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Aluminium Corporation of India Ltd. Vs. Commissioner of Wealth-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 69 of 1962
Judge
Reported in[1972]83ITR386(Cal)
ActsWealth Tax Act, 1957 - Sections 7(2), 27 and 29; ;Income Tax Act
AppellantAluminium Corporation of India Ltd.
RespondentCommissioner of Wealth-tax
Appellant AdvocateD. Pal and ;R.K. Murarka, Advs.
Respondent AdvocateB.L. Pal and ;A.K. Mitter, Advs.
Cases ReferredGold Coast Selection Trust v. Humphrey
Excerpt:
- p.b. mukharji, actg. c.j.1. this wealth-tax reference proceeding is one more example showing the tussle between the balance-sheet value and the written down value.2. the statement of the case shows the following facts: the assessee is a public limited company doing business in the manufacture of aluminium goods. the assessment year is 1957-58. the material valuation date is 31st march, 1957. the fixed assets of the assessee-company are land, buildings, plant and machinery. they were valued at rs. 2,19,982, rs. 36,13,906 and rs. 93,78,868, respectively, as on the 31st march, 1955, which was two years before the valuation date. this valuation did not take into account depreciation for the year ending 31st march, 1955, in respect of the buildings, plant and machinery. if that depreciation is.....
Judgment:

P.B. Mukharji, Actg. C.J.

1. This wealth-tax reference proceeding is one more example showing the tussle between the balance-sheet value and the written down value.

2. The statement of the case shows the following facts: The assessee is a public limited company doing business in the manufacture of aluminium goods. The assessment year is 1957-58. The material valuation date is 31st March, 1957. The fixed assets of the assessee-company are land, buildings, plant and machinery. They were valued at Rs. 2,19,982, Rs. 36,13,906 and Rs. 93,78,868, respectively, as on the 31st March, 1955, which was two years before the valuation date. This valuation did not take into account depreciation for the year ending 31st March, 1955, in respect of the buildings, plant and machinery. If that depreciation is taken into account the value of the respective assets was Rs. 34,93,999 and Rs. 88,07,047. One year later, i.e., on the 31st March, 1956, the same assets were valued at respectively Rs. 4,99,540, Rs. 1,08,40,840 and Rs. 1,89,23,449. That valuation also was without taking into consideration the depreciation for the year ending 31st March, 1956, in respect of buildings, plant and machinery. If that depreciation is taken into account then the value of those assets was Rs. 1,06,58,717 and Rs. 1,84,21,064. The increase in the value of these assets alter making allowance for small additions made in the assets was due to the revaluation of the assets made by the company before the 31st March, 1956. The increase in the value on account of revaluation was to the tune of Rs. 2,83,871, Rs. 72,31,204 and Rs. 98,67,481 in the case of land, buildings and machinery, respectively.

3. The directors of the company in their annual report for the year ending 31st March, 1956, noted that these assets had been revalued so as to indicate a true picture of their value and that the revaluation had given due consideration to the depreciation which the buildings, plant and machinery had already been subjected to. A corresponding capital reserve on account of Rs. 1,73,82,556 was created against the increase in the value of the assets. In the balance-sheet as on the 31st March, 1957, that is, on the valuation date, the value of these assets was, respectively, Rs. 5,10,657, Rs. 1,04,74,800 and Rs. 1,78,32,641. The difference in the value of the assets between these two dates, one on the 31st March, 1957, and the other on the 31st March, 1956, was only due to the additions to the assets and some depreciation provided for the year in question. This increase in the value of the assets effected before the 31st March, 1956, was carried over to 31st March, 1957, that is, the valuation date, and the capital reserve aforesaid continued to remain unaltered. The balance-sheets of the company as on the 31st March, 1955, 3Ist March, 1956, and 31st March, 1957, are made part of the statement of the case.

4. The assessee in its return of wealth for the year 1957-58 claimed before the Wealth-tax Officer that its land, buildings and machinery should be valued at Rs. 2,26,786, Rs. 10,32,094 and Rs. 15,19,133, respectively, on the ground that they represent the value of the assets in question according to the written down value in the income-tax records after allowing depreciation according to the Income-tax Act. This written down value was determined on the basis of the original cost as it stood before the assets were revalued in 1955-56. The Wealth-tax Officer in including these assets in the net wealth of the company took the value of these assets to be Rs. 5,10,657, Rs. 1,04,74,800 and Rs. 1,78,82,641, respectively, which was according to the value shown in the company's balance-sheet as on the 31st March, 1957, on the ground that the valuation was under Section 7(2) of the Wealth-tax Act of the assets of the business as a whole and there was no need to analyse individually the value of particular assets. The Wealth-tax Officer also took the view that the value of the assets after revaluation was the correct one. He also rejected the request of the company to make an allowance for the wear and tear of the assets even on the basis of the revised values for the period between date of revaluation of the assets by the company and the valuation date under the Wealth-tax Act.

5. The Appellate Assistant Commissioner of Wealth-tax agreed with the Wealth-tax Officer. He expressed the view that if assets were revalued periodically at a figure different from their previous book value and depreciation was not provided for in the accounts to the extent admissible under the Income-tax Act it was because the company itself wished to show the correct value of the assets in its books and that it was not open to the company to contend only for purposes of wealth-tax that the figures in its own accounts were not correct and did not represent the true statement of its affairs. The Appellate Assistant Commissioner also rejected the company's contention that the depreciation should be deducted at least on the revalued figures of the assets to arrive at the correct value of the assets on the valuation date, i.e., 31st March, 1957, and his reason was that Section 1(2) of the Wealth-tax Act did not permit the Wealth-tax Officer to make an alteration in the figures of the balance-sheet to reduce the figures of assets by depreciation not deducted in the accounts.

6. The matter then went up before the Tribunal. The decision of the Tribunal is given by its order dated the 29th July, 1961. It upheld the action of the wealth-tax authorities in determining the value of the fixed assets on the basis of the balance-sheet of the company as on the 31st March, 1957, for reasons recorded in paragraphs of its order but it expressed the view that the company was entitled to allowance in respect of these assets on account of wear and tear during the period that elapsed between the date of revaluation of assets and the material valuation date for the purpose of wealth-tax and it directed that normal depreciation at prescribed rates on the recomputed values of the assets should be deducted from the value of the assets as appearing in the balance-sheet on the valuation date.

7. Upon those facts the following questions of law were set down and referred to the High Court under Section 27(1) of the Wealth-tax Act for the opinion of this court. The two questions are:

'(1) Whether, on the facts and in the circumstances of the case, in determining the net value of the assets of the assessee-company under Section 7(2) of the Wealth-tax Act, the value of the company's fixed assets as shown in its balance-sheet as on the valuation date should have been substituted by the written down value of these assets as per the company's income-tax records ?

(2) If the answer to the first question is in the negative whether, on the facts and in the circumstances of the case, for the purposes of determining the net value of the assets of the company under Section 7(2) of the Wealth-tax Act an adjustment on account of normal depreciation of the fixed assets from the date of revaluation of the assets to the valuation date was justified '

8. The matter came up before a Division Bench of this court of G. K. Mitter J. and Masud J. By his short judgment of the 29th January, 1965, G. K. Mittcr J., after setting out the questions as above, decided as follows :

' The first question is answered in the affirmative and in favour of the assessee in terms of our judgment in Tungabhadra Industries Ltd.'s case. As we have said in that case normally the written down value of the assets should be accepted unless there are special circumstances to justify a conclusion to the contrary.

The second question does not arise in view of our answer to the first question. '

9. Masud J. agreed with that view.

10. The matter then went up on a certificate from this court before the Supreme Court. The Supreme Court by its judgment dated the 7th August, 1969, and, speaking through Ramaswami J., made the following order, whose material portion is as follows:

' It is evident that the High Court was in error in holding that the case was governed by the principle laid down in Tungabhadra Industries case. As we have already shown, Section 7(2)(a) of the Act contemplates that the book value in the balance-sheet should be taken as the primary basis of valuation and if any adjustment is required the Wealth-tax Officer may make such adjustments in the valuation as given in the balance-sheet as the circumstances of the case require it to be done. In the present case the Appellate Tribunal has proceeded on the footing that the written down value should be treated as the basis of valuation in the first instance and has, therefore, misdirected itself in law. The High Court has committed the same error in answering the first question in the affirmative, in favour of the assessee. It is, therefore, necessary that the case must go back to the High Court for rehearing according to the principle of law laid down by this court in Kesoram Industries case. For these reasons we set aside the judgment of the High Court dated January 29, 1965, and remand the case for rehearing and determination in accordance with law. As the first question stands at present the answer must be given in the negative but it is open to the High Court to reframe the question if it considers such a course necessary. '

11. Many arguments have been advanced from the Bar to show the complexity arising out of this particular order of remand. In the first place, the answers given by the High Court have been set aside by this remand order. In the second place, the remand order although now comes back to this High Court for rehearing in the light of the principles laid down by the Supreme Court in Kesoram Industries case, : [1966]59ITR767(SC) , the Supreme Court has already given the answer to the first question in the negative ; no doubt, the Supreme Court has left it open to the High Court to reframe the question if the High Court considers such a course necessary.

12. As the Supreme Court in the first place has answered the first question in the negative, it will be odd indeed for us sitting here in this court to reframe the question in such a way as to find an affirmative answer, for such course would be really going behind the order of the Supreme Court which we cannot. There is also another good reason why such a course should not be adopted. Under Section 27(6) of the Wealth-tax Act it is expressly provided:

' The High Court or the Supreme Court, upon hearing any such case, shall decide the question of law raised therein, and in doing so, may, if it thinks fit, alter the form of the question of law and shall deliver judgment thereon containing the ground on which such decision is founded and shall send a copy of the judgment under the seal of the court and the signature of the Registrar to the Appellate Tribunal and the Appellate Tribunal shall pass such orders as are necessary to dispose of the case conformably to such judgment,'

13. Now, a bare glance at this statutory provision would show that in such a case as the present the Supreme Court under the statute if it thought fit could have altered the form of the question of law. That power is expressly given to the Supreme Court and to the High Court under the statutory provision. As the Supreme Court has not done so then at any rate it must be assumed that at that stage the Supreme Court did not think fit to alter the form of the question of law. We can only assume that having thought fit not to alter the form of the question, it was therefore that the Supreme Court in fact answered the question in the negative, for otherwise the Supreme Court would not have answered the question and then remanded the case hack to us. No doubt, discretion is given to us to reframe the question. We have the same materials today as the Supreme Court had before it and the Supreme Court did not think fit to alter the frame of the question on the basis of these very records which we have before us. We cannot in such circumstances arrogate to ourselves the task of refraining the question for any useful purpose.

14. Besides, question No. 1, as framed, does raise the actual controversy in this case. It expressly raises the question of competition between balance-sheet value and the written down value under Section 7(2) of the Wealth-tax Act and whether one could be substituted by the other. In fact, we invited both the learned counsel for the revenue and learned counsel for the assessee to suggest any possible refraining of the question in any other language and none could suggest any alteration which could improve the frame of the question in the present reference before us. No alternative frame of question No. 1 could, on the facts and circumstances of the case, make any alteration to the issue, either in fact or in law.

15. Therefore, on the order of discretion given to us by the Supreme Court order of remand about refraining of the question, we are of the opinion that there is no reasonable scope or justification for reframing question No. 1. Necessarily, therefore, the Supreme Court's answer to question No. 1 in the negative remains and in favour of the revenue.

16. The arguments from the Bar raised a number of complex problems regarding this remand order specially with regard to question No. 2 set out above. We shall record and notice the arguments briefly. As would be seen, question No. 2 opens with the expression ' If the answer to question No. 1 is in the negative . . . . ' Now the Supreme Court by its order of remand, quoted above, answered question No. 1 in the negative. Therefore, immediately such an answer is given, question No. 2 arises for an answer. The question has been argued, whether in such circumstances the court can refuse to answer such a question. On the language of Section 27(6) of the Wealth-tax Act quoted above it seems clear that the court ' shall deliver judgment thereon containing the ground on Which such decision is founded.' In other words, the question of law mentioned in Section 27(6) of the Wealth-tax Act has to be answered and there has to be a judgment by the court upon that question. But it is argued that the difficulty here is that the order of remand of the Supreme Court leaves question No. 2 unanswered. Being a remand order and the second question remaining unanswered by the Supreme Court, the only occasion for answer of question No. 2 is by this court at this stage. It is on this point that the argument was advanced that, strictly speaking, the jurisdiction of both this High Court and the Supreme Court in hearing these tax references are statutory and therefore the usual orders of remand by courts of appeal under the Civil Procedure Code should not be adopted in this advisory jurisdiction. The argument advanced is that when once this court has given its advice, under these references, its advice may be right or wrong in which event the wrong advice should be set aside by the Supreme Court ; but it is not open under Section 27(6) of the Wealth-tax Act for the Supreme Court to ask for another advice from this court again on the same point and specially when as this remand order does not indicate any supplementary statement of facts.

17. The appeal to the Supreme Court in these matters is governed by Section 29 of the Wealth-tax Act read with Section 27(6) of the Wealth-tax Act. We have already quoted Section 27(6) of the statute. We shall now quote Section 29 of the Wealth-tax Act which, inter alia, reads as follows:

'(1) An appeal shall lie to the Supreme Court from any judgment of the High Court delivered on a case stated under Section 27 in any case which the High Court certifies as a fit case for appeal to the Supreme Court.

(2) Where the judgment of the High Court is varied or reversed on appeal under this section, effect shall be given to the order of the Supreme Court in the manner provided in Section 27(6).'

18. Section 29 of the Wealth-tax Act does not expressly provide for any remand in such cases by the Supreme Court. Section 29(2) speaks of varying or reversing the order of the High Court. The question is whether a remand is within the words ' varied or reversed on appeal ' under Section 29(2) of the Wealth-tax Act. Section 29 of the Wealth-tax Act speaks of the appeal to the Supreme Court only in respect of a case stated under Section 27 of the Act, as decided by the High Court. Section 27(5) of the Act provides that:

' If the High Court or the Supreme Court is not satisfied that the case as stated is sufficient to enable it to determine 1he question of law raised thereby, it may require the Appellate Tribunal, to make such modifications therein as it may direct.'

19. But this remand speaks of requiring the Tribunal and not the courts to make the modifications. Apart from this provision and the provisions contained in Section 29 of the Act, there is no other relevant provision under the Wealth-tax Act to import the idea of remand in such tax reference cases. An ordinary court of appeal is in a different legal position than a court exercising advisory jurisdiction under statutory powers. That point has been sufficiently made clear by the Supreme Court decisions in Commissioner of Income-tax v. Straw Products Ltd., : [1966]60ITR156(SC) , C. T. Senihilnathan Chettiar v. State of Madras, : [1968]67ITR102(SC) and Dhulabhai v. Slate of M.P., : [1968]3SCR662 This High Court and the Supreme Court exercising advisory jurisdiction under statutory powers under such sections as sections 27 and 29 of the Wealth-tax Act, therefore, may not be in a position to exercise inherent jurisdiction for making an order of remand which an ordinary court of appeal has. The ordinary court of appeal under the Civil Procedure Code, both under such provisions as Order 41, Rule 23, of the Civil Procedure Code or within the inherent jurisdiction, even apart from it, may not justify such an order of remand under the Income-tax Act reference which is entirely a statutory jurisdiction created by the Income-tax Act and is of advisory nature. Even such new provision as Section 262 of the new Income-tax Act of 1961, making the provisions of the Civirprocedure Code applicable in income-tax references to the Supreme Court, guards itself by saying that such applicability is limited by the expression ' shall so far as may be '. But then such provision is not there under the Wealth-tax Act.

20. We do not, however, propose in this case to decide the question, which has been argued, that the present remand order is open to challenge on the grounds mentioned above. We hope that, in an appropriate case, the Supreme Court will decide this point once and for all. We propose to take the course of following the order of remand of the Supreme Court and following that order of remand, as question No. 1 has been answered in the negative by the Supreme Court, we shall proceed to answer question No. 2. Question No. 2, as set out above, pointedly asks whether normal depreciation in the fixed assets could be included as a consideration for allowance in arriving at the net value under Section 7(2) of the Wealth-tax Act between the two points of time, viz., between the date of revaluation of the assets by the assessee himself and the valuation date under the Wealth-tax Act. The second step itself provides the first step in the answer.

21. Section 7(2)(a) of the Wealth-tax Act reads as follows : '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 the circumstances of the case may require,'

22. Section 7(2)(a) has been slightly modified in 1965, after the assessment in this case, by the expression ' as may be prescribed '.

23. A proper interpretation of Section 7(2)(a) of the Wealth-tax Act would require notice first of the fact that it is overriding Sub-section (1) of Section 7 of the Act. - It is, therefore, necessary to know what exactly is the provision of Section 7(1) of the Act. That celebrated provision is ' 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 '. Here the expression is ' any asset ', no doubt other than cash. ' Any asset ' means an asset separately. That implies that each asset has to be valued separately under Section 7(1) on the basis of the price which it would fetch if sold in the open market on the valuation date according to the opinion of the Wealth-tax Officer. This separate valuation of each asset is a method of valuing which can be discarded by Section 7(2) and that is the meaning of the expression ' notwithstanding anything contained in Sub-section (1) '.

24. What is the alternative that is provided under Section 7(2)(a) of the Wealth-tax Act It says that in a case where the assessee is carrying on business for which accounts were maintained by him regularly, the Wealth-tax Officer may, instead of determining separately the value of each asset under Section 7(1) of the Act, determine the net value of the assets of the business as a whole. In determining this net value of the assets of the business as a whole under Section 7(1)(a), all that this provision says is ' having regard to the balance-sheet of such business '. In other words, the Wealth-tax Officer may under Sub-section (2) take the net value of the assets of the business as a whole from the balance-sheet. The language does not exactly say so. The language only says ' determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business '. To our mind this only means that the balance-sheet is a permissible consideration in determining the net value of the assets of the business as a whole. But, it is not the determination of the net value of the assets of the business as a whole which is being attempted, but the value of any asset having regard to the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.

25. The next feature of Section 7(2) of the Act is that the Wealth-tax Officer can make 'such adjustments therein' meaning thereby adjustments in the value of the assets of the business having regard to the balance-sheet. The next feature is that such adjustments have to be made either as ' the circumstances of the case may require' or now ' as may be prescribed '. It is now prescribed by Rule 2B of the Wealth-tax Rules introduced in 1965, Wealth-tax (Second Amendment) Rules, 1965 stating:

' The value of an asset disclosed in the balance-sheet shall be taken to be--

(a) in the case of an asset on which depreciation is admissible, its written down value;

(b) in the case of an asset on which no depreciation is admissible, its book value;

(c) in the case of closing stock, its value adopted for the purposes of assessment under the Income-tax Act, 1961, for the previous year relevant to the corresponding assessment year.'

26. Sub-rule (2) of Rule 2B, which follows, provides:

' Notwithstanding anything contained in Sub-rule (1) where the market value of an asset exceeds its written down value or its book value or the value adopted for purposes of assessment under the Income-tax Act, 1961, as the case may be, by more than 20 per cent., the value of that asset shall, for the purposes of Rule 2A, be taken to be its market value.'

27. These statutory sections and rules show that ' depreciation ' as such is not a word used under Section 7(2)(a) of the Wealth-tax Act but the word ' depreciation ' is used under Rule 2B of the Wealth-tax Rules. On a fair and reasonable construction of the word ' adjustment' in Section 7(2)(a) of the Wealth-tax Act we are of opinion that it, in appropriate cases, should and does include depreciation. What, however, in a particular case is depreciation will be a matter of fact in each case to be determined. No doubt if depreciation has once been allowed it cannot again be allowed ; for instance, if a revaluation thus took into consideration depreciation, then a further depreciation cannot be allowed. But where, as in the present case, admittedly no depreciation has been allowed between the date of revaluation of the assets and the valuation date under the Wealth-tax Act, it appears to us that some allowance has to be made on account of depreciation. That is the proper view of the law and a fair construction of the word ' adjustment' under Section 7(2)(a) of the Wealth-tax Act. We are aware of the fact that Rule 2B of the Wealth-tax Rules, 1957, could not apply to 1957 assessment as on that date it was not in force, it having come into force in 1965. We are, therefore, basing our interpretation of the word ' adjustment' as including depreciation on a construction of what it should be.

28. It will, however, not be inappropriate to make a reference in this connection to page 28 of the paper book where the Tribunal referred to similar statutory executive instructions which used to exist there as in the present Rule 2B and which executive instructions permitted allowance for wear and tear of the assets appearing in the balance-sheet. The main argument of the revenue was that there has been a revaluation and once there is a revaluation by the assessee himself, which does not show on the face of it that there has been any depreciation, then the balance-sheet must be conclusive on the point. We, therefore, find ourselves in agreement with the view expressed by the Tribunal that the assessee should be entitled to normal depreciation at the prescribed rates on the recomputed value of the assets and the value of those assets should be readjusted accordingly for the purpose of Section 7(2) of the Wealth-tax Act.

29. For these reasons, we answer question No. 2 in the affirmative but subject to the interpretation that we have given to Section 7(2) of the Wealth-tax Act, and that is primarily in favour of the assessee.

30. In conclusion, it remains for us to refer to some of the cases dealing with the respective weights of the balance-sheet values and the written down values. There is a good deal of case law on the subject. The ground is quite explosive at the present moment. The remand order says that we should decide these questions in the light of Kesoram's case. We shall, therefore, take up Kesoram's case first. Subba Rao J., delivering the majority judgment in that case, after setting out the provisions of Section 7 of the Wealth-tax Act, at pages 771-72, observed :

' When the assessee himself has shown the net value of the assets at a figure, the Wealth-tax Officer, in our view, rightly accepted it, as no one would know better the value of assets than the assessee himself. 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 was also 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. But he did not find any such reason to do so. '

31. It will be clear from this enunciation of the law that in making the ' assessment' in Section 7(2)(a) of the Wealth-tax Act the Wealth-tax Officer can even ' substitute ' the figure in the balance-sheet. 'Adjustment ' is a word which covers all kinds of adjustments, variations and modifications or even substitutions, provided the facts justify such a course. In this case in paragraph 5 of the order of thp. Tribunal the Tribunal considered the assessee's contentions and came to the finding that the assessee's arguments were not convincing and therefore rejected them. In fact the Tribunal observed on the first question ' the argument that the revaluation was made to satisfy the insurance company is not in our opinion convincing because if that was the only consideration the assets need not have been revalued for the purpose of the Companies Act, the shareholders and the general public, nor is the argument on the quotations of the shares in the market relevant. ' That is also the reason, we believe, which led the Supreme Court to answer the first question in the negative. Therefore, no further scope is left for refraining the question even on facts so far as the first question is concerned.

32. Reference was made at the Bar to the decision in Tungabhadra's case reported as Commissioner of Wealth-tax v. Tungabhadra Industries Ltd., : [1970]75ITR196(SC) , where the Supreme Court analyses the powers conferred, under Section 7(2)(a) of the Wealth-tax Act, on the Wealth-tax Officer to make adjustments. It is laid down in that case by the Supreme Court that it is open to the assessee to establish by acceptable reasons, that the written down value of any particular assets represents the proper value of the assets on the relevant valuation date but in the absence of any materials produced by the assessee to demonstrate that the written down value is the real value, the Wealth-tax Officer would be justified in a normal case in taking the value given by the assessee itself to its fixed assets in the balance-sheet for the relevant year as the real value of the assets for the purposes of the wealth-tax. In no unmistakable terms the Supreme Court lays flown that it is a question of fact in each case as to whether the depreciation has to he taken into account in ascertaining the true value of the assets and the onus of proof is on the assessee who must produce reliable materials to show that the written down value of the assets and not the balance-sheet value is the true value. See the observations of the Supreme Court at page 200,

33. We shall also make a reference to two other cases. One is the decision in Commissioner of Wealth-tax v. Bally Jute Co., [1968] 67 I.T.R. 188 (Cal.), a decision of a Division Bench of this court. There, Banerjee J., with whom Masud J. agreed, observed at page 196 :

' In the view that I take I answer the question referred to this court in the following manner, namely, that, in the facts and circumstances of the case, for the purpose of computing the wealth under Section 7(2)(3) of the Wealth-tax Act, the Tribunal was right in directing that the value of the depreciable assets should be included in the net wealth after allowing normal depreciation in place of the balance-sheet value.'

34. This accords with the view that we are taking in this matter. But what the learned judge proceeded to say is as follows :

'The Tribunal was not, however, right in directing the Wealth-tax Officer to do so according to the computation for the purposes of income-tax assessment. The valuation is to be made under Section 7(2)(a) after making such adjustments as may be justified, which need not necessarily be the same adjustments as are done for income-tax purposes.'

35. There is scope for a good deal of debate on this last observation. Ifthe written down value is to be accepted, then that written down value ison the basis of the depreciation allowed and permitted under the Income-tax Act for which specific rates and specific principles are prescribed.Without further argument and as at present advised, we are not in a position to say that the Wealth-tax Officer will be free to allow depreciationnot on the basis of written down value and on the basis of depreciationas provided in the Income-tax Act, but on some other fanciful basis oreven other basis of depreciation which the Wealth-tax Officer may chooseto evolve without any objective test or consideration. The momentthe concept of written down value according to the Income-tax Actis introduced for deduction for depreciation, it follows that suchdepreciation must be on the same scale, principles and' rates asprovided in the Income-tax Act and not on any vague and indeterminaterates or principles. The other case is the decision in Commissioner ofWealth-tax v. Swadeshi Cotton & Flour Mills Ltd., [1968] 69 I.T.R. 539 (M.P.) There, a Division Benchof the Madhya Pradesh High Court lays down the principle that thoughit cannot be laid down 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, yet, on the particular facts and circumstances of that case the Appellate Tribunal was justified in holding that the value of assets should be taken to be the written down value according to the income-tax assessment but so as to exclude therefrom initial and extra-normal depreciation and development rebate and that authority quoted the words of Viscount Simon L. C. in Gold Coast Selection Trust v. Humphrey, [1948] A.C. 459; [1949] 17 I.T.R., (Supp.) 19, 26 (H.L.). where the noble Chancellor observed:

' 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. '

36. This observation will be found at page 544.

37. The two other decisions of this court, to which I was a party, are the unreported decisions in Commissioner oj Wealth-tax v. Mohanlal Nopani, : [1970]78ITR435(Cal) and Commissioner of Wealth-tax v. Smt. Radha Devi Nopani, : [1970]77ITR704(Cal) , delivered, respectively, in September, 1969, and July, 1969, being Matters Nos. 360 of 1966 and 223 of 1966, respectively, dealing with this problem of comparative valuation in the balance-sheet value and the written down value. They noticed all these recent decisions including those of the Supreme Court. The view that we are taking in this case is in accordance with the view taken there.

38. In conclusion, it will not be inappropriate to emphasize one aspect of this legal problem as will be seen from the growing volume of case law on the subject dealing with the question, viz., what is the proper value to be taken under Section 7 of the Wealth-tax Act and the perpetual and endless debate about the question whether the balance-sheet value or the written down value is comparatively more efficacious or which one should prevail and the complicated onus of how the balance-sheet is to be proved wrong or the written down value is to be proved wrong. It has already been noticed in the two unreported Calcutta decisions mentioned above that there is nothing sacrosanct about the balance-sheet value. In appropriate cases, balance-sheet values may have to yield to the written down value in the matter of adjustments necessary under Section 7(2)(a) of the Wealth-tax Act. No doubt, written down value under Section 10 of the old Income-tax Act, providing for depreciation to be allowed, is with the object and purpose of the Income-tax Act to find the profit or the income. Equally, no doubt, the object under Section 7 of the Wealth-tax Act is to find the value of the asset for the purposes of wealth-tax on the basis of the price which, in the opinion of the Wealth-tax Officer, the asset would fetch in the open market. Therefore, there may not be an equation of the purposes or objects between the depreciation under the Income-tax Act to be allowed and the wealth to be valued under the Wealth-tax Act. But for practical purposes, obviously there is a co-relation up to at least a certain point and which is now expressly recognised by Rule 2B of the Wealth-tax Rules quoted above. There is an infiltration of the market conception even where the income-tax written down value is considered, as will be apparent in sub- Rule (2) of Rule 2B which has been quoted which allows only a marginal rate of 20% or else the market value would operate. It is necessary to point out at this stage of the development of case law on this point, and this we consider an appropriate case in which to do so, that reference to the balance-sheet under Section 7(2)(a) of the Wealth-tax Act should not lead the courts to the view that the values represented in the balance-sheet represent prima facie the market value of the assets stated there. After all, it is the market value which is the objective to be achieved and kept in view in valuing wealth under Section 7 of the Wealth-tax Act. The items shown in the balance-sheet of a limited company are not necessarily, although they may indirectly and in some ways more directly, connected with the market value ; they are not invariably so. The difference between book value and market value is not uncommon. In none of the relevant sections dealing with balance-sheets, profit and loss account under the Companies Act there is any reference to the market value of any asset being entered in the balance-sheet in express terms. Section 209 of the Indian Companies Act describes the books to be kept by the company. Section 210 of the Act provides for the annual accounts and balance-sheets and what they should contain. Section 211 of the Indian Companies Act provides the form and content of the balance-sheet and profit and loss acc6unt but does not expressly indicate that such form and content of the balance-sheet and profit and loss account should show what would be the price of each and every asset if it was sold in the open market, an objective which the Wealth-tax Officer has to bear in mind in valuing the asset for wealth-tax under the Wealth-tax Act under Section 7 of that statute. Therefore, while the written down value for the income-tax purpose with respect to depreciation may not be wholly decisive for the purpose of the Wealth-tax Act valuation in search of an open market value, yet the implicit faith in the balance-sheet that we are developing that it represents a kind of open market value of the assets mentioned there, is also open to criticism. No doubt, both the balance-sheet and the written down value are very relevant and cogent pieces of evidence to make a valuation and it is open to the Wealth-tax Officer to look at either to accept or reject and he is not bound by any one.

39. Before we conclude we should again emphasize that the language of Section 7(2)(a) of the Wealth-tax Act does hot say that the balance-sheet value is the primary value for the Wealth-tax Officer under Section 7. All that it says is that instead of separate valuation for each asset, which may be practically impossible, difficult and complicated, he may determine the net value of the assets of the business as a whole and using the significant expression 'having regard to the balance-sheet of such business' which is not, in our view, the same thing as on the basis of the balance-sheet or which does not mean that the balance-sheet value is conclusive one way or the other. The word 'having regard to the balance-sheet' means that the balance-sheet may give some indication and some guide to the Wealth-tax Officer in determining the not value of the assets of the business as a whole. But in determining even the net value of the assets of the business as a whole, the Wealth-tax Officer is certainly not bound by the value of assets stated in the balance-sheet nor is the assessee bound because he can still say that what is good for the Companies Act purposes may not be conclusive for the purposes of valuation under Section 7 of the Wealth-tax Act. The practical difficulty of taking any other view in this matter is clear because the balance-sheet value in this respect about physically depreciable assets like building, plant and machinery, is always normally put in a lump and such a lump of assets, stated in this branch of the law as 'global value' of all the assets of the business, as a whole may be difficult for the purpose of allocation or apportionment and for finding the proportion or ratio of adjustment of depreciation that may be permitted for each individual asset.

40. For these reasons, we formally record the answers which we have already given in the judgment. We answer question No. 1 in terms of the remand order of the Supreme Court in the negative in favour of the revenue. We answer question No. 2 with the limitations and conditions stated in our judgment in the affirmative and in favour of the assessee.

41. Each party to bear his own costs.

T.K. Basu, J.

41. I agree.


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