PETITIONER:
COMMISSIONER OF WEALTH TAX
Vs.
RESPONDENT:
HINDUSTAN MOTORS LIMITED
DATE OF JUDGMENT10/03/1976
BENCH:
GOSWAMI, P.K.
BENCH:
GOSWAMI, P.K.
KHANNA, HANS RAJ
CITATION:
1977 AIR 142 1976 SCR (3) 579
1977 SCC (3) 356
ACT:
Wealth Tax Act, 1957 (Act XXVII of 1957)Sec. 7(1)(2)-
Valuation of' depreciable assets-Valuation of assets in
balance Sheet, if not proper, whether depreciation under the
Income Tax Act can be taken into account Onus to prove
valuation.
HEADNOTE:
The respondent assessee maintains accounts regularly.
In the accounts maintained by him adequate depreciation
could not be provided in the balance sheet in regard to the
depreciable fixed assets on account of paucity of profits
and hence the depreciation as provided in the balance sheet
was very much lower than the depreciation allowable under
the Income Tax Act. The assessee claimed before the Wealth
Tax officer that in computing the wealth on the basis of the
balance sheet he should reduce the book value of the assets
by the difference between the written down value that would
be determined for the purpose of Income Tax Act and the
actual book figures disclosed by the balance sheet. The
Wealth Tax officer rejected the contention of the assessee
and estimated the net value of the assets as shown in the
balance sheets for the respective. years. The appellate
Assistant Commissioner confirmed the orders of the Wealth
Tax officer. The Appellate Tribunal, however, took a
contrary view and held that where proper depreciation has
not been allowed in the balance sheet it is proper to accept
the written down value of the assets as worked out for the
purpose of income tax assessments. On a reference made to
the High Court, the High Court answered the question in
favour of the assessee.
Allowing an appeal by certificate under section 29 (1)
of the Wealth Tax Act.
^
HELD: Under Section 7(1) of-the Wealth Tax Act the
value of any asset is the market value. Section 7(2)
provides that notwithstanding anything in section 7(1) where
the assessee carries on 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 might require. The object of the
Wealth Tax officer under section 7 is to arrive at the true
value of the assets of the business. If what is shown in the
balance sheet is not the true value of the assets disclosed
it is open to the assessee to satisfy the Wealth Tax
Officer. by producing relevant materials that the value
given of the fixed assets in the balance sheets is not the
true value, and, therefore a reduced value of the assets
should be taken into account. In case the assessee wants the
written down value to be accepted it is open to him to
establish, by acceptable reason that the written down value
represent the proper value of the assets at the relevant
date. The onus in that case would be entirely on the
assessee. Merely a statement that on account of paucity of
profits adequate depreciation would not be provided for in
the balance sheet is not sufficient to discharge the onus
which rests upon the assessee. The judgment of the High
Court is set aside and the question answered against the
assessee. [581E-H, 582A-B, H, 583A. 584C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 894-896
of 1971.
From the Judgment and order dated the 29th January 1965
of the Calcutta High Court in Wealth Tax Matter No. 21/52.
580
R.N. Sechthey and S. P. Nayar, for the Appellant.
Leila Seth, Neelima Thakur, Praveen Kumar and B. P.
Maheshwari for the Respondent.
The Judgment of the Court was delivered by
GOSWAMI, J.-These appeals are by certificate of the
Calcutta High Court under section 29(1) of the Wealth-tax
Act (briefly the Act).
The assessment years of the respondent company
(hereinafter to be described as the assessee) involved in
the composite reference to the High Court under section
27(1) of the Act are 1957-58, 1958-59 and 1959-60 for which
the corresponding valuation dates are 31st March, 1957, 31st
March, 1958 and 31st March, 1959.
The only common question of law which was referred to
the High Court appertaining to all the three assessment
years is in the following terms:-
“Whether on the facts and in the circumstances of
the case and in view of the provisions of section 7(2)
of the Wealth-tax Act, an adjustment could be made in
ascertaining the net value of the depreciable assets of
the assessee company by substituting the written down
value of the assets computed under the Indian Income-
tax Act for the value as shown in the balance sheet”.The facts appearing from the statement of the case as
well as the various orders annexed therewith are briefly as
follows:-The assessee claimed before the Wealth-tax officer that
in computing the wealth on the basis of balance sheet the
Income-tax officer should reduce the book value of the
assets by the difference between the written down value that
would be determined for the purpose of Income-tax Act and
the actual book figures disclosed by the balance sheet. The
difference between the book value and the written down value
amounted to Rs. 95,69,070/-, Rs. 67,78,304/- and Rs.
36,15,678/- respectively for the three years under
reference. The only contention common to the three appeals
related to the valuation of the fixed assets of the
assessee. The Wealth-tax officer proceeded under section
7(2) (a) and computed the value of the assets at the figures
shown in the balance sheets on the material valuation dates.
The assessee, however, contended that regard being had to
the depreciable assets the written down value determined for
the purpose of Income-tax assessment should be taken to be
the value of the assets for the purpose of inclusion in the
net wealth and not the value shown in the respective balance
sheets. It was not disputed that adequate depreciation could
not be provided for in the balance sheets in regard to the
depreciable fixed assets on account of paucity of profits
and hence the depreciation as provided for in the books was
very much lower than the depreciation allowable under the
provisions of the Indian Income-tax Act. The Wealth-tax
officer rejected the contention of the assessee and
estimated the net value of the assets as shown in the
balance sheets for the respective years. The Appellate
Assistant Commissioner confirmed the orders of the Wealth-
tax officer in the appeals filed by the assessee.581
The Appellate Tribunal, however, took a contrary view
and held that-“in all such cases where proper depreciation has
not been allowed for in the balance sheet for any
reason whatsoever, it is proper to accept the written
down value of the assets as worked out for the purpose
of the Income-tax assessments.”The Tribunal, therefore, directed the Wealth-tax officer to
adopt the written down value of the assets as the value
thereof for inclusion in the net wealth for all the years
under reference.At the instance of the Commissioner of Wealth-tax the
question set out earlier was referred to the High Court
under section 27(1) of the Act. The High Court by the
impugned judgment of January 29, 1965, following another
decision delivered on the same day in Commissioner of
Wealth-tax, Calcutta v. Tungabhadra Industries limited
answered the question in the affirmative and in favour of
the assessee. Hence the present appeals by certificate.The decision in the Tungabhadra Industries Limited
(supra), which was followed by the High Court, was reversed
by this Court in the Commissioner of Wealth-tax, West
Bengal-II v. Tungabhadra Industries Ltd. on August 8, 1969.
This Court following an earlier decision of this Court in
Kesoram Industries and Cotton Mills Ltd. v. Commissioner of
Wealth-tax (Central), Calcutta, accepted the contention of
the Revenue.Section 7 of the Act at the material time stood as
follows:-“(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 fech 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…….”
It is, therefore, clear that when the assessee is carrying
on a business for which accounts are maintained by him
regularly it is open to the Wealth tax officer to determine
the net value of the assets of the business as a whole with
reference to the balance sheet of such business as on
valuation date and to make such adjustments therein as the
circumstances
582
of the case may require. The object of the Wealth-tax
officer in determining the value of the assets under section
7 is to arrive at the true value of the assets of the
business. If what has been shown in the balance sheet is not
the true value of the assets disclosed, it is open to the
assessee to satisfy the Wealth-tax officer by producing
relevant materials that the value given of the fixed assets
in the balance sheet is not the true value and, therefore, a
reduced value of the assets should be taken into account.
The onus in that case would be entirely upon the assessee to
satisfy the Wealth-tax officer that what is shown in the
balance sheet is not the actual and true value of the assets
on the valuation date. The decision will depend upon the
facts and circumstances disclosed in each case.
This Court in the Tungabhadra Industries case (supra)
dealing with the same question observed as follows:-
“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 materials 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”.
We should have thought that the question raised in
these appeals is squarely covered by the above decision.
Even so, Mrs. Leila Seth submits that in the instant case it
is admitted that adequate depreciation could not be provided
for in the balance sheet in regard to the depreciable fixed
assets on account of paucity of profits and hence the
depreciation as provided in the balance sheet was much lower
than the depreciation allowable. According to the learned
counsel this fact is sufficient to displace the balance
sheet as a prima facie evidence and substitute in its place
the written down value and onus shifts on the Revenue to
establish that paucity of profits is wrong.
It is true, as described in the Statement of the case,
that it was not disputed that adequate depreciation could
not be provided for in the balance sheet on account of
paucity of profits. 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
583
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 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 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 (supra), 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.
The learned counsel also drew our attention to a
decision of this Court in the Commissioner of Wealth-tax,
West Bengal v. Aluminium Corporation of India Ltd., (1)
where at page 172 there is an observation that the value of
the assets shown in the balance sheet is not conclusive. The
value of the assets shown in the balance sheet is not
conclusive in the sense that it can be demonstrated to be
more or less than what is shown therein. That is the core of
determination under section 7(2) (a) of the Act. The
observation of this Court in the above case has to be
understood only in that context.
We may in this connection refer to clause (b) of the
proviso to clause (vi) of sub-section (2) of section 10 of
the Income-tax Act, 1922 where a provision is made for
carrying forward of depreciation allowance for the following
year or years where full effect cannot be given to the
allowance in a particular year owing to there being no
profits or gains chargeable for that year or owing to the
profits and gains chargeable being less than the allowance.
If an assessee chooses to carry forward the depreciation
allowance, and shows the value of the assets at a particular
figure in the balance sheet, he cannot by merely asserting
that there was no profit or very little profit compel the
tax authorities to discard the value mentioned in the
balance sheet and to accept the written down value. The
depreciation must have nexus with real value of the assets
itself and the burden is upon the assessee to satisfy the
Wealth-tax officer by producing relevant reliable materials
584
for determination of the actual and true value of the
assets. It may be that in a given year the written down
value may be the real value of the assets but that cannot be
the inexorable rule in determining the value of the assets
under section 7 of the Act.
Mrs. Seth drew our attention to a decision of the
Calcutta High Court in the Commissioner of Wealth-tax
(Central) Calcutta v. Mohan Lal Nopany. This was a case of
break up value of certain shares of a company. There was
material in that case to indicate that the balance sheet did
not represent the correct value of the shares. The
observation in that case must be taken to be confined to its
own facts. To the extent observations are made in that
contrary to the view we have taken in the matter, we cannot
agree with them.
In the result the judgment of the High Court is set
aside and the question is answered in the negative against
the assessee and in favour of the Revenue. The appeals are
allowed with one set of costs.
P.H.P. Appeals allowed.
585