ORDER
Rajendra, Accountant Member
1. As common points are involved in these appeals by the revenue for the assessment years 1979-80 and 1980-81, they are heard together and are disposed of by a consolidated order.
2. The assessee is proprietor of Modern Movies which is a film distributing concern. He is also partner in Saishyam Pictures, which firm is also distributor of films.
3. The first controversy is regarding the valuation of assessee’s proprietary interest in Modern Movies. In the assessment year 1979-80 the assessee had shown negative figure of Rs. 8,45,816 as net wealth in respect of this proprietary concern as on 30-5-1978. The WTO noticed that though the net book value of most of the motion pictures in a film distribution concern was nil by virtue of operation of Rule 9B of the Income-tax Rules, 1962 (which allows amortization at the rate of 100 per cent if the film is run for 90 days in the previous year), according to the WTO the film still had considerable market value. The WTO valued the assessee’s rights in the films at Rs. 38,14,500 out of which he allowed deduction at the rate of 25 per cent for depreciation and determined the net value at Rs. 28,50,875. He further added Rs. 14,32,098 in respect of seven new pictures acquired by the assessee in the preceding assessment year. He further estimated Rs. 10 lakhs as the anticipated recoveries. In the result, the WTO made total addition of Rs. 66,90,141.
4. The Commissioner (Appeals) deleted the entire addition after noting the assessee’s contention that though distribution right of films was an asset; but the unexpired portion of these rights had no value. He relied on his predecessor’s orders for the earlier two years which, in turn, relied on the Tribunal, Special Bench, Delhi’s order in WTO v. Narendra Kumar Gupta [1983] 4 ITD 694.
5. Similar is the position for the assessment year 1980-81 where the WTO had made addition of Rs. 78,02,340 as against the negative figure shown by the assessee of Rs. 21,91,962 in respect of his proprietary business.
6. The department is in appeal before us and relies on the Tribunal, Bombay Bench B’s order in the assessee’s case for the assessment years 1977-78 and 1978-79 (to which A.M. was a party)-WTO v.Gulshan Rai Sachdev [1986] 19 ITD 860. The Bench in those years had held that if a book debt is not entered in the account books, then the WTO was justified in including such assets while computing the assessee’s net wealth, as all valuable rights of the assessee on the valuation date were includible in the assessee’s net wealth. The Tribunal had followed CWT v. Vysyaraju Badree-narayana Moorthy Raju [1985] 152 ITR 454 (SO) which had approved Dipti Kumar Basu v. CWT [1976] 105 ITR 450 (Cal.) and had overruled CWT v. Vysyaraju Badreenarayanamoorthy Raju [1971] 79 ITR 330 (Ori.) and A.T. Mirji v. CWT [1980] 126 ITR 93 (Kar.).
7. The learned counsel for the assessee urged that though the Supreme Court in Vysyaraju Badreenarayana Moorthy Raju’s case (supra} had overruled A.T. Mirji’s case (supra) on which the Tribunal, Special Bench, Bombay in N.M. Shah v. Second WTO [1982] 1 SOT 573 had relied and which the Special Bench had been followed by the Delhi Special Bench in Narendra Kumar Gupta’s case (supra), still neither the Supreme Court in Vysyaraju Badreenarayana Moorthy Raju’s case (supra) nor the Calcutta High Court in Dipti Kumar Basu’s case (supra) had considered the applicability of Rule 2C of the Wealth-tax Rules, 1957 (‘the Rules’) which had been considered in N.M. Shah’s case (supra) vide paragraph 28 where it had been held that when the assets are not required to be disclosed in the balance sheet, no adjustment can be made under Rule 2C.
We have considered the assessee’s arguments but we are unable to accept them. The first reason is that the Calcutta High Court in Diptl Kumar Basu’s case (supra) had clearly held at page 463 that the WTO had been” expressly authorized to make adjustment in the balance sheet under Section 7(2)(a) of the Wealth-tax Act, 1957 (‘the Act’) if the circumstances of the case may require and “the fact that the book debt is not entered in the books is itself a circumstance which justifies its inclusion in the balance sheet under this section for the purpose of making the adjustment. In our opinion, by making such adjustment in the balance sheet, the tax officer does not convert the cash system of book-keeping into a mercantile system of book-keeping for the purpose of the Wealth-tax Act.” The Calcutta High Court had clearly pointed out the difference between the Wealth-tax Act, and the Income-tax Act, 1961 and had observed that system of accounting has no relevance under the Wealth-tax Act. The Supreme Court had upheld the said observations of the Calcutta High Court in Vysyaraju Badreenarayana Moorthy .Rant’s case (supra) when they had observed that system of accounting, mercantile, cash or hybrid, is of no relevance for the purpose of determining the assets of the assessee. Even though the accounts of the assessee are maintained on a cash basis, interest due on accrual basis, though not realized, on the outstanding of the money-lending business carried on by the assessee, is liable to be included in the net wealth of the assessee.
8. Thus, we do not have to go to Rule 2C for deciding that the valuable rights of the assessee in the films of which the assessee was the distributor, have to be included in the assessee’s net wealth. If the assessee has not included the value of such assets in the balance sheet, then the balance sheet is defective to that extent as was noted by the Special Bench, Delhi in Narendra Kumar Gupta’s case (supra) at page 701 relying on CIT v. A. Krishna swami Mudaliar [1964] 53 ITR 122 where the Supreme Court had held that value of rights in the film for the unexpired period would represent the closing stock and had to be taken into consideration for determination of income. The Special Bench held that this right in a film in a particular territory for a period would be an asset.
9. Even otherwise, Rule 2C, according to us, would be clearly applicable in the assessee’s case because under Clause (d) of the said rule, the WTO has to include the market value on the valuation date of such assets which have not been disclosed in the balance sheet. What is required to be disclosed in the balance sheet in the case of a proprietor is an open question but the normal understanding would be that balance sheet being an abstract of assets and liabilities, it should clearly indicate all the assets even though, according to the assessee, some of those assets may not have any value, while according to the WTO the said assets have value. We have seen the assessee’s balance sheet as on 30-6-1978 and 30-6-1979 which on the asset side has ‘picture account’. According to the learned counsel for the assessee, in this account only pictures run for less than 90 days were reflected as on 30-6-1978 namely, picture ‘Trishul’. The said picture Trishul’s account, however, also appeared in balance sheet on 30-6-1979 though it had run for more than 90 days. We, therefore, are not sure whether the assessee has consistently followed system of writing off pictures which have run for more than 90 days. As there is no finding on this point, we will not dilate on this point. The fact, however, remains that the assessee in the balance sheet has disclosed picture account and the WTO, therefore, would be entitled’ to make adjustment in the balance sheet both under Section 7(2) (a) as well as under Rule 20.
10. In N.M. Shah’s case (supra), the Special Bench in paragraph 7 has given a number of definitions of balance sheet but the upshot of all the definitions is that the balance sheet is a classified summary of assets and liabilities and all other balances. Thus, the assessee is required to disclose in his balance sheet the value of the pictures and as he holds such valuable rights, in a number of pictures as distributor or as owner, not disclosing the same in the balance sheet would only show that the balance sheet is not complete. We may also observe that balance sheet in cash system of accounting is an anti-thesis because in the cash system only cash can be disclosed and no. other assets and liabilities and, therefore, the balance sheet in cash system would have only cash balance as an asset and the same balance is to be shown as the capital of the assessee. In the case before us the assessee has prepared a proper balance sheet by including sundry debtors and advances as assets and similarly liabilities to producers and principals and advances received from exhibitors and sub-agents. Thus, the assessee is clearly following mercantile system of accounting and not cash system of accounting which was the case before the Special Bench in N.M. Shah’s case (supra) which was followed by the Special Bench, Delhi in Narendra Kumar Gupta’s case (supra). Here we may also observe that the Tribunal, Ahmedabad Bench in Manibhai I. Patel v. WTO [1983] 6 ITD 326 has held that where self-generated goodwill was not disclosed in the balance sheet, the WTO was justified to add its value under Rule 2C(d). Thus, the assessee is not right in claiming that under Rule 2C the value of his rights in the films as distributor or proprietor cannot be included. We accordingly reject the assessee’s contention on this point.
11. In the result, we vacate the Commissioner (Appeal)’s order for both the years.
12. In the assessment Years 1977 78 and 1978 – 79 when the Tribunal had taken similar view, it had restored the matter to the Commissioner (Appeals) to examine whether the value of the films in respect of the assessee’s (a) distributorship right, (b) exploitation on commission basis, and (c) own films had been rightly computed by the WTO. We give similar directions for the assessment years 1979-80 and 1980-81.
13. Similar are our directions regarding valuation of the assessee’s interest in Saishyam Pictures for the two years.
14. In the result, the revenue’s appeal for the assessment year 1979-80 is allowed.
15. In the assessment year 1980-81 grounds 1 and 2 are covered by our combined order above.
16. Ground No 3 : Credit balance in the CDs account is includible in the assessee’s hands following Smt. Sushilaben A. Mafatlal v. WTO [1986] 18 ITD 189 (Bom.) (SB). We accordingly vacate the Commissioner (Appeals) order deleting the same and restore the WTO’s order on this point.
17. Ground No. 4 : The Commissioner (Appeals) directed that in respect of self-occupied residential property valuation be done under Rule IBB of the Rules as against valuation by the WTO under Section 7(4). We uphold the Commissioner (Appeals)’s order on this point following Biju Patnaik v. WTO [1982] 1 SOT 623 (Delhi) (SB).
18. In the result, the revenue’s appeal for the assessment year 1980-81 is partly allowed.