PETITIONER:
COMMISSIONER OF WEALTH-TAX, CALCUTTA, NOWWEST BENGAL II
Vs.
RESPONDENT:
TUNGABHADRA INDUSTRIES LTD., CALCUTTA
DATE OF JUDGMENT:
08/08/1969
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C. (CJ)
GROVER, A.N.
CITATION:
1970 AIR 352 1970 SCR (1) 789
1969 SCC (2) 528
CITATOR INFO :
F 1977 SC 142 (7,11)
ACT:
Wealth Tax Act, 1957. ss. 7(2)(a) and 27(6)--Valuation
of assets of running business--Value as given in balance-
sheet and written down value of assets--Which to be adopted
for assessment--Assessee must produce material to show that
value other than that shown in balance-sheet should be
adopted--Duty of Tribunal on receiving judgment of High
Court or Supreme Court.
HEADNOTE:
The respondent company was assessed to wealth-tax for
the assessment years 1957-58, 1958-59 and 1959-60. In
computing the net wealth of the respondent on the respective
valuation dates the Wealth Tax Officer proceeded under s.
7(2)(a) of the Act and included the full value of the fixed
assets as shown by the respondent in the respective
balance-sheets without any adjustment, after rejecting` its
contention that the fixed assets should be assessed at their
written down value as computed for the purposes of income-
tax. The Appellate Assistant Commissioner confirmed the
valuation but the Income-tax Appellate Tribunal held that it
would be fair in the circumstances of the case to adopt the
written down value of the asset's as value thereof for all
the years under appeal. On reference being made to it under
s. 27(1) of the Wealth Tax Act the High Court held in
'favour of the respondent. The Revenue appealed,
HELD: The rule of valuation on the basis of market
value under s. 7(1) of the Act may not yield a true estimate
of the net value of the total assets in the case of a
running business. The legislature has therefore provided in
sub-s. (2)(a) that when 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 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 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 the 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.
[793 E-794 C]
790
If, therefore, the assessee merely claims that the
written down of the assets should be adopted but fails to
produce any material to show that written down value is the
true value, the Wealth-tax Officer is justified in rejecting
the claims and adopting the values shown by the assessee
himself in his balance-sheet as the true value of his
assets. [794 C-D]
Kesoram Industries & Cotton Mills Ltd. v. Commissioner
of Wealthtax (Central) Calcutta, (1966) 59 I.T.R. 767,
applied.
(ii) Section 27(6) of the Act requires the Tribunal on
receiving a copy of the judgment of the Supreme Court or the
High Court as the ease may be to pass such orders as are
necessary to dispose of the case conformably to such
judgment. [794 E]
If the Supreme Court agrees with the view of the
Tribunal the appeal may be disposed of by a formal order.
But if the Supreme Court disagrees with the Tribunal on a
question of law, the Tribunal must modify its order in the
light of the order of the Supreme Court. If the Supreme
Court has held that the judgment of the Tribunal is vitiated
because it is based on no evidence or because the judgment
proceeds upon a misconstruction of the statute, the Tribunal
would be under a duty to dispose of the case conformably
with the opinion of the Supreme Court and on the merits of
the dispute and re-hear the appeal. In all cases, however,
opportunity must be afforded to the parties of being heard.
[794 F-H]
Income-tax Appellate Tribunal, Bombay, v. S.C. Cambatta
JUDGMENT:
v. Commissioner of Income-tax, (1967) 66 I.T.R. 478 (S.C.),
applied.
&
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1629 to
1631 of 1968.
Appeals from the judgment and order dated January 29,
1965 of the Calcutta High Court in Wealth Tax Matter No. 372
of 1961.
B. Sen, T.A. Ramachandran, R.N. Sachthey and B.D.
Sharma, for the appellant (in ‘all the appeals).
M.C. Chagla, R.K. Choudhury and B.P. Maheshwari, for the
respondent (in all the appeals).
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought by certificate
granted under s. 29(1) of the Wealth Tax Act,1957
(hereinafter referred to as the Act) against the judgment of
the Calcutta High Court dated January 29, 1965 in Wealth Tax
Matter No. 372 of 1961.
The respondent is a company which is assessed to
wealthtax for the assessment years 1957-58,1958-59 and 1959-
60. In computing the net wealth of the respondent on the
respective valuation dates the Wealth Tax Officer proceeded
under s. 7(2)(a) of the Act and included the full value of
the fixed assets as shown by the respondent in the
respective balance sheets without any adjustment, after
rejecting its contention that the fixed assets should be
assessed at their written down value as computed for the
purposes of income-tax. In the assessment order
791
for 1957-58 the Wealth-tax Officer gave his reasons as
follows :–
“The assessee claimed that since the full
amount of depreciation which was admissible
under the Incometax Act was not provided in
the balance sheet the amount of depreciation
not provided for earlier should now be
deducted from the value of the assets in order
to arrive at the net wealth. This
contention can hardly be accepted. The
depreciation allowable under the Income-tax
Act does not determine the market value of
the assets. The object of allowing
depreciation in the income-tax assess
ment is
quite different For the purpose of the
wealth-tax assessment the value of the
assets as estimated by the assessee itself in
its balance sheet has been accepted”.
Similarly in his assessment order for 1958-59 the Wealth-
tax Officer stated as follows :–
“Excluding the value of land, the total
value of the fixed assets as per balance
sheet amounts to Rs. 60,53,811 whereas the
assessee has shown in its return the value of
the same at Rs. 7,69,435. These values have
been shown by the assessee on the basis of
income-tax written down value and not on
the basis of the balance sheet values as
required under the global system of
valuation. It is common knowledge that the
values of the imported machinery has increased
considerably during the last few years and, on
the valuation date, I do not think that their
value should be less than that provided for in
the balance sheet”.
On appeal the Appellate Assistant Commissioner confirmed the
valuation of the fixed assets. On further appeal the
Income-tax Appellate Tribunal held that it would be fair in
the circumstances of the case to adopt the written down
value of the assets as value thereof for all the years under
appeal. In the course of its order the Appellate Tribunal
said:
“The income-tax assessment depreciation
is calculated upon the original cost in a
scientific and systematic manner with due
regard to the nature of the asset.
Therefore, the written down value as
determined in the income-tax assessment may be
taken as the fair index of the net value of
the business assets in most cases ……..
It cannot however be laid down as an
inflexible rule of law that in every case
the written down value must be taken to be
the net
792
value of the business assets. If that were
so. the Legislature would have said so in
clear terms instead of indulging in the
circumlocution in section 7(2)(a). In this
particular case, it appears, the assessee did
not make any reserve for depreciation and the
assets are old dating back from the inception
of the business long ago. In these
circumstances, in our opinion, it would be
fair to adopt the written down value of the
assets as the value thereof for all the
years under appeal …. ”
At the instance of the Commissioner of Income-tax the
Appellate Tribunal stated a case to the High Court under s.
27(1) of the Act on the following question of law :–
“Whether on the facts and in the
circumstances of the case, for the purpose of
determining the net value of the assets of the
assessee under section 7(2) of the Wealth-tax
Act, 1957 the Tribunal was right in directing
that the written down value of the fixed
assets of the assessee should be adopted as
the value thereof, instead of their balance
sheet value ?”
By its judgment dated January 29, 1965 the High Court
answered the question in the affirmative and in favour of
the respondent.
Section 7 of the Act stood as follows at the material time
:–
“(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 subsection (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.
793
In Kesoram Industries & Cotton Mills Ltd. v.
Commissioner of Wealth Tax, (Central) Calcutta(1) the
appellant-company had shown in its balance-sheet for the
period ending March 31, 19.57, the appreciated value on
revaluation of its assets, after making certain adjustments,
at Rs. 2,60,52,357 and had introduced in the capital reserve
surplus a corresponding balancing figure of Rs. 1,45,87,000
representing the increase in the value of the assets upon
re-valuation. For the purposes of wealth-tax the officer
took the sum of Rs. 2,60,52,357 as the value of the
assets, whereas the company contended that an adjustment
ought to be made in view of the increase in the value shown
in the balance-sheet on re-valuation. 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
vigour 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 argued on behalf of the appellant in the
present case that the High Court was not right in holding
that the principle laid down by this Court in Kesoram
Industries(1) case is not applicable. In our opinion
there is justification for this argument. 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 asset, 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 not value of the assets of the business as a
whole, having regard to the balancesheet 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 as.sets in the
balance sheet is artificially
(1) (1966) 59 I.T.R. 767.
794
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 claims and adopting the values shown by the
assessee himself in his balance sheet as the true value of
his assets. In our opinion the High Court should have based
its decision on the principle of Kesoram Industries(1) case
and the question of law should be answered in the manner
stated by us in this judgment.
But it is necessary to give certain effective directions
in this case. Section 27(6) of the Act requires the
Tribunal on receiving a copy of the judgment of the Supreme
Court or the High Court as the case may be to pass such
orders as are necessary to dispose of the case conformably
to such judgment. This clearly imposes an obligation upon
the Tribunal to dispose of the appeal in the light and
conformably with the judgment of the Supreme Court. Before
the Tribunal passes an order disposing of the appeal there
would normally be a hearing. The scope of the hearing must
of course depend upon the nature of the order passed by
the Supreme Court. If the Supreme Court agrees with the
view of the Tribunal the appeal may be disposed of by a
formal order. But if the Supreme Court disagrees with the
Tribunal on a question of law, the Tribunal must modify its
order in the light of the order of the Supreme Court. If
the Supreme Court has held that the judgment of the Tribunal
is vitiated because it is based on no evidence or because
the judgment proceeds upon a misconstruction of the statute,
the Tribunal would be under a duty to dispose of the case
conformably with the opinion of the Supreme Court and on the
merits of the dispute and re-hear the appeal. In all
cases, however, opportunity must be afforded to the parties
of being heard. In Income(l) [1966] 59 I.T.R. 767.
795
tax Appellate Tribunal, Bombay v.S.C. Cambatta & Co. Ltd.(1)
the Bombay High Court has explained the procedure followed
in the disposal of an appeal conformably to the judgment of
the High Court. Chagla C.J. in delivering the judgment .of
the Court observed :-
“….. when a reference is made to the
High Court e her under section 66(1) or
section 66(2) the decision of the Appellate
Tribunal cannot be looked upon as final; in
other words, the appeal is not finally
disposed of. It is only when the High Court
decided the case, exercises its advisory
jurisdiction, and gives directions to the
Tribunal on questions of law, and the Tribunal
reconsiders the matter and decides it, that
the appeal finally disposed of ……. it is
clear that what the Appellate Tribunal is
doing after the High Court has heard the case
is to exercise its appellate powers under
section 33 …… The shape that the appeal
would ultimately take and the decision that
the Appellate Tribunal would ultimately give
would entirely depend upon the view taken by
the High Court.”
This passage was quoted with approval by this Court in
Esthuri Aswathiah v. Commissioner of Income-tax(2). In the
present case, therefore, the answer we have furnished to the
question in the reference means that the Appellate Tribunal
must now, in conformity with the judgment of this Court, act
under s. 27(6) of the Act, that is to say, dispose of the
case after rehearing the respondent-company and the
Commissioner in the light of the evidence and according to
law.
There will be-no order as to costs.
G.C.
(1) (1956) 29 I.T.R. 118, 120.
(2) (1967) 66 I.T.R. 478 (S.C.).
796