Pathak, J. - (1.) THREE questions have been referred by the Appellate Tribunal in this wealth-tax reference : "(1) Whether, on the facts and in the circumstances of the case, the enhancement in the value of the assets, according to the revaluation made in 1948, could be taken into account in ascertaining the net wealth for the assessment year 1957-58 ? (2) If the answer to question No. 1 is in the affirmative, whether the value to be included in the net wealth is the value as fixed in 1948 or such value as reduced by depreciation in the intervening years ? (3) Whether in computing the net wealth, the assessee-company is entitled to deduction of provision made for tax liability relating to periods ending on or before the valuation date, although the relevant assessments had not been completed and the demand notices served till that date ?"
(2.) THE assesssee is a limited company and owns a textile mill. Its fixed assets were revalued in 1948 and, consequently, the value of the assets was enhanced by a sum of Rs. 1,68,65,270, the increased valuation being adopted by the assessee by a resolution of its directors passed on August 22, 1949. In 1953, an old dye house of the assessee was demolished, thereby the block account was reduced by a sum of Rs. 29,492. THE net increase on the revaluation of 1948 was thus reduced to Rs. 1,68,35,778 in 1953. The assessee was assessed to wealth-tax for the year 1957-58, the valuation date being December 31, 1956. The Wealth-tax Officer determined the total wealth of the assessee by adopting the value of the assets according to the balance-sheet of the assessee as on the valuation date. He chose to proceed under Section 7(2)(a) of the Wealth-tax Act. The increased valuation having been incorporated in the accounts and as the Wealth-tax Officer adopted the global method of valuation the increased valuation was taken into consideration for the purpose of computing the net wealth. The assessee appealed against the inclusion of the enhanced value before the Appellate Assistant Commissioner of Wealth-tax but was unsuccessful. In second appeal before the Appellate Tribunal it urged that the increase in the valuation of the assets should have been excluded from the net wealth. It pointed out that the adoption of the market value of the individual assets was permissible if recourse was had to Section 7(1) of the Act but not where the assessment was made with reference to Section 7(2)(a). It submitted that the Wealth-tax Officer should exercise his discretion under Section 7(2) and make adjustments in the valuation of the assets as disclosed in the balance-sheet so that only the valuation before enhancement was taken for computing the total wealth. The Tribunal rejected this contention of the assessee and held that the full enhanced value of the assets should be adopted. But it proceeded to give the benefit of depreciation to the assessee on the full enhanced value by allowing depreciation for the years following the year of revaluation. The allowance on account of depreciation, the Tribunal held, was an adjustment which the Wealth-tax Officer should make in the balance-sheet values, relying on the power to make adjustments conferred under Section 7(2). The first two questions referred here deal with the controversy whether the enhanced valuation of the assets, upon the revaluation effected in 1948, should be taken into account and, if that be so, whether the value to be included in the net wealth is the value fixed in 1948 as reduced by the depreciation in the following years.
(3.) THE assessee also claimed that it was entitled to treat the provision for taxes as a deduction in computing the net wealth even though the tax liability had not been quantified by an assessment order. THE Tribunal held that a provision for taxes was not a "debt owed" for the purpose of computing the net wealth as denned by Section 2(m) of the Wealth-tax Act. Accordingly, the third question set out above has been referred. The first and third questions can be disposed of shortly. Similar questions arose in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, 1960 59 ITR 767 ; [1966] 2 S.C.R. 688 (S.C.). In that case the assessee had shown in his balance-sheet the property value, on revaluation of its assets, 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 revaluation. The Wealth-tax Officer took the sum of Rs. 2,60,52,357 as the value of the assets. The assessee contended that an adjustment had to be made in view of the increase in the value shown in the balance-sheet upon revaluation. The Supreme Court, however, held that the Wealth-tax Officer was justified in taking the value of the assets at the figure shown in the balance-sheet in the absence of a convincing explanation by the assessee that the figure was inflated for acceptable reasons. Here also, in the case before us, the balance-sheet showed the value of the assets on the enhanced figure and no attempt has been made to show that it was an inflated figure. Upon the principle which found favour with the Supreme Court, we hold that the Wealth-tax Officer, when ascertaining the net wealth for the assessment year 1957-58, was entitled to take into consideration the enhanced value of the assets on the basis of the revaluation made. We answer the first question in the affirmative.;