1. This consolidated referenceunder Section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as the Act) by the Appellate Tribunal at the instance of the assessee, Central India Machinery ., Gwalior, arises out of the Tribunal's orders disposing of the assessee's appeals arising out of wealth-tax assessment proceedings for the years 1957-58 and 1958-59. The question which the Tribunal has placed before us for decision and which is common to the two references is as follows:
'Whether on the facts and in the circumstances of the case, the initial and additional depreciation granted under Sections 10(2)(vi)(a)(b)(c) and 10(2)(vi-a) should be allowed for computing the net wealth of the assessee?'
2. The material facts are that the assessee carries on the business of manufacturing automatic looms for textile industry and other machinery components used in weaving and finishing processes in textile industry. In the balance-sheets of the Company, valuation of assets as on the valuation date was shown at Rs. 98,94,881/- for the assessment year 1957-58 and Rs. 1,14,36,560/- for the assessment year 1958-59. In the balance sheets the assessee had made no deduction on account of depreciation. The Wealth-tax Officer, therefore, rejected the claim of the assessee that the valuation of its assets for the purposes of its assessment to wealth-tax should be made after allowing depreciation according to the provisions of the Income-tax Act, 1922.
3. In the appeals which the assessee then preferred the Appellate Assistant Commissioner look the view that even though no depreciation had been shown in the balance-sheets, the Wealth-tax Officer had discretion under Section 7(2)(a) of the Act to make a readjustment of the valuation of the fixed assets of the assessee for purposes of its assessment to wealth-tax by allowing depreciation according to the provisions of the Income-tax Act in respect of machinery, buildings etc. He, however, held that in determining the net value of the assets the initial and additional depreciation referred to in Sections 10 (2)(vi) (a), (b) and (c) and 10 (2) (vi-a) of the Income-tax, Act, 1922, could not be allowed and must be excluded. According to him, the depreciation allowable under the aforesaid provisions of the Income-tax Act, 1922, was for the purpose of computing business profits only with a view to give incentive to growth of industries and was not on account of 'wear and tear' of the fixed assets. The Appellate Tribunal agreed with this view taken by the Appellate Assistant Commissioner.
4. Having heard learned counsel for the parties, we have reached the conclusion that the Tribunal was right in holding that the initial and additional depreciation permissible under Sections 10 (2) (vi) (a), (b) and (c) and 10 (2) (vi-a) of the Income-tax Act, 1922, could not be taken into account in determining the net value of the assets of the assessee under Section 7(2)(a) of the Act. Under Section 7(2)(a), as it stood at the material time, it is the net value of the assets of the business as a whole that has to he determined having regard to the balance sheet of the business as on the valuation date after making such adjustments therein as the circumstances of the case may require.
In ascertaining the true value of the assets, depreciation which is allowable for income-tax purposes is allowed for the reason that fixed assets such as plant and machinery run out their utility by lapse of time and wear and tear. As observed by a Division Bench of this Court in Commissioner of Wealth-tax v. Swadeshi Cotton and Flour Mills Ltd. : 69ITR539(MP) :
'Normally, fixed assets such as plant and machinery run their utility by lapse of time and wear and tear. There is a permanent and continuing diminution in the quality or value of such assets. A machine may be kept in high state of efficiency, i.e., by constant overhauling and prompt replacement of parts, such being always necessary; but the expenditure on upkeep and preservation can never be a substitute for making provision for the time when the machine is merely a bundle of scrap-iron. These assets suffer depreciation, although the process may be invisible or gradual. The maintenance of such assets in a state of efficiency is neither a substitute for the depreciation in value nor is it sufficient for ensuring their replacement. There is no manner of doubt that the valuation given in the balance-sheet was not a true index of the real value of the assets. The Tribunal had, therefore, the right as well as the duty to make such adjustments, as the circumstances required.'
The nature of depreciation allowed Under Sections 10 (2) (vi) (a), (b) and (c) and 10 (2) (vi-a) is, however, different. It is not on account of any wear and tear of the fixed assets. It is initial and additional depreciation intended to give incentive to industries. It is quite independent and over and above the normal depreciation allowed on account of wear and tear of the fixed assets. It is, therefore, plain that in its very nature the depreciation spoken of in Sections 10 (2) (vi) (a), (b) and (c) and 10 (2) (vi-a) cannot be allowed in computing the net value of the assets under Section 7(2)(a) of the Act.
5. To us it seems that so far as this Court is concerned, the matter is really concluded by the decision of this Court in : 69ITR539(MP) . In that case the question which was referred to this Court for decision was:
'Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the value of the assets should be taken to be the written down value according to income-tax assessment, but so as to exclude therefrom initial and extra-normal depreciation and development rebate?'
In that case it was held that the Tribunal was not wrong in directing that the depreciable assets should be valued in the net wealth after allowing for their normal depreciation as computed for income-tax purposes. The answer which this Court gave to the question propounded in the case of Swadeshi Cotton and Flour Mills Ltd. : 69ITR539(MP) was that the assessee was entitled to claim deduction of the depreciation allowance normally allowable for income-tax purposes for the purpose of computing the net wealth of the assessee. The depreciation allowance normally allowed for income-tax purposes necessarily excludes initial and extra normal depreciation and development rebate. It must, therefore, be held in the present case that in determining the net value of the assets of the assessee the initial and extra-normal depreciation must be excluded.
6. For these reasons, our answer to the question referred to us is in the negative. The assessee shall pay costs of this reference. Counsel's fee is fixed at Rupees150/-.