Dwarka Prasad, J. - (1.) THIS is a consolidated reference made under Section 27(1) of the W.T. Act and arises in the following circumstances: M/s. Man Industrial Corporation Ltd., Jaipur (hereinafter called " the assessee "), carries on business of manufacture of steel and iron frames and structures. The plant and machinery was installed some years ago and as on March 31, 1958, the book value of the fixed assets of the assessee was shown as Rs. 41,47,318.32 in the balance-sheet of the assessee-company for the year 1957-58. In the aforesaid balance-sheet depreciation for the year ending March 31, 1958, to the extent of Rs. 1,49,058 was written off as also depreciation for the year 1956-57 was written off to the extent of Rs. 1,50,081. The profit and loss account also took into account depreciation to the extent of Rs. 2,10,000, in respect of arrears of past depreciation on the ground that depreciation was not claimed by the assessee-company in the earlier years, prior to March 31, 1956, as there were no profits against which such depreciation could be set off. Thus, the depreciation was allowed to accumulate from the time of commencement of the business of the assessee up to March 31, 1956, and such arrears of depreciation amounted to Rs. 22,06,919, out of which the above mentioned sum of Rs. 2,10,000 was adjusted against profits in the balance-sheet for the year 1957-58. In this manner, total depreciation to the extent of Rs. 5,09,139 was shown in the balance-sheet for the year 1957-58 and the net depreciated book value of the fixed assets of the assessee-company, as on 31st March, 1958, after deducting the aforesaid depreciation was shown therein as Rs. 38,38,134-32.
(2.) SIMILARLY, in the balance-sheet for the year 1958-59, a sum of Rs. 1,57,362 was written off as depreciation for the year ending 31st March, 1959, while a sum of Rs. 3,26,969 was provided in the balance-sheet pertaining to the year 1958-59, as contribution towards arrears of depreciation, which was set off against the profits of that year. Thus, besides the amount of Rs. 5,09,139 which was set off as depreciation in the earlier year 1957-58, a sum of Rs. 4,84,331 written off as depreciation during the year 1958-59, and in this manner up to March 31, 1959, a total sum of Rs. 9,87,114 was set off as depreciation in respect of the fixed assets of the assessee-company against profits, as shown in the balance-sheet of the years 1957-58 and 1958-59. The depreciated value of the fixed assets of the assessee-company as on 31st March, 1959, was, therefore, mentioned as Rs. 33,46,552-68 in the balance-sheet of the year 1958-59. In the balance-sheet for the year 1957-58, the following note was given: " As stated in the notes with the last year's accounts no depreciation was provided for on fixed assets of the company from the commencement till 31-3-56 and the total of such arrears of depreciation was Rs. 22,06,969. During the year, a contribution of Rs. 2,10,000 towards such arrears of depreciation is made leaving a balance of Rs. 19,96,969 representing arrears of past depreciation." Similarly, in the balance-sheet for the year 1958-59, note 2 was given as under : " As stated in the notes with the last year's accounts, no depreciation was provided for on fixed assets of the company from the commencement till 31-3-56 and the total of such arrears of depreciation was Rs. 22,06,969. During the previous year, a contribution of Rs. 2,10,000 was made towards such arrears. During the current year a further contribution of Rs. 3,26,969 is made. There now remains a balance of Rs. 16,70,000, representing arrears of past depreciation up to 31-3-56." At the time of assessment of the assessee, for the purpose of wealth-tax, it was contended on its behalf before the WTO that the value of the fixed assets of the assessee-company should not be taken on the basis of the figures given in the balance-sheets for the respective years as depreciated book value of the fixed assets, but it should be computed as the written down value of such fixed assets, according to the income-tax assessments. This contention was rejected by the WTO as in his view the written down value as per the income-tax record was a very artificial and notional figure and had no relation to the market value of the concerned assets and that, while determining the net wealth of the assessee-company according to the global method, the depreciated value given in the balance-sheet should be considered as the base, subject to permissible adjustments. After rejecting the contention of the assessee, the WTO made some adjustments in the figures of Rs. 5,09,139 and Rs. 9,87,114, shown as depreciation in the balance-sheets of the assessee, as on March 31, 1958, and March 31, 1959, respectively, and deductions to the extent of Rs. 6,83,281 and Rs. 10,35,877 were allowed by the WTO, as deductions in respect of the fixed assets of the assessee, during the respective years. The assessee filed appeals against the assessment orders and the same argument was repeated on its behalf before the AAC at the time of hearing of the appeals. But under an erroneous impression that the portion of the arrears of depreciation actually written off in the profit and loss account was not allowed by the WTO, the AAC directed that the amount of Rs. 2/10,000 be allowed as depreciation in the assessment year 1957-58 and the amount of Rs. 3,26,969 be allowed as depreciation in the assessment year 1958-59. However, when the mistake was realised by the AAC he proceeded to issue rectification orders, restoring the orders passed by the WTO. Then the assessee filed second appeals before the Income-tax Appellate Tribunal, Bombay Bench ' B ', which accepted the contention of the assessee and allowed the appeals by a common order dated August 8, 1966. The Tribunal relied upon the decisions of the Bombay High Court in CWT v. Indian Standard Metal Company Ltd. [1963] 49 ITR 832 and of the Calcutta High Court in CWT v. Tungabhadra Industries Ltd. [1966] 60 ITR 447 and held that in normal circumstances and specially when the machinery was old, the written down value gave a fair indication of the real market value of the assets.
(3.) THE CWT applied to the Appellate Tribunal for making a reference, on which the following question has been referred to this court by the Appellate Tribunal by its order dated February 22, 1969 : " Whether in computing the net wealth of the assessee for the assessment years 1958-59 and 1959-60, under Section 7(2)(a) of the Wealth-tax Act, 1957, the book value of the fixed assets less depreciation actually allowed should be taken as their market value for wealth-tax purposes or their written down value as per income-tax assessments, when, a note had been made in the relevant schedule of fixed assets annexed to and forming part of the balance-sheets that certain arrear of depreciation could not be adjusted ? " According to Section 3 of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act"), wealth-tax has to be charged for every assessment year in respect of the net wealth of the assessee, at the rates specified in the Schedule annexed to the Act. Section 7 of the Act lays down the manner in which the value of the assets has to be determined, the relevant part of which runs as under : " 7. Value of assets how to be determined.--(1) Subject to any rules made in this behalf, 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 Sub-section (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 may be prescribed;......" Under Sub-section (1) of Section 7, the value of any asset, for the purpose of the Act, shall be estimated at the price which the same would fetch if sold in the open market on the valuation date. However, in case the assessee is carrying on a business, in respect of which accounts are maintained by him regularly, then instead of proceeding to determine separately the value of each asset held by the assessee in such business, in accordance with the provisions of Sub-section (1) of Section 7, the WTO may proceed under Clause (a) of Sub-section (2) of Section 7 and determine the net value of the assets of the business of the assessee, as the value specified in the balance-sheet of such business, as on the valuation date, after making such adjustments therein, as the circumstances of the case may require. Thus, although under Sub-section (1) of Section 7, the value of any asset will be deemed to be the value which the same would fetch, if sold in the open market on the valuation date, in the opinion of the WTO ; yet in order to avoid the complexities involved in determining separately the value of each of the assets of an assessee whose business is running, the WTO may assess the value of the net wealth of the assessee in accordance with the provisions of Clause (a) of Sub-section (2) of Section 7 of the Act, by taking the valuation of the assets, as shown in the balance-sheet, as the base and after making such adjustments therein as the circumstances of each case may require. In the present case, the revenue authorities adopted the latter course and proceeded to determine the value of the net wealth of the assessee according to Clause (a) of Sub-section (2) of Section 7. The WTO took the view that the value of the fixed assets of the assessee, as shown in the balance-sheet, after allowing the depreciation including contribution towards accumulated depreciation up to March 31, 1956, which has been adjusted by the assessee against profits in the balance-sheet of the relevant year, should be taken as the base and minor adjustments permissible therein may be allowed. But the Appellate Tribunal considered that in view of the fact that the depreciation was not set off by the assessee since the inception of the company up to March 31, 1956, on the ground that the assessee-company was not making such profits against which the depreciation could be set off in those years and a sum of Rs. 22,06,969 was accumulated as arrears of depreciation up to March 31, 1956, the written down value of the fixed assets of the assessee, as allowed under the I.T. Act, should be taken as the value of the fixed assets of the, assessee, during the relevant assessment years. ;