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Commissioner of Wealth-tax Vs. Man Industrial Corporation Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference No. 47 of 1969
Judge
Reported in[1980]123ITR298(Raj)
ActsWealt Tax Act, 1957 - Sections 7(2)
AppellantCommissioner of Wealth-tax
RespondentMan Industrial Corporation Ltd.
Appellant Advocate S.M. Mehta, Adv.
Respondent Advocate J.K. Singhi, Adv.
Excerpt:
- - it may, however be that by reason of the increasing price of the asset, the increase in price in the subsequent years of the said asset may more than offset the depreciation caused by the wear and tear of the asset and it may as well 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. the onus of proof is on the assessee who must produce reliable material to show that the written down value of the assets and not the balance-sheet value is the true value. , but this does not mean that in the circumstances of a particular case, if the tribunal is satisfied, it should not allow depreciation according to the provisions of the indian income-tax act. [1970]78itr483(sc) the supreme court again.....dwarka prasad, j. 1. this is a consolidated reference made under section 27(1) of the w.t. act and arises in the following circumstances:m/s. man industrial corporation ltd., jaipur (hereinafter called ' the assessee '), carries on business of manufacture of steel and iron frames and structures. the plant and machinery was installed some years ago and as on march 31, 1958, the book value of the fixed assets of the assessee was shown as rs. 41,47,318.32 in the balance-sheet of the assessee-company for the year 1957-58. in the aforesaid balance-sheet depreciation for the year ending march 31, 1958, to the extent of rs. 1,49,058 was written off as also depreciation for the year 1956-57 was written off to the extent of rs. 1,50,081. the profit and loss account also took into account.....
Judgment:

Dwarka Prasad, J.

1. This is a consolidated reference made under Section 27(1) of the W.T. Act and arises in the following circumstances:

M/s. Man Industrial Corporation Ltd., Jaipur (hereinafter called ' the assessee '), carries on business of manufacture of steel and iron frames and structures. The plant and machinery was installed some years ago and as on March 31, 1958, the book value of the fixed assets of the assessee was shown as Rs. 41,47,318.32 in the balance-sheet of the assessee-company for the year 1957-58. In the aforesaid balance-sheet depreciation for the year ending March 31, 1958, to the extent of Rs. 1,49,058 was written off as also depreciation for the year 1956-57 was written off to the extent of Rs. 1,50,081. The profit and loss account also took into account depreciation to the extent of Rs. 2,10,000, in respect of arrears of past depreciation on the ground that depreciation was not claimed by the assessee-company in the earlier years, prior to March 31, 1956, as there were no profits against which such depreciation could be set off. Thus, the depreciation was allowed to accumulate from the time of commencement of the business of the assessee up to March 31, 1956, and such arrears of depreciation amounted to Rs. 22,06,919, out of which the above mentioned sum of Rs. 2,10,000 was adjusted against profits in the balance-sheet for the year 1957-58. In this manner, total depreciation to the extent of Rs. 5,09,139 was shown in the balance-sheet for the year 1957-58 and the net depreciated book value of the fixed assets of the assessee-company, as on 31st March, 1958, after deducting the aforesaid depreciation was shown therein as Rs. 38,38,134-32.

2. Similarly, in the balance-sheet for the year 1958-59, a sum of Rs. 1,57,362 was written off as depreciation for the year ending 31st March, 1959, while a sum of Rs. 3,26,969 was provided in the balance-sheet pertaining to the year 1958-59, as contribution towards arrears of depreciation, which was set off against the profits of that year. Thus, besides the amount of Rs. 5,09,139 which was set off as depreciation in the earlier year1957-58, a sum of Rs. 4,84,331 written off as depreciation during the year1958-59, and in this manner up to March 31, 1959, a total sum of Rs. 9,87,114 was set off as depreciation in respect of the fixed assets of the assessee-company against profits, as shown in the balance-sheet of the years 1957-58 and 1958-59. The depreciated value of the fixed assets of theassessee-company as on 31st March, 1959, was, therefore, mentioned as Rs. 33,46,552-68 in the balance-sheet of the year 1958-59.

3. In the balance-sheet for the year 1957-58, the following note was given:

' As stated in the notes with the last year's accounts no depreciation was provided for on fixed assets of the company from the commencement till 31-3-56 and the total of such arrears of depreciation was Rs. 22,06,969. During the year, a contribution of Rs. 2,10,000 towards such arrears of depreciation is made leaving a balance of Rs. 19,96,969 representing arrears of past depreciation.'

4. Similarly, in the balance-sheet for the year 1958-59, note 2 was given as under :

' As stated in the notes with the last year's accounts, no depreciation was provided for on fixed assets of the company from the commencement till 31-3-56 and the total of such arrears of depreciation was Rs. 22,06,969. During the previous year, a contribution of Rs. 2,10,000 was made towards such arrears. During the current year a further contribution of Rs. 3,26,969 is made. There now remains a balance of Rs. 16,70,000, representing arrears of past depreciation up to 31-3-56.'

5. At the time of assessment of the assessee, for the purpose of wealth-tax, it was contended on its behalf before the WTO that the value of the fixed assets of the assessee-company should not be taken on the basis of the figures given in the balance-sheets for the respective years as depreciated book value of the fixed assets, but it should be computed as the written down value of such fixed assets, according to the income-tax assessments. This contention was rejected by the WTO as in his view the written down value as per the income-tax record was a very artificial and notional figure and had no relation to the market value of the concerned assets and that, while determining the net wealth of the assessee-company according to the global method, the depreciated value given in the balance-sheet should be considered as the base, subject to permissible adjustments. After rejecting the contention of the assessee, the WTO made some adjustments in the figures of Rs. 5,09,139 and Rs. 9,87,114, shown as depreciation in the balance-sheets of the assessee, as on March 31, 1958, and March 31, 1959, respectively, and deductions to the extent of Rs. 6,83,281 and Rs. 10,35,877 were allowed by the WTO, as deductions in respect of the fixed assets of the assessee, during the respective years.

6. The assessee filed appeals against the assessment orders and the same argument was repeated on its behalf before the AAC at the time of hearing of the appeals. But under an erroneous impression that the portion of the arrears of depreciation actually written off in the profit and loss account was not allowed by the WTO, the AAC directed that the amount ofRs. 2/10,000 be allowed as depreciation in the assessment year 1957-58 and the amount of Rs. 3,26,969 be allowed as depreciation in the assessment year 1958-59. However, when the mistake was realised by the AAC he proceeded to issue rectification orders, restoring the orders passed by the WTO. Then the assessee filed second appeals before the Income-tax Appellate Tribunal, Bombay Bench ' B ', which accepted the contention of the assessee and allowed the appeals by a common order dated August 8, 1966. The Tribunal relied upon the decisions of the Bombay High Court in CWT v. Indian Standard Metal Company Ltd. : [1963]49ITR832(Bom) and of the Calcutta High Court in CWT v. Tungabhadra Industries Ltd. : [1966]60ITR447(Cal) and held that in normal circumstances and specially when the machinery was old, the written down value gave a fair indication of the real market value of the assets.

7. The CWT applied to the Appellate Tribunal for making a reference, on which the following question has been referred to this court by the Appellate Tribunal by its order dated February 22, 1969 :

' Whether in computing the net wealth of the assessee for the assessment years 1958-59 and 1959-60, under Section 7(2)(a) of the Wealth-tax Act, 1957, the book value of the fixed assets less depreciation actually allowed should be taken as their market value for wealth-tax purposes or their written down value as per income-tax assessments, when, a note had been made in the relevant schedule of fixed assets annexed to and forming part of the balance-sheets that certain arrear of depreciation could not be adjusted '

8. According to Section 3 of the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act'), wealth-tax has to be charged for every assessment year in respect of the net wealth of the assessee, at the rates specified in the Schedule annexed to the Act. Section 7 of the Act lays down the manner in which the value of the assets has to be determined, the relevant part of which runs as under :

' 7. Value of assets how to be determined.--(1) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.

(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 may be prescribed;......'

9. Under Sub-section (1) of Section 7, the value of any asset, for the purpose of the Act, shall be estimated at the price which the same would fetch if sold in the open market on the valuation date. However, in case the assessee is carrying on a business, in respect of which accounts are maintained by him regularly, then instead of proceeding to determine separately the value of each asset held by the assessee in such business, in accordance with the provisions of Sub-section (1) of Section 7, the WTO may proceed under Clause (a) of Sub-section (2) of Section 7 and determine the net value of the assets of the business of the assessee, as the value specified in the balance-sheet of such business, as on the valuation date, after making such adjustments therein, as the circumstances of the case may require. Thus, although under Sub-section (1) of Section 7, the value of any asset will be deemed to be the value which the same would fetch, if sold in the open market on the valuation date, in the opinion of the WTO ; yet in order to avoid the complexities involved in determining separately the value of each of the assets of an assessee whose business is running, the WTO may assess the value of the net wealth of the assessee in accordance with the provisions of Clause (a) of Sub-section (2) of Section 7 of the Act, by taking the valuation of the assets, as shown in the balance-sheet, as the base and after making such adjustments therein as the circumstances of each case may require. In the present case, the revenue authorities adopted the latter course and proceeded to determine the value of the net wealth of the assessee according to Clause (a) of Sub-section (2) of Section 7. The WTO took the view that the value of the fixed assets of the assessee, as shown in the balance-sheet, after allowing the depreciation including contribution towards accumulated depreciation up to March 31, 1956, which has been adjusted by the assessee against profits in the balance-sheet of the relevant year, should be taken as the base and minor adjustments permissible therein may be allowed. But the Appellate Tribunal considered that in view of the fact that the depreciation was not set off by the assessee since the inception of the company up to March 31, 1956, on the ground that the assessee-company was not making such profits against which the depreciation could be set off in those years and a sum of Rs. 22,06,969 was accumulated as arrears of depreciation up to March 31, 1956, the written down value of the fixed assets of the assessee, as allowed under the I.T. Act, should be taken as the value of the fixed assets of the, assessee, during the relevant assessment years.

10. There was some divergence of judicial opinion on this question, between the various High Courts, but as we shall presently show the law on the subject has now been settled by the subsequent decisions of their Lordships of the Supreme Court.

11. In Indian Standard Metal Company Ltd.'s case : [1963]49ITR832(Bom) a Bench of the Bombay High Court considered a case where the assessmentfor the year 1957-58, in respect of wealth-tax was made, on global valuation basis, under Section 7(2)(a) of the Act. The assessee in that case had added a foot-note in the balance-sheet stating that arrears of depreciation up to December, 1956, could not be written off in the account books of the assessee, either on account of losses in the past or on account of inadequacy of profits. But such arrears of depreciation were sought to be deducted, while declaring the net value of the assets. The Bombay High Court, in these circumstances, made the following observations (p. 841) :

' 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 be 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 asset, the increase in price in the subsequent years of the said asset may more than offset the depreciation caused by the wear and tear of the asset and it may as well 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 haye 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.'

12. The same view appears to have been taken by a Bench of the Calcutta High Court in Tungabhadra Industries Ltd.'s case : [1966]60ITR447(Cal) . In that case also, while determining the net wealth of the assessee, the WTO proceeded under Section 7(2)(a) of the Act and included in the computation the actual balance-sheet value of the assets, without any adjustment, yet the contention on behalf of the assessee was that so far as the assessment under the Act is concerned, they should be assessed at the written down value andnot on the actual depreciated value, as shown in the balance-sheet. It was observed in the aforesaid case by the Calcutta High Court as under (p. 453):

' While we agree that the written down value may not in all cases represent the real value of the assets, in normal cases it will give the Wealth-tax Officer a fair idea of its proper value unless the plant and machinery are of a rare type or are of a quality which is not generally available in India and for which there is a keen demand. No such uncommon feature is to be found in the case before us.'

13. It was also observed by the learned judges that if the assessee has shown the value of the plant and machinery of the business which was purchased many years ago at the cost price thereof, there is no reason why he should be precluded from asking that proper allowance be made in respect of the depreciation, which must have been caused by the lapse of time, as also by normal wear and tear. It was also observed that the depreciation allowed for income-tax purposes, on the plant and machinery, is somewhat empiric yet ' it offers a rough and ready method of recommending the loss in value '. An appeal against the aforesaid decision was preferred before the Supreme Court and while accepting the appeal, their Lordships of the Supreme Court in CWT v. Tungabhadra Industries Ltd. : [1970]75ITR196(SC) observed as under:

'Under Sub-section (1) of Section 7 of the Act the Wealth-tax Officer is authorised to estimate for the purpose of determining the value of any assets, the price which it would fetch, if sold in the open market on the valuation date. But this rule in the case of a running business may often be inconvenient and may not yield a true estimate of the net value of the total assets of the business. The legislature has, therefore, provided in Sub-section (2)(a) that where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may 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 make such adjustments therein as the circumstances of the case may require. The power conferred upon the tax officer to make adjustments as the circumstances of the case may require is also for the purpose of arriving at the true value of the assets of the business. It is of course open to the assessee in any particular case to establish after producing relevant materials that the value given of the fixed assets in the balance-sheet is artificially inflated...It is a question of fact in each case as to whether the depreciation has to be taken into account in ascertaining the true value of the assets. The onus of proof is on the assessee who must produce reliable material to show that the written down value of the assets and not the balance-sheet value is the true value. If, therefore, the assessee merely claims that the written down value of the assets should be adopted but fails to produce any material to show that the written down value is the true value, the Wealth-tax Officer is justified in rejecting the claim and adopting the values shown by the assessee himself in his balance-sheet as the true value of his assets.' (Emphasis ours)

14. In Tungabhadra's case : [1970]75ITR196(SC) their Lordships of the Supreme Court held that the principle laid down by them earlier in Kesoram Industries and Cotton Mills Ltd. v. CIT : [1966]59ITR767(SC) governs the matter and the question of law should be answered in the manner stated in that case. In Kesoram Industries' case, the legal position was enunciated by their Lordships of the Supreme Court as under (pp. 792, 793):

' The legislature has, therefore, provided in Sub-section (2Xa) that where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may 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 make such adjustments therein as the circumstances of the case may require. But the power upon the tax officer by Section 7(2) is to arrive at a valuation of the assets and not to arrive at the net wealth of the assessee. Section 7(2) merely provides machinery in certain special cases for valuation of assets, and it is from the aggregate valuation of assets that the net wealth chargeable to tax may be ascertained. The power conferred upon the tax officer to make adjustments as the circumstances of the case may require is also for the purpose of arriving at the true value of the assets of the business. Sub-section (2)(a) of Section 7 contemplates the determination of the net value of the assets having regard to the balance-sheet and after making such adjust ments as the circumstances of the case may require. It does not contemplate determination of the net wealth, because net wealth can only be determined from the net value of the assets by making appropriate deductions for debts owed by the assessee. '

15. We may here refer to a few more decisions on this question. In CWT v. Raipur . : [1964]52ITR482(Guj) a Bench of the Gujarat High Court, while dealing with the question of valuation of assets, considered the question as to whether the WTO while proceeding to determine the value of the assets of the assessee under Section 7(2) must accept the written down value, as ascertained by the income-tax authorities, as the final value of the assets, observed as under (p. 521):

' In numerous balance-sheets it is found that several assets are shown at cost. The price at which the same are shown could not possibly be in such circumstances the price which such asset would fetch if sold in the openmarket on the valuation date. No doubt there is a power given to the Income-tax Officer to make such adjustments as the circumstances of the case may require. It is urged that this power has to be exercised in order that the price of assets as shown in balance-sheet to any equate with the written down value of such assets as appearing in the records of the income-tax department. There is no warrant for such a conclusion. The written down value may be far from the real value of the asset on the valuation date. There cannot be any hard and fast rule in this matter and the Wealth-tax Officer is under no obligation to consider the written down value as the proper value of an asset. What the legislature has provided is that when individual assets have to be valued, the Wealth-tax Officer is under an obligation to estimate the price at which the asset could be sold in the open market on the valuation date and when acting under Section 7(2), a discretion has been given to him to make adjustments in the valuation as given in the balance-sheet as the circumstances of the case may require. '

16. This view was again reiterated by the Gujarat High Court in CWT v. New Rajpur Mills Ltd, [1965] 56 ITR 544. Tn that case, the fixed assets of the assessee were valued in the balance-sheet at Rs. 23,21,725 and the written down value was Rs. 9,92/190 and there was no evidence to show that the value of the fixed assets as shown in the balance-sheet was not the true value of those assets or that circumstances existed which required any adjustment to be made in the valuation as shown in the balance-sheet. In that case also a note was made in the balance-sheet that the depreciation to the extent of Rs. 1,91,805 has not been taken into account in arriving at the value of the assets of the assessee as shown in the balance-sheet. Bhagwati J. (as he then was), speaking for the Bench of the Gujarat High Court observed as under (pp. 552, 553) :

' ...It is clear that in the present case the value of the fixed assets as shown in the balance-sheet of the assessee was not necessarily liable to be adjusted with reference to the written down value of those assets as per the income-tax records but the Wealth-tax Officer had power to make such adjustment if it was shown by the assessee that circumstances existed which required the making of such adjustment. We, however, do not find any evidence to show that the value of the fixed assets as shown in the balance-sheet was not the true value of those assets or that circumstances existed which required any adjustment to be made in the valuation as shown in the balance-sheet- It is, therefore, clear that, on the facts and in the circumstances of the case, the value of the depreciable assets as shown in the balance-sheet of the assessee was not liable to be adjusted with reference to the written down value of such assets as per the income-tax records.'

17. In CWT v. Andhra Sugars Ltd. : [1966]62ITR841(AP) a Bench of Andhra Pradesh High Court, after a review of the cases decided by the Bombay, Calcutta and Gujarat High Courts expressed its view as follows (p. 848):

' A review of these cases leaves no doubt that where the Wealth-tax Officer adopts the global valuation, he has to take the balance-sheet as the basis and make such adjustments as may be necessary. This does not, however, mean that apart from the values given in the balance-sheet, the power given to him to make the necessary adjustments must, as a matter of course compel him to adopt the written down value or the depreciation allowed under the Income-tax Act. The written down value of an asset on the valuation date is one thing and the total depreciation allowed in a number of years for the purpose of arriving at the written down value under the Income-tax Act is another. In this case, the balance-sheet itself would show that a depreciation allowance of nearly Rs. 151/2 lakhs has been allowed before arriving at the net valuation of the assets. It is apparent, therefore, that after the deduction, the net value of the assets represents the market value of the assets as estimated by the assessee itself, and unless circumstances justify, the assessee cannot claim further depreciation as it is seeking to claim in this case. No doubt, it will be open to it to show that the depreciation deducted for the purpose of arriving at the net valuation on the valuation date in the balance-sheet is not correct or that some further depreciation ought to have been allowed by reason of any mistake committed or by reason of any omission or otherwise. In this case, the assessee says that it has not deducted the depreciation attributable to double shift. If it can establish this, certainly it will be entitled to have the asset re-valued for the purpose of computing the net value of that asset on that ground. It is open to the Wealth-tax Officer where such material is placed before him, to consider the same and give such relief as the assessee is entitled. But, apart from that, as a matter of law or of right, it cannot claim deduction of an amount equal to the difference between the depreciation already provided by the company itself in its books and the aggregate sum of normal depreciation and extra shift allowance that he is entitled to under the Income-tax Act and which had been allowed up to the chargeable accounting period under the said Act.'

18. In CWT v. Ganganagar Sugar Mills Ltd. a Bench of this court held that taking into consideration the circumstances that the assessee had not written off any depreciation in its books of account though the plant and machinery were more than 50 years old and had changed several hands ; that the machinery was worked by steam, whereas plants for manufacturing of sugar were now worked by electricity and that the Tribunal held in its discretion that depreciation was to be computed inaccordance with the provisions laid down in the I.T. Act; the adjustment made by the Tribunal did not appear to be wrong or erroneous in the circumstances of the case. However, the Bench made the following observations in the aforesaid case (pp. 455, 456):

'. We do not mean to say that, in every case, depreciation of assets as shown in the balance-sheet of a company is necessarily liable to be adjusted with reference to the written-down value of such assets according to the provisions of the Income-tax Act. This is the view taken by the Gujarat High Court in Commissioner of Wealth-tax v. Raipur . : [1964]52ITR482(Guj) . This case has been referred and followed by the same High Court in Commissioner of Wealth-tax v. New Rajpur Mills Lid. [1965] 56 ITR 544. These cases lay down the correct law., but this does not mean that in the circumstances of a particular case, if the Tribunal is satisfied, it should not allow depreciation according to the provisions of the Indian Income-tax Act.'

19. The case of Andhra Sugars Ltd. : [1966]62ITR841(AP) was distinguished on the ground that in that case the assessee had already made adjustments in its books of account to the tune of Rs. 15,42,000 for depreciation and had further claimed a deduction of Rs. 18,14,564 towards the difference between the depreciation allowed under the I.I'. Act and the depreciation deducted by the assessee from the value of the assets according to the method of accounting followed by it. This court in Ganganagar Sugar Mills' case agreed with the conclusion arrived at by the Andhra Pradesh High Court in the case of Andhra Sugars Ltd. : [1966]62ITR841(AP) that neither as a matter of law nor as of right the assessee can claim deduction of an amount equal to the amount of depreciation already provided by him in his books of account by adjusting the same with reference to the written down value to which he may be entitled under the I.T. Act, and it was observed that it would depend upon the circumstances of each case as to what extent the amount of depreciation should be allowed and whether particular adjustment in respect of depreciation should be made, while computing the value of the assets under Section 7(2) of the Act.

20. In CWT v. Aluminium Corporation of India Ltd. : [1970]78ITR483(SC) the Supreme Court again reiterated its view taken in Kesoram Industries case : [1966]59ITR767(SC) and Tungabhadra Industries' case : [1970]75ITR196(SC) and observed that no one could know better the value oi the assets than the assessee itself and the WTO was justified in accepting the value of the assets at the figures shown by the assessee in its balance-sheet. Their Lordships also pointed out that it was open to the assessee to convince the authorities that the figure mentioned in the balance-sheet was inflated for acceptable reasons.

21. In CWT v. Mohan Lal Nopany : [1970]78ITR435(Cal) . a Bench of the Calcutta High Court, referring to the decisions of their Lordships of the Supreme Court in Tungabhadra Industries' case : [1970]75ITR196(SC) and Aluminium Corporation's case : [1970]78ITR483(SC) observed that the balance-sheet should be taken as the basis for the valuation of the assets as the assessee is undoubtedly bound by the balance-sheet, unless it adduces evidence to the effect that the balance-sheet did not represent the real or factual position. In Mohan Ltd Nopany's case : [1970]78ITR435(Cal) it was observed that there was material on record to indicate that the balance-sheet did not represent the correct value of the assets.

22. The case of Aluminium Corporation : [1970]78ITR483(SC) again came before the Supreme Court in CWT v. Aluminium Corporation of India Ltd. : [1972]85ITR167(SC) and their Lordships while reversing the decision of the Calcutta High Court observed as under (p. 172):

' Wealth-tax is levied on the value of the assets of the assessee on the valuation date. Section 7(2) of the Wealth-tax Act merely requires the Wealth-tax Officer to have regard to the balance-sheet. 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 a 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. In other words, 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. In other words, it can be taken as prima facie evidence of the value of the assets. Here again the High Court ignoring the ratio of the decision of this court in Kesoram Industries' case : [1966]59ITR767(SC) as well as the other decisions of this court, held that the evidence afforded by the balance-sheet cannot be considered as primary evidence or prima facie evidence of the value of the assets of business. '

23. Again in CWT v. Hindustan Motors Ltd. : [1976]104ITR430(SC) the question of application of Section 7(2Xa) of the Act came up for consideration before their Lordships of the Supreme Court. In that case, in the statement of the case, it was not disputed that adequate depreciation could not be provided for in the balance-sheet on account of paucity of profits. An argument was based on this statement and it was submitted that when it was admitted that adequate depreciation could not be provided in the balance-sheet, in regard to the depreciable fixed assets, on account of paucity of profits, this fact alone was sufficient to displace the balance-sheet as a prima facie evidence and substitute in its place the written down value and the onus shifted to the revenue to establish to the contrary.

24. This submission was repelled by their Lordships of the Supreme Court and it was observed as under (p. 434):

' But we are unable to hold that merely a statement to that effect is sufficient to discharge the onus which rests upon the assessee to establish that the value of the assets shown in the balance-sheet is not the real value of the assets as on the valuation date. If the contention of the learned counsel is accepted, it will be tantamount to laying down a rule that in the determination of the value of assets the written down value allowable under the Income-tax Act shall always be the value of the assets. In that event, there would be no necessity for any exercise by the Wealth-tax Officer. That is, however, not the intention of Section 7 which clearly shows that the Wealth-tax Officer may make such adjustments in the value of the assets shown in the balance-sheet in accordance with the requirements of the circumstances disclosed by the assessee. Those circumstances which will be disclosed by the assessee must relate to the determination of the real value of the assets irrespective of what is shown in the balance-sheet if the assessee seeks a lower figure than appearing in the same. Thus, the onus is not discharged by merely stating that since profits in a given year are less or nil little or no provision was made for depreciation of the assets in the balance-sheet. The assessee must also show further to what extent the depreciation has resulted in lowering the value of the assets compared to that mentioned in the balance-sheet and whether the written down value computed under the Indian Income-tax Act in fact represents the lower value. It is open, as observed by this court in the case of Tungabhadra Industries : [1970]75ITR196(SC) to establish after producing relevant material that the value of the fixed assets in the balance-sheet is artificially inflated. Further, in case the assessee wants the written down value to be accepted, it is open to him to establish, as mentioned in that case, by acceptable reason, that the written down value represents the proper value of the assets at the relevant date.'

25. The decision of the Calcutta High Court in Mohan Lal Nopany's case : [1970]78ITR435(Cal) was also referred to before their Lordships of the Supreme Court in Hindustan Motors' case : [1976]104ITR430(SC) and their Lordships held that the observations made in Mohan Lal Nopany's case must be taken to be restricted to its own facts and they were unable to agree with the other observations made in that decision which were contrary to the observations made by their Lordships in Aluminium Corporation's case : [1972]85ITR167(SC) .

26. In CWT v. Raghuvanshi Mills Ltd. : [1976]104ITR544(Bom) a Bench of the Bombay High Court distinguished the two decisions of their Lordships of the Supreme Court in Aluminium Corporation's case : [1970]78ITR483(SC) and : [1972]85ITR167(SC) on the ground that in those cases the assets had beenrevalued by the assessee after making certain adjustments and that in the absence of any evidence to show that the revaluation was incorrect, the value as shown in the balance-sheet alter revaluation afforded a sound basis for valuing the assets and on that account the value as shown in the balance sheet was not substituted by the written down value as per the income-tax records. The Bombay High Court preferred to follow its earlier decision in Indian Standard Metal Company's case : [1963]49ITR832(Bom) and held that if for lack of profits in some years, proper depreciation has not been provided and it had to be carried forward, then it was not unreasonable to hold that the fixed block of assets will depreciate in value at least in accordance with the scale provided under the I.T. Act and that in a Textile Hill having old machinery, if the global method of valuation is adopted, ' then the depreciation as permissible under the I.T. Act had to be adjusted in order to determine the market value at the relevant valuation date and this is what the Tribunal had done in the present case and we find no reason why the method adopted by the Tribunal cannot be regarded as a correct one '.

27. We may lastly refer to another decision of the Bombay High Court in CWT v. Asarwa Mitts Ltd. : [1978]115ITR612(Bom) wherein it was held that once the authorities came to the conclusion that the balance-sheet disclosed the assets at inflated figures and that some downward adjustment was called for, yet such adjustment cannot automatically be taken as equivalent to the depreciation permitted to be written off under the I.T. Act.

28. A review of the aforesaid decisions makes it clear that the law is now well settled that when the WTO proceeds to assess the value of the assets of the assessee, by adopting the global method of valuation under Section 7(2)(a) of the Act, then the valuation of the assets given in the balance-sheet of the assessee for the relevant year should normally be taken to indicate the real value of the assets, for the purposes of determining the net wealth, However, the value of the assets shown in the balance-sheet is subject to adjustment, on the basis of acceptable evidence produced by the assessee before the WTO. Thus, the value of fixed assets, shown in the balance-sheet of the assessee for the relevant year, should be considered as the primary basis or the prima facie evidence of the value of such assets and merely because the depreciation cannot be sought in earlier years on account of paucity of profits or on account of loss being suffered by the assessee, it cannot automatically be inferred that the written down value arrived at according to the I.T. Act should be considered as the real value of the assets. The written down value arrived at, according to the provisions of the I.T. Act, merely represents notional allowance permissible under the Act but neither as a matter of law nor of right, the assessee could claim without anything more that the same correctly represents the real value of the assets andunless the assessee produces reliable material before the WTO to show that the written down value of the assets was the true value thereof, the value mentioned in the balance-sheet should be normally accepted as the real value of such assets. It has to be borne in mind that the onus is on the assessee to prove by acceptable evidence that the value mentioned in the balance-sheet does not correctly represent the real value of the assets and further to what extent the value mentioned in the balance-sheet should be reduced for arriving at the real value of such assets. As observed by their Lordships of the Supreme Court in the cases referred to above, the assessee is the best person to know about the real value of his assets and it is for him to adduce evidence before the WTO, if he desires to convince the authority that the value specified in the balance-sheet does not represent the correct figure about the value of his assets. Normally, the value given by the assessee himself, in respect of his fixed assets in the balance-sheet, should be taken to represent the true value thereof, although it would be open to the assessee to establish for acceptable reasons that any lower figure or even the written down value represents the proper value of the assets, on the relevant valuation date.

29. The argument of Mr. Mehta, appearing on behalf of the assessee before us, was that in the balance-sheet of both the years under consideration the assessee had given a note that during the years 'prior to March, 1956, depreciation could not be adjusted or set off on account of lack of profits and as such it was legitimate for the assessee to claim a set off in respect of arrears of the depreciation, which had accumulated during all these years. The case before us is not one where no depreciation has been set off against profits. During the year 1957-58, a sum of Rs. 5,09,139 has been set off not only for the depreciation for the current year 1957-58, but also for the earlier year 1956-57, as well as by way of contribution to the extent of Rs. 2,10,000 towards the arrears of depreciation for the earlier years. Similarly, in the balance-sheet for the year 1958-59, a sum of Rs. 4,84,33 1 has been claimed as depreciation for the current year, including a sum of Rs. 3,26,969 as contribution towards the arrears of depreciation for the earlier years. Thus, the two balance-sheets disclosed that the assessee had set off a sum of Rs. 9,87,114 towards the depreciation in respect of three years as also contribution towards the arrears of depreciation of earlier years and the same has been set off against profits of the two years under consideration. Thus, it is not a case where no depreciation has at all been claimed by the assessee in the balance-sheet. On the other hand, facts of this case are very similar to those of the Hindustan Motors' case : [1976]104ITR430(SC) wherein it was admitted in the statement of the case that adequate depreciation could not be provided in the balance-sheet onaccount of paucity of profits. Their Lordships of the Supreme Court pertinently observed in that case that mere statement to the effect was not sufficient to discharge the onus which rested upon the assessee to establish that the value of the assets shown in the balance-sheet is not the real value of the assets on the valuation date. The observations made in that case apply with full force to the facts of the present case as well. Merely because a note has been added to the balance-sheets of the two years that there were further arrears of depreciation which could not be provided for in the balance-sheet on account of paucity of profits although a part thereof has been set off against profits of the two years under consideration, it is not sufficient to discharge the burden placed on the assessee to show that the real value of the assets was not the same as the depreciated value as shown in the balance-sheet and to substitute in its place the written down value of the assets arrived at under the I.T. Act. However, it was open to the assessee to produce any material before the WTO to show that the real value of the assets was less than the depreciated value shown in the balance-sheet and further, to show to what extent the value of the assets specified in the balance-sheet was in excess of the real value. Mere submission that the value mentioned in the balance-sheet was inflated is not enough unless cogent material is brought on record to prove the extent to which the value given in the balance-sheet might be in excess of the real value of the assets.

30. We, therefore, hold that the written down value of the fixed assets of the assessee as per income-tax returns cannot be considered as real value of such assets, under Section 7(2)(a) of the W.T. Act, 1957, merely because a note has been made in the balance-sheets that some arrears of depreciation could not be adjusted, unless material is produced by the assessee before the WTO to show that the written down value as per the income-tax assessments represented the true value of the assets.

31. The reference is answered accordingly.


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