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Commissioner of Wealth-tax Vs. Vysyaraju Badreenarayanamoorthy Raju - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberS.J.C. No. 19 of 1967
Judge
Reported in[1971]79ITR330(Orissa)
ActsWealth Tax Act, 1957 - Sections 2 and 7(2)
AppellantCommissioner of Wealth-tax
RespondentVysyaraju Badreenarayanamoorthy Raju
Appellant AdvocateStanding Counsel
Respondent AdvocateK. Srinivasan and ;S.C. Roy, Advs.
Cases ReferredRaja Mohan Raja Bahadur v. Commissioner of Income
Excerpt:
.....smt gita banik, 1996 (2) glt 246, are not good law]. - the assessee's appeal before the appellate assistant commissioner of wealth-tax on this score failed. it is quite possible that the interest in question which has accrued to the assessee may turn out to be a bad debt in whole or part and thus, though accrued due, may not at all be received by the assessee......account. it is quite possible that the interest in question which has accrued to the assessee may turn out to be a bad debt in whole or part and thus, though accrued due, may not at all be received by the assessee. it can never be said to have been the intention of parliament to include the same in the computation of net wealth in respect of an assessee who maintains its accounts on cash basis. in the case of the mercantile system of accounting the position would be quite different. while income accrued and yet not received would be taken into account deductions as a reciprocity on a similar basis would also be admissible.7. in our opinion, the appellate tribunal has adopted the correct view of section 7(2)(a) of the wealth-tax act and has rightly excluded the sum of rs. 1,50,000 from.....
Judgment:

R.N. Misra, J.

1. At the instance of the Commissioner of Wealth-tax the Appellate Tribunal has made this reference under Section 27 of the Wealth-tax Act (27 of 1957), referring the following question to us for the opinion of the court:

'Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,50,000 due to the assessee as accrued interest as at the valuation date was includible in the net wealth of the assessee '

2. The assessee is a Hindu undivided family. The year of assessment is 1962-63, and the relevant date of valuation is March 31, 1962. Admittedly, the assessee is also assessed to income-tax and maintains the cash system of accounting. The assessee did not include a sum of Rs. 1,50,000 which had accrued due by way of interest on money-lending business by the date of valuation, but had not been received by the assessee until then, in its wealth-tax return. The stand taken by the assessee was that the amount having not been received it could not be taken into account for determining the net wealth as defined under Section 2(m) of the Act. The Wealth-tax Officer, however, added the amount and computed the net wealth. The assessee's appeal before the Appellate Assistant Commissioner of Wealth-tax on this score failed. It carried a further appeal to the Tribunal which was allowed. The Tribunal directed deletion of this addition by saying :

' The department does not dispute the fact that the assessee had filed a 'balance-sheet' which he had kept in the regular course of business. Whether such a document prepared on the basis of the cash system of accounting would at all amount to a 'balance-sheet' as contemplated in Section 7(2)(a) is not the point in issue. On the footing that the assessee had filed a balance-sheet and that Section 7(2)(a) was applied, the question for consideration would be whether the Wealth-tax Officer could purport to make 'adjustments' so as to change the system of accounting from cash to mercantile. We accept the learned counsel's submission that the power to change the system of accounting is not available to the Wealth-tax Officer under the power to make 'such adjustments therein as the circumstances of the case may require' referred to in Section 7(2)(a). We direct that thesum of Rs. 1,50.000 be excluded from the assessee's net wealth. '

3. Section 7(2)(a) of the Act provides :

' 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 dateand making such adjustments therein as the circumstances of the case may require. ' (Underlining ours.)

4. There is no dispute in this case that the assessee has maintained accounts regularly and, as the Appellate Tribunal has indicated, there is a balance-sheet of such business as on the valuation date. The assessee did not include the interest on money-lending business accrued to it on the date of valuation as the same had not been received and a balance-sheet prepared on the cash basis of accounts would not have scope for including profits accrued but not received.

5. Admittedly, the Wealth-tax Act is a sister legislation of the Income-tax Act, and various provisions have been made in it which incorporates the machinery set up under the Income-tax Act for its working. The learned standing counsel for the revenue admits that, under the Income-tax Act, in the case of an assessee maintaining its accounts on cash basis, there is no scope for taking accrued income before receipt. We are referred to the decision in Raja Mohan Raja Bahadur v. Commissioner of Income-tax, [1967] 66 I.T.R. 378, 382 ; [1967] 3 S.C.R. 482 (S.C.) where their Lordships of the Supreme Court, referring to Section 13 of the Income-tax Act of 1922, stated :

' Section 13, however, requires that income, profits and gains for the purposes of Sections 10 and 12 shall be computed in accordance with the method of accounting regularly employed by the assessee. If accounts are maintained according to the mercantile system, whenever the right to receive money in the course of a trading transaction accrues or arises, even though income is not realised, income embedded in the receipt is deemed to arise or accrue. Where the accounts are maintained on cash basis, receipt of money or money's worth and not the accrual of the right to receive is the determining factor. '

6. In the absence of any specific provision in the Wealth-tax Act for a different mode of computation of net wealth, we find it difficult to accept the contention of the learned standing counsel for the revenue that under the Wealth-tax Act in the case of an assessee who maintains its accounts and prepares the balance-sheet on cash basis, accrued income not received would still be taken into account. It is quite possible that the interest in question which has accrued to the assessee may turn out to be a bad debt in whole or part and thus, though accrued due, may not at all be received by the assessee. It can never be said to have been the intention of Parliament to include the same in the computation of net wealth in respect of an assessee who maintains its accounts on cash basis. In the case of the mercantile system of accounting the position would be quite different. While income accrued and yet not received would be taken into account deductions as a reciprocity on a similar basis would also be admissible.

7. In our opinion, the Appellate Tribunal has adopted the correct view of Section 7(2)(a) of the Wealth-tax Act and has rightly excluded the sum of Rs. 1,50,000 from computation of net wealth of the assessee for the relevant assessment year.

8. We would, therefore, answer the question referred to this court in the negative, that is, the sum of Rs. 1,50,000 due to the assessee as accrued interest as at the valuation date was not includible in the net wealth of the assessee.

9. We do not propose to make any order as to costs.

G.K. Misra, C.J.

10. I agree.


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