COMMISSIONER OF WEALTH TAX Vs. INDIAN STANDARD METAL COMPANY LIMITED

JUDGEMENT

(1.) THIS is a reference under section 27(1) of the Wealth -tax Act and the question which is referred thereunder is as follows :

(2.) THE assessee is a limited company and we are concerned in the present case with the assessment year 1957 -58, for which the relevant valuation date is the 31st December, 1956. The assessee in the return which it submitted, gave the net value of its assets allowing for the depreciation in their value. In this return, it appears, the book value was given of the assets. After the return was submitted, there was correspondence entered into between the Wealth -tax Officer and the assessee. The Wealth -tax Officer intimated to the assessee that he wanted the market value of each of the assets on the date of valuation. The assessee then submitted to the Wealth -tax Officer a fresh computation of its wealth as on 31st of December, 1956. In this statement the assessee gave its total wealth on the global valuation basis adopting two different methods of computation. According to both the methods adopted in this statement, the total wealth, which it wanted to be substituted in the original return submitted by it, came to Rs. 15,19,462. The Wealth -tax Officer thereafter made his assessment order in which he added to the figure of total wealth as computed by the assessee a further sum of Rs. 1,397 on account of the difference between the provision of taxation made by the assessee and the advance tax which it had already paid and arrived at the figure of Rs. 15,20,859 for the total wealth of the assessee. On the basis of the said figure arrived at for the total wealth of the assessee, he made the assessment and issued a notice of demand. Against the said order of assessment the assessee went in appeal to the Appellate Assistant Commissioner. The contention, which was raised before the Appellate Assistant Commissioner, was that the Wealth -tax Officer should have allowed an adjustment to the extent of Rs. 8,70,000 in the computation of the net wealth of the assessee since that was the total amount of the depreciation in the value of the assets. It was urged that in the income -tax assessments of the assessee the said amount of depreciation had been allowed by the income -tax department as the proper depreciation amount and in the balance -sheet of the assessee company the said amount was also duly shown by a note at the end of the balance -sheet as the arrears of depreciation. The Appellate Assistant Commissioner took the view that since the assessment of the assessee was made on the global valuation of the assets under section 7(2)(a) of the Wealth -tax Act, the Wealth -tax Officer should have, in view of the balance -sheet of the company submitted before him, taken into consideration the amount of depreciation shown in the note to the balance -sheet. It was argued before the Appellate Assistant Commissioner that in the accounts of the assessee company, the block of assets had not been fully depreciated to bring it on par with the written down value on account of the sustained loss in the past or on account of the inadequacy of the profits. The company in its accounts had not provided for a depreciation fund and, consequently, the depreciation amount had not been shown as a liability on the liabilities side of the balance -sheet. It was for these reasons that the arrears of depreciation were shown by a note at the end of the balance -sheet. The Appellate Assistant Commissioner took the view that in the circumstances as explained on behalf of the assessee, the mere circumstance that the assets had not been actually depreciated in the account or that the depreciation was not taken to a depreciation fund set up in the accounts did not disentitle the assessee from contending that in arriving at the net value of its assets, the depreciation should have been taken into account. The Appellate Assistant Commissioner, accordingly, held that in the circumstances of the case the assessee would be entitled to have the amount of the depreciation deducted from the book value of the assets as shown in the balance -sheet except to the extent of the initial depreciation, if any, which might have been allowed in the income -tax assessment. In the view that he took of the matter, he directed the Wealth -tax Officer to modify the assessment accordingly. The department then took an appeal from the said order of the Appellate Assistant Commissioner to the Tribunal. The Tribunal agreed with the view taken by the Appellate Assistant Commissioner and dismissed the appeal. At the instance of the department, the Tribunal then drew up a statement of the case and referred to this court the question, which we have already stated above.

(3.) CLAUSE (b) of sub -section (2) provides for the method to be adopted in the case of a company, which is not resident in India. Section 14 provides for the return of wealth. Under this section returns are required to be filed before the 30th day of June of the corresponding assessment year or where an individual notice has been issued by the Wealth -tax Officer within the period prescribed but such notice. Section 15 provides that if returns are not furnished within the time allowed by section 14 or if further returns or revision of returns already filed is desired, returns or revised returns, as the case may be, may be filed at any time before assessment. Section 16 provides for the assessment of the returns submitted and under sub -section (1) of the said section the Wealth -tax Officer, if he is satisfied, without requiring the presence of the assessee or production by him of any evidence that a return made under section 14 is complete, is entitled to accept the said return and assess the net wealth of the assessee and determine the amount payable by him as wealth -tax. Under section 46 the Central Board of Revenue is given power to make rules for carrying out the purposes of this Act including the power to make rules providing for the manner in which the market value of any asset may be determined and the form in which the returns under the Act shall be made and the manner in which they shall be verified. Under the rules framed in pursuance of the said rule -making power, the form of return of net wealth is provided, which, in the case of an assessee carrying on business, is Form B, Part I of this form deals with assets located in India. It divides the assets into three sections. Section A, which is of immovable property, requires the total value to be given of the immovable properties as per annexure I. Section B, which movable property, requires the total value to be given as per annexure II and Section C relates to all assets of which the total value is required to be given as per annexure III. Annexure I requires the description of the property to be given together with its annual value and estimated capital value on the valuation date; annexure II, which relates to movable property, is divided into six parts, the first of which relates to fixed assets, such as plant, machinery, etc., and requires the description of the asset to be given together with its value. The second part cover investments, such as stock, debentures, etc., the third part is of current assets comprising of stores, spare -parts, loose tools, sundry debtors, works -in -progress, stock -in -trade and miscellaneous current assets; the fourth part is of loans and advances, the fifth is of cash on hand and at bank and the sixth of other movable assets, which are not included in items 1 to 5 and on which wealth -tax is payable. Annexure III deals with secured loans, unsecured loans and current liabilities and ascertained liabilities treated as contingent liabilities, etc.