V. Ramaswami, J. - (1.) This appeal is brought from the judgment of the Calcutta High Court dated January 29, 1965, in Wealth-tax Matter No. 69 of 1963, by certificate granted under Section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as the " Act ").
(2.) The respondent is a public company doing business in the manufacture of aluminium goods. For the accounting period ending March 31, 1956, the respondent revalued its fixed assets and showed them in its balance-sheet as on March 31, 1956, at an increased value, creating a capital reserve of Rs. 1,73,92,556, corresponding to the increase in value after revaluation. In their report to the shareholders for the year ended March 31, 1956, the directors said : During the year under review, your companys block assets have been revalued so as to indicate the true picture of their value and evaluators have given due consideration to depreciation which the buildings and plants and machinery have already been subjected to.
(3.) In its balance-sheet as on March 31, 1957, that is, the corresponding valuation date for the assessment year 1957-58 for the purposes of wealth-tax, the values of the fixed assets, viz., lands, buildings and plant and machinery were shown respectively as Rs. 5,10,657, Rs. 1,04,74,800 and Rs. 1,78,32,641. The increase in the value of the fixed assets owing to revaluation continued to remain unaltered. But these values were arrived at after providing for some depreciation. In assessing the respondent to wealth-tax for the assessment year 1957-58, the Wealth-tax Officer applied the global method of valuation sanctioned by Section 7(2)(a) of the Act and adopted the values of the fixed assets as shown by the respondent in its balance-sheet as on March 31, 1957. The Wealth-tax Officer rejected the respondents contention that the revaluation arose in order to determine the replacement value of assets for the purpose of insurance, because that reason was not mentioned in the directors report and the assets had been insured since 1952 and the "reinstatement value clause" was in existence even at that time. The Wealth-tax Officer did not also accept the respondents contention that the written down value as computed for income-tax purposes before revaluation should have been adopted as the value of the assets. Nor did he allow depreciation at rates applicable for income-tax purposes for the period from the date of revaluation up to March 31, 1957, since he found that the values stated in the balance-sheet were arrived at by the respondent after taking into consideration such depreciation as it considered to be reasonable. In appeal, the Appellate Assistant Commissioner confirmed the assessment. On further appeal the Appellate Tribunal approved of the action of the wealth-tax authorities in adopting the values as stated in the balance-sheet of the company as on March 31, 1957, incorporating the revaluation of the fixed assets as on March 31, 1956. The Appellate Tribunal, however, held that the respondent was entitled to an allowance of normal depreciation at the rates prescribed for income-tax on the recomputed value of the assets on account of wear and tear during the period that elapsed between the date of revaluation and March 31, 1957. On the applications of both the parties, the Appellate Tribunal stated a case to the High Court on the following questions of law : (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 companys 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 companys income-tax record (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 ;