1. On an application made by the Commissioner of Wealth-tax, the Income-tax Appellate Tribunal, Bombay, has referred under Section 27(1) of the Wealth-tax Act, 1957, the following question of law for the opinion of this Court:
'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?'
The period for which the assessment has been made is the assessment year 1957-58 for which the valuation date is 31st December 1956
2. The material facts appearing from the statement of the case are these. The assessee is a Company which owned certain depreciable assets, namely buildings, plants and machinery etc. For the assessment year in question, the assessee-Company valued these fixed assets at Rs. 31,29,197/-in its return under the Wealth-tax Act. This figure was arrived at in this manner. As per books, the original cost of acquisition of these assets was Rs. 80,55,154/- and the assessee had written off depreciation in its account-books to the extent of Rs 23.34,943. Thus, the assets stood valued at Rs. 57,30, 211/- in the balance-sheet for the year ending 31st December 1956 While drawing up the balance-sheet, the auditors, in their report, dated 4th June 1957 stated to the Members:
'In our opinion, and to the best of our information and according to the explanation given to us, the said accounts read with the notes appearing thereto give the information required by law in the manner so required and subject to adequacy of depreciation on fixed assets, give a true and fair view in the case of Balance Sheet of the state of the Company's affairs, as at the end of its financial year, and in the case of the Profit and Loss Account, of the profit for its financial year.'
The assessee therefore, sought a further deduction of Rs 25,91,014/- from the computation of its net wealth as shown in the balance-sheet on the ground that it was on-titled to further adjustment as provided for in Section 7(2)(a) of the Act.
3. The contention of the assessee was that, in the balance-sheet, no depreciation had been taken into account for many years because of 'inadequacy of profits' and its 'weak financial condition' while showing the value of the assets like land, buildings, plants, machinery etc. and that the auditors in their report to the members stated that the balance-sheet of the Company's affairs at the end of its financial year gave a true and fair value subject to adequacy of depreciation on fixed assets and, therefore, the balance-sheet was a qualified one and must be read as such. In the circumstances, the assessee contended that the net value of the assets of the business should be determined having regard to the balance-sheet as on the valuation date and making such adjustment therein as the circumstances of the case required. According to it the value of the assets should be taken to be the written-down value according to the provisions of the Income-tax Act.
4. The Wealth-tax Officer repelled the assessee's contention and proceeded to assess the net wealth of the Company according to the global method of valuation as per balance-sheet under Section 7(2)(a) of the Act. The assessee appealed before the Appellate Assistant Commissioner and contended that the Wealth-tax Officer should have taken the value of the depreciable assets on the valuation date at the rate computed for income-tax purposes and not at the balance-sheet value, because the balance-sheet did not reflect the true and correct value of the assets as on the valuation date. The Appellate Assistant Commissioner rejected the claim of the assessee on the ground that there was no provision in the Wealth-tax Act for valuing the assets in accordance with the written-down value under the Income-tax Act
5. On further appeal, the Tribunal held that, if the assessee could satisfy that the real value of the assets was not as shown by the balance-sheet but some other value, then it appeared that it was such other value that should be adopted for the purpose of valuation under the Act and it then proceed-ed to consider whether there were enough circumstances to justify any adjustment in the balance-sheet. Having regard to the nature of the auditor's report, it was manifest that the balance-sheet did not represent the true value of the assets of the Company since the assessee had not written off depreciation for many years because of inadequacy of profits and its weak financial condition. The Tribunal held that there were enough circumstances brought in by the assessee for adjustment of the balance-sheet as provided in Section 7(2)(a) of the Act and that the value of the assets should be taken to be the written-down value according to Income-tax purposes, but so as to exclude therefrom initial and extra-normal depreciation and development rebate.
6. Shri M. Adhikari, the learned Counsel appearing on behalf of the Commissioner, contends that the Tribunal has misdirected itself by allowing adjustment in respect of depreciation as computed for income-tax purposes in the determination of the net wealth of the Company. He urges that when the net value of the business of a Company is determined by the Wealth-tax Officer under Section 7(2)(a) of the Act, having regard to the balance-sheet, the valuation given in the balance-sheet is conclusive of the matter.
7. In reply, Shri K. A. Chitaley, the learned Advocate General, submits on behalf of the assessee that in the circumstances appearing, it was for the Tribunal to have adopted a particular method in allowing adjustments and it cannot be urged that, merely because it had directed adjustment in respect of depreciation as computed for income-tax purpose, a question of law arises or that the Tribunal was in error in adopting the method of valuation. He points out that the balance-sheet in question was a qualified one, by addition of the words 'subject to adequacy of depreciation on fixed assets', which showed that the auditors had not taken into account depreciation in valuing the assets inasmuch as the assessee-company was in very bad shape and had chosen in the past not to show the real value of the fixed assets due to its weak financial condition and inadequacy of profits. The value of the assets as given in the balance-sheet was, therefore, not rightly taken by the Tribunal to be the true value of such assets. He concludes by stating that the power to make adjustments in the balance-sheet, while making a computation of the net wealth according to the global method of valuation, proceeds on the plain language of Section 7(2)(a). The Tribunal had, therefore, the power to make such adjustments, as the circumstances may require.
8. Having heard the counsel, we are clearly of the opinion that the reference should be answered in favour of the assessee. In view of the recent pronouncement of their Lordships of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax. : 59ITR767(SC) , it can no longer be contended that when a global valuation is made under Section 7(2)(a) of the Act, the valuation as given in the balance-sheet is conclusive of the matter. On the contrary, the Wealth-tax Officer is bound to consider on the material placed before him whether the figure shown in the balance-sheet was inflated for acceptable reasons in ascertaining the true value of the assets. Their Lordships, in that case, have stated:
'It was open to the assessee to convince the authorities that the said figure was inflated for acceptable reasons; but it did not make any such attempt. It wasalso open to the Wealth-tax Officer to reject the figure given by the assessee and to substitute in its place another figure, if he was, for sufficient reasons, satisfied that the figure given by the assessee was wrong', (at p. 772 of ITR) : (at p. 1372 of AIR).
It follows, as a necessary corollary, that Section 7(2)(a) gives the Wealth-tax Authorities the power to adopt the balance-sheet value of the assets as the net value of the business as a whole, but this valuation is not sacrosanct. They are at liberty to make adjustments therein if in their opinion, the balance-sheet value does not represent the real or the correct value of the assets. That is a conclusion which logically flows from the very language of the section itself.
9. 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 Now no uncommon features are to be found in the case. There has never been any suggestion by the Commissioner that the plant and machinery are of a rare type or are of a quality which is not generally available in India for which there is a keen demand. That is the real criterion to be adopted in such cases. Thus, the Tribunal was not wrons 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 Tribunal had before it the valuation report of an expert valuer, showing that at the valuation date the valuation in the return was not in any way unreasonable. In our view, having regard to the provisions of the Wealth-tax Act, with special reference to the powers of the Appellate Tribunal under Section 24(6) the Tribunal was entitled to act on it.
The same view has been expressed by different Courts in India: See Commr. of Wealth-tax v. Indian Standard Metal Co. Ltd. : 49ITR832(Bom) ; Commr. of Wealth-tax v. Mysore Commercial Union Ltd. (1965) 55 ITR 588; Commr. of Wealth-tax v. Tungabhadra Industries, : 60ITR447(Cal) and Commr. of Wealth-tax v.
Ballay Jute Co. Ltd., : 67ITR188(Cal) . We are aware that a discordant note has been struck in some cases. See Commr. of Wealth-tax v. Raipur . : 52ITR482(Guj) ' Commr. of Wealth-tax v. New Raipur Mills Ltd.(1965) 56 ITR 544 : AIR 1967 Guj 12; and Commissioner of Wealth-tax v. Andhra Sugars Ltd., : 62ITR841(AP) but the decisions rendered therein proceed on the particular facts and circumstances appearing in each case.
10. The question whether one particular mode of valuation should be adopted in computation of the net wealth or another was a matter entirely in the discretion of the Tribunal. In view of the settled principles, it cannot be said that the view taken by the Tribunal is in any way erroneous or contrary to law. The task of estimating the value may often times be difficult. In the words of Viscount Simon, L. C. in Gold Coast Trust Ltd v. Humphrey. (1948) 2 All ER 379:
'Valuation is an art, not an exact science. Mathematical certainty is not demanded, nor indeed, is it possible. It is for the commissioners to express in the money value attributed by them to the asset their estimate, and this is a conclusion of fact to be drawn from the evidence before them'
It stands to reason that the estimate of the Tribunal as regards the method of valuation to be resorted to is a matter of its opinion
11. It cannot be contended, nor is it contended as a matter of law, that in each and every case, irrespective of the facts and circumstances thereof, all depreciation which is allowable for income-tax purposes, must be allowed in the computation of the total wealth It must depend upon the facts and circumstances of each case. Nothing that we have stated should be taken as laying down that the written-down value should, in all cases be taken to be the real or correct value of fixed assets The question that is framed is whether on the facts and circumstances of the case, 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 In the circumstances of this particular case, we are of the opinion that the Tribunal was right in allowing such depreciation.
12. In our opinion, the Tribunal wasright in its conclusion and the questionreferred to us must be answered in theaffirmative and in favour of the assessee.Hearing fee Rs. 100/-, if certified