BANERJEE, J. - (1.) IN this reference, under s. 27(1) of the WT Act, we are concerned with three assessment years, namely, 1957-58, 1958-59 and 1959-60. The relevant valuation dates are 31st March, 1957, 31st March, 1958, and 31st March, 1959.
(2.) THE assessee is a limited company and owns certain depreciable assets, to wit, buildings, plant and machinery. For the asst. yrs. 1957-58 to 1959-60, the assessee-company respectively claimed deduction of Rs. 12,27,992, Rs. 11,95,070 and Rs. 9,37,339 from the book value of its depreciable assets. The claim for deduction was made on the theory that depreciation had not been provided in the books according to the rates as in the IT Act but at rates less than that. The WTO repelled the claim with the following observation : "I am of opinion that the assessee is not entitled to make this type of adjustment. Under s. 7(2)(a) of the WT Act, the choice between valuing separately each asset of the assessee or determining the value of the assets of the business as a whole is with the WTO. To avoid difficulties involved in the valuing of each and every item of asset of the assessee separately it is decided to adopt as a general rule the global method of valuation of the asset as per balance-sheet while this method is adopted. The assessee cannot have the benefit both ways. In the circumstances the deduction claimed is not allowed." The assessee appealed before the AAC for all the three years and contended that the WTO should have taken the value of the depreciable assets, on the valuation date, at the rate computed for income-tax purposes and not at the balance-sheet value, because there should be some uniform basis under the WT and IT Acts. The AAC repelled the contention and confirmed the order of assessment for the years 1957-58 and 1958-59 with the following observation : "There is no provision at all in the WT Act that W. D. V. of depreciable assets should be taken for purposes of computing the net wealth. Under s. 7, it is either the open market value of the assets or the net value of the assets as a whole having regard to the balance-sheet as on the valuation date that have to be taken for computing the net wealth. The W. D. V. is not the market value and indeed may differ very widely therefrom. It is not also open to the appellant to have the W. D. V. of the depreciable assets substituted for the balance-sheet value when the net value of all the assets of the business as a whole having regard to the balance-sheet, is to be computed. The contention raised by the appellant is without any force and dismissed."
(3.) FOR the year 1959-60, he repelled the same argument of the assessee, with the following further observation : "While computing the wealth under s. 7(2) of the Act, the WTO is not bound to go into details of the valuation of the assets in the balance-sheet and find out whether each and every asset has been properly valued. If this is the case, then the WTO need not take the value of the balance- sheet assets but the W. D. V. computed for income-tax purposes. If any assessee does not provide for depreciation in its accounts, then it means that in the opinion of the company the assets do not suffer any depreciation. Therefore, the market value in the opinion of the company is the same as the balance-sheet value. In such a case, the WTO need not go out of his way and find out the value on the basis of records. It was found that from the asst. yrs. 1949-50 to 1959-60, the depreciation as per income-tax assessments is very much less than the depreciation actually provided in the accounts by the appellant. It was noticed that on 31st March, 1948, the W. D. V. of the assets as per income-tax records was 18,91,000 whereas according to the books of accounts it was Rs. 33,69,000. This shows that for the period from 1948 to 1958, the appellant has been showing in the balance-sheet the value of the fixed assets at a figure higher than shown by the income-tax assessment records. This means that in the opinion of the appellant-and these accounts were audited by chartered accountants and passed by the shareholders-that the assets were worth more than the value shown by the income-tax assessment records. If this was so, then all of a sudden in March, 1959, the assets cannot be considered as being of a value lower than the value shown in the balance-sheet. It was also learnt that the present managing agents, namely, Birla Brothers Ltd., purchased the shares of the appellant company on the basis of the balance- sheet in March, 1948. Therefore, this also goes to show that the value of the assets was as shown in the balance-sheet and not as shown in the W. D. V. of income-tax records." The assessee took a further appeal before the Tribunal, which allowed the appeals, on the following line of reasoning : "The appellant in this case was not adequately providing for normal wear and tear of the depreciable assets in its accounts. The depreciation provided for by the assessee in its books was much lower than what was allowable as normal depreciation under the IT Act, with the result that the difference amounted to Rs. 12,19,851 for the first year, Rs. 11,79,255 for the second year and Rs. 9,22,724 for the third year. In our opinion, the AAC was wrong in holding that the net value of the assets of the business as a whole had to be taken exactly as shown in the balance-sheets and no adjustments whatever could be made in respect thereof. Sec. 7(2) enjoins on the WTO to make such adjustments to the balance-sheet value as the circumstances of the case may require. In fact, s. 7(2) imposes some obligation on the WTO to exercise his discretion and to make such adjustments to the balance-sheet as the ends of justice may require. In cases where on account of a defective method of accounting followed by an assessee the value of the assets shown in the balance-sheet has become unrealistic for want of necessary provision therein for normal wear and tear of the assets, it is the duty of the WTO to make such adjustments as would eliminate the detriment arising to the assessee by reason thereof. We, therefore, direct that the value of the depreciable assets should be included in the net wealth after allowing for normal depreciation as computed for the purpose of income-tax assessments." ;