that the said two decisions were distinguished by this court on the aforesaid ground in the case of Commissioner of Wealth-tax v. Raghuvanshi Mills Ltd. : 104ITR544(Bom) . In Raghuvanshi Mills' case : 104ITR544(Bom) in the assessment for wealth-tax for the assessment years 1957-58 and 1958-59, the Wealth-tax Officer adopted the balance-sheet values of the assets of the assessee-company, rejecting the assessee's contention that the values should have been taken according to the depreciation provided in accordance with the Indian Income-tax Act. The balance-sheet figures of the fixed assets were higher than the written down value of the assets in accordance with the provisions of the Indian Income-tax Act because the assessee had provided for depreciation at the rates lower than those allowed under rule 8 of the Income-tax Rules. In second appeal, the Appellate Tribunal accepted the contention of the assessee and on a reference at the instance of the Commissioner this court took the view that in the case of a textile mill having old machinery, if the global method of valuation was adopted, then the depreciation as permitted under the Indian Income-tax Act had to be adjusted in order to determine the market value at the relevant valuation date and this was that the Tribunal had done in the case and the method adopted by the Tribunal was a correct one. At page 549 of the report, this court has categorically observed thus : 'The ratio of the decision of the Supreme Court Commissioner of Wealth-tax v. Aluminium Corporation of India Ltd. : 85ITR167(SC) cannot be attracted because this was not a case where the company had chosen to revalue its assets : As regards the contention of Mr. Joshi that no explanation was offered by the assessee-company nor any material was placed by the assessee-company before the wealth-tax authorities to satisfy them as to why book values of the fixed assets at higher figure had been shown in the balance-sheet as on the relevant valuation dated December 31, 1956, Mr. Dastur appearing on behalf of the assessee has pointed out that the balance-sheet for the relevant year together with the directors' report was produced before the wealth-tax authorities and he made a copy of that report available to us in which the directors have reported to their shareholders to the following effect :
'The sum transferred from depreciation, renewal and extension fund of Rs. 4,45,718 represents initial depreciation previously set aside on plant and machinery now totally written off for income-tax purposes and included in depreciation. The total amount of depreciation to be provided for the year is Rs. 16,67,782-2-11, but your directors have decided to provide Rs. 14,45,782-2-11 only, in view of the profit being insufficient to cover full depreciation and other provisions.'
8. It would thus appear clear that while showing the values of the fixed assets as on the relevant date, December 31, 1956, though the total amount of depreciation to be provided for in the year in question amounted to Rs. 16,67,782-2-11, only a sum of Rs. 14,45,782-2-11 was decided to be provided for in view of the profit being insufficient to cover the full depreciation. The difference between these two figures is the exact amount of Rs. 2,22,000 which represented the higher value of the plant and machinery in respect whereof a slightly higher book value was shown in the balance-sheet. It is thus clear that there was sufficient reason why depreciation to the extent of Rs. 2,22,000 which was claimed as and by way of adjustment while arriving at the valuation for the purposes of wealth-tax was not provided for in the balance-sheet as on December 31, 1956. In this view of the matter it is difficult to accept the contention urged by Mr. Joshi that no explanation or no material was placed before the wealth-tax authorities to satisfy them that the valuation as shown in the balance-sheet was not correct or was on the high side. In our view, the instant case would fall within the ratio of the decision of this court in Commissioner of Wealth-tax v. Raghuvanshi Mills Ltd. : 104ITR544(Bom) and the question will have to be answered accordingly.
9. In the result, the questions answered thus : 'On the facts and in the circumstances of the case, for computing the net wealth of the assessee under section 7(2)(a) of the Wealth-tax Act, the values of the block assets of the assessee-company should be taken at their depreciated or written down values as determined by the income-tax authorities for income-tax purposes.'
10. The revenue will pay the costs of this reference to the assessee.