COMMISSIONER OF WEALTH TAX M P Vs. GWALIOR RAYON SILK MFG WVG CO LIMITED NO 2

JUDGEMENT

(1.) IN this reference under S. 27(1) of the WT Act, 1957, the Tribunal, Bombay Bench -A, has referred the following two questions for our opinion:

(2.) THIS reference arises on the following facts: The assessment order for valuing the respondent's assets for the asst. year 1957 -58, to be valued on 31st March, 1957, was passed by the WTO on 25th Sept., 1958 (vide petitioner's annex. "B"). The respondent is a limited company manufacturing and selling staple fibre yarn and cloth. In the balance sheet of the company an ad interim provision for depreciation was made to the extent of Rs. 1,32,00,000 as shown in the balance sheet. But at the time of assessment, the respondent claimed the depreciation to the extent of Rs. 2,83,49,526. However, the WTO allowed the depreciation to the extent of Rs. 50,51,515. On an appeal to the AAC, he, by order, dt. 22nd Jan., 1959 (Petitioner's annex."C"), allowed the depreciation to the extent of Rs. 1,32,00,000, as shown in the balance sheet of the respondent's accounts for the relevant year. Against the order of the AAC, the Department and the assessee both filed appeals before the Tribunal and as per order, dt. 16th Jan., 1964 (Petitioner's annex. "D"), the Tribunal, relying on a decision of the Bombay High Court in CWT vs. Indian Standard Metal Co. Ltd. (1963) 49 ITR 832 (Bom) : TC63R.260, dismissed the appeal filed by the Department and partly allowed depreciation to the extent that the respondent would be entitled under the Indian IT Act, 1922, for the purpose of arriving at a valuation as per S. 7(2) of the WT Act, 1957. The Department, therefore, moved the Tribunal for making a reference to this Court under S. 27 (1) of the WT Act, 1957, and hence this reference.

(3.) IN the Bombay case while computing the value of the assets of a business for the purposes of assessment of wealth -tax, the learned judges of the Bombay High Court laid down that the WTO would be entitled to follow either of the two methods mentioned in S. 7 of the Act, namely, he may either determine the market value of the assets under sub -s. (1) of S. 7 or he may proceed on the global valuation basis of valuing the assets of the business as a whole under sub -s. (2) of S. 7. If he proceeds to make the valuation on the global valuation basis under sub -s. (2), he must take the balance sheet of the business as the basis for making the valuation and make such adjustments as he considers necessary. In valuing the assets of the assessee's business for purposes of wealth - tax, the WTO proceeded under sub -s. (2) of S. 7 and took the book value of the assets shown in the balance sheet, viz., Rs. 21,56,655, as the value of the assets without deducting the sum of Rs. 8,70,000, which was shown in the balance sheet as accumulated arrears of depreciation. The AAC held that the amount of depreciation which had been allowed by the IT authorities should be deducted from the book value shown in the balance sheet. The Tribunal had agreed with that view. The learned judges of the Bombay High Court held that the assessee was entitled to claim deduction of the amount of accumulated depreciation allowance in its fixed assets, not written off in the books, but allowed by the Department in the IT assessments, for the purpose of computing the net wealth under S. 7 of the WT Act. The learned judges also further held that the mere fact that in the balance sheet, the fixed assets were shown at the book value and the depreciation had not been accounted for by setting up a depreciation fund and taking the amount to that fund was not a sufficient reason for not deducting the amount of depreciation from the book value. The learned judges further held that it could not be laid down as an invariable rule of law that simply because depreciation had been allowed under the IT Act, the same must be allowed in determining the net value of the assets for purposes of wealth -tax and whether such depreciation should be deducted or not must depend on the facts and circumstances of each case. With respect to the said view expressed by the learned judges of the Bombay High Court, a Division Bench of this Court in Hira Mills Ltd. vs CWT (MCC No. 322 of 1968 -6th April,1973) has taken a slightly different view, based on an earlier decision of this Court in CWT vs. Swadeshi Cotton and Flour Mills Ltd. (1968) 69 ITR 539 (MP) : TC63R.230. In CWT vs. Swadeshi Cotton and Flour Mills Ltd.(supra), a Division Bench of this Court observed as follows: