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New Central Jute Mills Ltd. Vs. Commissioner of Wealth-tax, Central - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 40 of 1970
Judge
Reported in[1973]90ITR458(Cal)
ActsWealth Tax Act, 1957 - Section 7 and 7(2)
AppellantNew Central Jute Mills Ltd.
RespondentCommissioner of Wealth-tax, Central
Appellant AdvocateP.K. Pal, ;D. Pal and ;T.M. Mitra, Advs.
Respondent AdvocateB.L. Pal and ;K. Sen Gupta, Advs.
Cases ReferredKesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth
Excerpt:
- .....by the calcutta high court, if one has to proceed to value the assets independent of the balance-sheet values, we can certainly accept the value determined by the u. p. government, namely, rs. 2,62,15,524. this value will be (sic) in supreme court in the case of kesoram industries and cotton mills ltd., cited above. we direct that this value be substituted in place of the written down value and reduced by the amount of depreciation allowed or allowable from 30th june, 1956, to the end of the accounting year.'9. the assessee applied to the tribunal for a reference to this court and on the application of the assessee the tribunal on the above facts has referred the following questions :' (1) whether, on the facts and in the circumstances of the case, the tribunal was right in holding.....
Judgment:

A.N. Sen, J.

1. This is a reference under Section 27(1) of the Wealth-tax Act, 1957.

2. The assessee, which happens to be the applicant herein, is a company and has three jute mills, namely. Central, Albion and Lothian. During the calendar year 1956, the assessee-company was also proposing to set up a plant for the manufacture of soda ash and ammonium chloride near Varanasi under the style ' Sahu Chemicals'. The assessment year in question is the year 1957-58 for which the relevant valuation date is December 31, 1956. The assessee filed a return disclosing net wealth of Rs. 1,40,818 as on 21st December, 1956. The assessee adopted the values of the plant, machinery and buildings at the written down value as per income-tax assessment, though the balance-sheet figures were much higher. The Wealth-tax Officer held that, in view of the defects involved in trying to value each asset it was not possible to resort to individual valuation of the assets and resorted to the ' global valuation ' of the assets, as permitted under Section 7(2) of the Act on the basis of the balance-sheet of the company as at 31st December, 1956.

3. The relevant provisions of Section 7 of the Wealth-tax Act, 1957, may be conveniently set out at this stage :

' 7. (1) 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 the circumstances of the case may require.'

4. The Wealth-tax Officer held i ' As the accounts are audited and it is certified that the balance-sheet shows the true and correct state of affairs of the company and the shareholders are given the picture as shown in the balance-sheet, I do not see much force in the assessee seeking a revision of the figures as shown in the balance-sheet. It is explained that the U. P. Government got these 'assets valued as on 30th June, 1956, for the purpose of granting State aid, they arrived at a total valuation of Rs. 2,63,15,524 for the assets which are shown in the balance-sheet at Rs. 3,63,38,809. But though this fact is within the knowledge of the assessee, no revision of the valuation was done in the accounts which goes to show that the assessee considers the figures exhibited in the balance-sheet as on December 31, 1956, as representing the correct state of affairs. I, therefore, will adopt the balance-sheet figures in the completion of assessment.'

5. It may be noted that the assessee had approached the U. P. Government for a loan and the U. P. Government had in fact sanctioned a loan to the assessee. For the purpose of securing the loan advanced by it, the U.P. Government had the assets of the assessee valued by an independent valuer. The valuer had reported the total value of the assets of the assessee to be Rs. 2,63,15,524.

6. The assessee had contended before the Wealth-tax Officer that the assessee had inflated the figures in the balance-sheet for the purpose of obtaining the loan from the Government of Uttar Pradesh. As already noted, the Wealth-tax Officer negatived the said contention of the assessee.

7. Against the finding of the Wealth-tax Officer, the assessee preferred an appeal. The Appellate Assistant Commissioner was of the opinion that the written down value as per income-tax records gave a uniform and objective method of valuation of all assets and following the decision of the Wealth-tax Officer, the Appellate Assistant Commissioner directed that the written down value of the assets as per income-tax records should be substituted for the value of the block assets as appearing in the balance-sheet. The Appellate Assistant Commissioner further directed that initial depreciation allowed under the Income-tax Act should not be deducted.

8. Against the order of the Appellate Assistant Commissioner the department went up in appeal before the Appellate Tribunal. The Tribunal in its order held:

' Even the Wealth-tax Officer was aware that the U. P. Government through expert valuers had got the book assets valued as at June 30, 1956, at the value of Rs. 2,63,15,524. This valuation was done by the U.P. Government for the purpose of granting State aid. Even the U, P. Government's letter dated 21st March, 1956, contemplated that the tangible assets of the company's jute mills shall be valued through an independent agency nominated by the State Government. We are of opinion that the creditor'svaluation of the assets would be a correct index of the market value, since money was being advanced to the assessee-company against hypothecation of the assets of the company. This shows that the balance-sheet figure of Rs. 3,62,38,809 was really inflated. As mentioned by the Calcutta High Court, if one has to proceed to value the assets independent of the balance-sheet values, we can certainly accept the value determined by the U. P. Government, namely, Rs. 2,62,15,524. This value will be (sic) in Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd., cited above. We direct that this value be substituted in place of the written down value and reduced by the amount of depreciation allowed or allowable from 30th June, 1956, to the end of the accounting year.'

9. The assessee applied to the Tribunal for a reference to this court and on the application of the assessee the Tribunal on the above facts has referred the following questions :

' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that, for the purpose of computing the assessee's net wealth under Section 7(2) of the Wealth-tax Act, 1957, the written down value of the assets as per income-tax records, namely, Rs. 1,15,54,064, should not be adopted ?

(2) If the answer to the first question is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal, in computing the net wealth of the company under Section 7(2) of the Wealth-tax Act, 1957, should have adopted the value of the fixed assets appearing in the balance-sheet after excluding therefrom a sum of Rs. 1,88,31,309 being the amount added by way of revaluation of the assets ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal, in computing the net wealth of the company as on 31st December, 1956, was justified in law in valuing the block assets at Rs. 2,63,15,524 as determined by the U.P. Government '

10. It has been contended on behalf of the assessee that the Tribunal should have accepted the written down value of the assets as per income-tax records. It has been argued that in the instant case the balance-sheet valuation had been inflated by the company for the purpose of obtaining the loan from the Government of U.P. The fact that the balance-sheet figure was so inflated was established and the Tribunal has found that the balance-sheet figure had in fact been so inflated. It is argued that, in view of the fact that the balance-sheet figure did not correctly represent the value and had been proved to be an inflated figure, the Tribunal should have confirmed the order of the Appellate Assistant Commissioner and should have accepted the written down value of the assets as per income-tax records. It is urged that the Tribunal should not have placed any (1) : [1966]59ITR767(SC) .reliance on the valuation made by the U.P. Government and it is submitted that, if the Tribunal considered that the written down figure did not correctly represent the value, the Tribunal should have accepted the balance-sheet figure deducting therefrom the amount by which the said figure had been inflated. Mr. Pal, the learned counsel, in the course of his submission, realising the weakness of his case on the first two questions, in view of the decisions of the Supreme Court in the cases of Commissioner of Wealth-tax v. Tungabhadra Industries Ltd., : [1970]75ITR196(SC) and the Commissioner of Wealth-tax v. Aluminium Corporation of India Ltd., : [1970]78ITR483(SC) did not, as he could not, advance his arguments on the first two questions seriously. His main contention before us has been that the Tribunal should not have relied on the valuation prepared on behalf of the U.P. Government. He has contended that the Tribunal should have proceeded to have valued each and every item of the assets as laid down under Section 7(1) of the Act. He has relied on the decision of this court in the case of Commissioner of Wealth-tax v. Birla Jute Mfg. Co. Ltd., : [1967]65ITR568(Cal)

11. Mr. B. L. Pal, the learned counsel appearing on behalf of the department, had submitted that, in the facts of the instant case, grievance, if there be any, is actually that of the department. He submits that in the facts of the instant case, in view of the decision of the Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, : [1966]59ITR767(SC) , the Tribunal.should really have upheld the order of the Wealth-tax Officer. He further contends that, as the department has not preferred any appeal he is really not in a position to urge that point for consideration. He contends further that, as in the facts of the instant case the Tribunal came to the conclusion that the balance-sheet figure was inflated, the Tribunal was right in not placing, any reliance on the same. He has argued that, simply because the balance-sheet figure has not been found to be acceptable, it does not necessarily follow that the written down valuation has to be accepted. It is his argument that the written down valuation is also another kind of valuation but the assessee has got to lead evidence to show that the written down valuation shows the correct valuation. It is his submission that in the instant case there is no such evidence. In support of his submission Mr. Pal has relied on the following decisions of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, Commissioner of Wealth-tax v. Tungabhadra Industries Ltd. and Commissioner of Wealth-tax v. Aluminium Corporation of India Ltd.

12. The Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, observed as follows at pages 771-772 :

' When the assessee himself has shown the net value of the asssts at a figure, the Wealth-tax Officer, in our view rightly accepted it, as no one could know better the value of the 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. '

13. In the case of Commissioner of Wealth-tax v. Tungabhadra Industries Ltd. the Supreme Court reiterated the principles laid down in the case of Kesoram Industries and Cotton Mills Ltd., and the Supreme Court further observed at page 200:

' 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 also open to the assessee to establish by acceptable reasons that the written down value of any particular asset represents the proper value of the asset on the relevant valuation date. In the absence of any material 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 its balance-sheet for the relevant year as the real value of the assets for the purposes of the wealth-tax. 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 value shown by the assessee himself in his balance-sheet as the true value of his assets.'

14. In the case of Commissioner of Wealth-tax v! Aluminium Corporation of India Ltd. the Supreme Court referred to its earlier decisions in Kesoram Industries and Cotton Mills Ltd. and also in Tungabhadra Industries Ltd., and reiterated the same principles. The Supreme Court observed at pages 485-486:

' It was held by this court that as no one could know better the value of the assets than the assessee himself, the Wealth-tax Officer was justified in accepting the value of the assets at the figure shown by the appellant-company itself. It was open to the appellant-company to convince the authorities that that 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 appellant-company and to adopt another figure if he was, for sufficient reasons, satisfied that the figure given by the appellant was wrong.

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 mate 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.'

15. In the instant case, for acceptable reasons the Tribunal was satisfied that the valuation shown in the balance-sheet was inflated. That finding of the Tribunal is a finding of fact based on proper materials and has not properly been challenged in the present proceeding. There was no evidence before the Tribunal in support of the contention that the written down value should be accepted as the balance-sheet figure was inflated. As there was no material in support of the assessee's claim that the written down value should be accepted, the Tribunal was perfectly justified, in view of the decisions of the Supreme Court, in rejecting the assessee's contention that the written down value should be accepted. The decisions of the Supreme Court, to which we have referred, clearly lay down that the written down value, in a case where the balance-sheet figure is not acceptable, may be considered, provided there are sufficient materials to support the case that the written down value represents the correct value, and the onus of establishing that the written down value represents the correct value is entirely on the assessee. In the instant case, as we have already observed, the Tribunal was perfectly justified in rejecting the claim of the assessee, as the assessee had produced no materials to support its claim that the written down value represented the correct value and should be accepted. The further contention of the assessee that the Tribunal should have accepted the balance-sheet figure less the amount by which the said figure was inflated is equally unsound. It does not appear that there was any material to support the case that the balance-sheet figure was inflated by the amount claimed by the assessee. The Tribunal was satisfied that the balance-sheet figure was inflated, and in that view of the matter the Tribunal was justified in not placing any reliance on the balance-sheet figure and in not taking into consideration the claim of the assessee that the balance-sheet figure should be taken into consideration less the amount by which the said figure was alleged to have been inflated by the assessee.

16. Question No. (1) must, therefore, be answered in the affirmative, against the assessee; and question No. (2) must, necessarily, be answered in the negative, against the assessee.

17. The principal contention of the assessee has been that the Tribunal was not right in relying upon the valuation report made by the agency appointed by the U.P. State Government. The learned counsel has contended that as the balance-sheet figure was found to be inflated for acceptable reasons and was not relied upon, it was the duty of the Tribunal to direct an independent valuation of each and every item of the assets of the assessee. Reliance has been placed in support of this contention on the decision in the case of Commissioner of Wealth-tax v. Birla Jute . In our opinion, in the facts of the instant case, this contention of the assessee is not sound. There is nothing to indicate or to suggest that each and every item of the assessee was not valued or that the valuation made by the independent agency at the instance of the U.P. Government for the purpose of securing the loan granted by the U.P. Government to the assessee did not take into consideration the market value of each and every item of the assets or that the same did not reflect the correct value. It does not appear from the records that any such contention had been raised at any point of time. Nor does it appear that any objection had been taken to the said valuation on any such ground.

18. In the case of Commissioner of Wealth-tax v. Mohan Lal Nopany, : [1970]78ITR435(Cal) . P. B. Mukharji J. (as his Lordship then was), observed at page 447 after referring to the decisions of the Supreme Court in the case of Tungabhadra Industries Ltd., and also in the case of Aluminium Corporation of India Ltd.:

' That is the latest pronouncement of the Supreme Court laying down the law on the subject. It will be seen that the emphasis there is that what would be the real value has been said to be a question of fact in each case, and, secondly, that the onus is on the assessee to show that the written down value represents the true value and not the balance-sheet value. In the recent decision of a Bench of this court to which reference has been made by my learned brother in Commissioner of Wealth-tax v. Smt. Radha Debi M. Nopany, : [1970]77ITR704(Cal) , where the judgment was delivered by us on the 15th July, 1969, it is decided that neither the balance-sheet nor the written down value by itself may be a conclusive test on the facts of a particular case and it is open to the assessee or the revenue to challenge any one of these tests on the particular facts of a particular case. The question of onus would depend on whether on the records in each case there are facts which suggest that one or the other test should be applied.

But the fact that I desire to emphasise in this case is that, in valuing assets under Section 7 of the Wealth-tax Act, the object of the Wealth-tax Act should never be missed. The object is to find the value in the open market. Balance-sheet value and the written down value are not the only two methods of valuing the asset. I do not read Section 7 of the Wealth-tax Act to mean that the valuation is confined always and invariably to these two methods of valuation.'

19. In the instant case the Tribunal rightly rejected the balance-sheet figure as the same was established to be inflated for acceptable reasons. The Tribunal was justified in rejecting the claim of the assessee, for reasons already indicated, that the written down value should be accepted in arriving at the correct value. The Tribunal accepted the valuation made by an independent agency and the Tribunal in our opinion was perfectly justified in accepting the said valuation. There is nothing in the record to suggest that the said valuation was not in conformity with the provisions laid down in Section 7. We have only to bear in mind that this was a valuation made by an independent agency at the instance of the State Government which has advanced a large sum of money to the assessee on the security of its assets and a correct valuation of the assets was, therefore, of primary concern to the creditor. In the instant case taking into consideration all the facts and circumstances, we are of the opinion that the creditor's valuation of the assets represented the correct valuation of the assets and was a reliable guide on which the Tribunal could safely rely in arriving at the market value of the assets of the assessee and no proper ground has been made out for any interference by this court.

20. Question No. (3) is, therefore, answered in the affirmative and against the assessee.

21. The assessee will pay the costs of this reference.

Sankar Prasad Mitra, J.

22. I agree.


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