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PETITIONER: COMMISSIONER OF  WEALTH-TAX,  CALCUTTA,  NOWWEST BENGAL II

       Vs.

RESPONDENT: TUNGABHADRA INDUSTRIES LTD., CALCUTTA

DATE OF JUDGMENT: 08/08/1969

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. (CJ) GROVER, A.N.

CITATION:  1970 AIR  352            1970 SCR  (1) 789  1969 SCC  (2) 528  CITATOR INFO :  F          1977 SC 142  (7,11)

ACT:     Wealth  Tax Act, 1957. ss. 7(2)(a) and  27(6)--Valuation of  assets of running business--Value as given  in  balance- sheet and written down value of assets--Which to be  adopted for assessment--Assessee must  produce material to show that value  other  than  that shown in  balance-sheet  should  be adopted--Duty  of  Tribunal on receiving  judgment  of  High Court or Supreme Court.

HEADNOTE:     The  respondent company  was assessed to wealth-tax  for the  assessment  years  1957-58, 1958-59  and  1959-60.   In computing the net wealth of the respondent on the respective valuation  dates the Wealth Tax Officer proceeded  under  s. 7(2)(a) of the Act and included the full value of the  fixed assets  as  shown  by  the  respondent  in  the   respective balance-sheets without any adjustment, after rejecting‘  its contention that the fixed assets should be assessed at their written  down value as computed for the purposes of  income- tax.  The  Appellate Assistant  Commissioner  confirmed  the valuation but the Income-tax Appellate Tribunal held that it would be fair in the circumstances of the case to adopt  the written  down value of the asset’s as value thereof for  all the years under appeal. On reference being made to it  under s.  27(1)  of  the Wealth Tax Act the  High  Court  held  in ’favour of the respondent.  The Revenue appealed,     HELD:  The  rule of valuation  on the  basis  of  market value under s. 7(1) of the Act may not yield a true estimate of  the  net  value of the total assets in  the  case  of  a running business.  The legislature has therefore provided in sub-s.  (2)(a)  that  when the assessee is  carrying  on   a business   for   which  accounts  are  maintained   by   him ’regularly,  the Wealth-Tax Officer may determine  the   net value  of   the business  as a whole, having regard  to  the balance-sheet of such business  as on the valuation date and make  such  adjustments  therein  as the  circumstances   of the  case  may require.  The power conferred  upon  the  tax officer to make adjustments as the circumstances of the case

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may require is also for  the purpose of arriving at the true value  of the assets of the business.  It is of course  open to  the assessee in any particular case to  establish  after producing  relevant  materials that the value given  of  the fixed   assets   in   the  balance-sheet   is   artificially inflated.  It is also open to the assessee  to establish  by acceptable  reasons  that  the written  down  value  of  any particular asset represents the proper value of the asset on the relevant valuation date.  In the absence of any material produced  by  the assessee to demonstrate that  the  written down value is the real value the Wealth-tax Officer would be justified in a normal case in taking the value given by  the assessee  itself  to its fixed assets in  the  balance-sheet for  the relevant year as the real value of the  assets  for the purposes of the Wealth-tax. It is a question of fact  in each  case  as to whether the depreciation has to  be  taken into  account in ascertaining the true value of the  assets. The  onus  of  proof is on the assessee  who  must   produce reliable material to show that the written down value of the assets  and not the balance-sheet value is the  true  value. [793 E-794 C] 790      If,  therefore,  the assessee merely  claims  that  the written  down of the assets should be adopted but  fails  to produce any material to show  that written down value is the true value, the Wealth-tax Officer is justified in rejecting the  claims  and adopting the values shown by  the  assessee himself  in  his  balance-sheet as the  true  value  of  his assets. [794 C-D]      Kesoram Industries & Cotton Mills Ltd. v.  Commissioner of  Wealthtax  (Central)  Calcutta, (1966)  59  I.T.R.  767, applied.      (ii) Section 27(6) of the Act  requires the Tribunal on receiving a copy of the judgment of the Supreme Court or the High  Court  as the ease may be to pass such orders  as  are necessary  to  dispose  of  the  case  conformably  to  such judgment. [794 E]      If  the  Supreme  Court agrees with  the  view  of  the Tribunal  the appeal may be disposed of by a  formal  order. But  if the Supreme Court  disagrees with the Tribunal on  a question  of law, the Tribunal must modify its order in  the light  of  the order of the Supreme Court.  If  the  Supreme Court has held that the judgment of the Tribunal is vitiated because  it is based on no evidence or because the  judgment proceeds upon a misconstruction of the statute, the Tribunal would  be  under a duty to dispose of the  case  conformably with  the opinion of the Supreme Court and on the merits  of the  dispute and re-hear the appeal. In all cases,  however, opportunity must be afforded to the parties of being  heard. [794 F-H]     Income-tax Appellate Tribunal, Bombay, v. S.C.  Cambatta JUDGMENT: v. Commissioner  of Income-tax, (1967) 66 I.T.R. 478 (S.C.), applied.

&     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1629  to 1631 of 1968.     Appeals  from the judgment and order dated  January  29, 1965 of the Calcutta High Court in Wealth Tax Matter No. 372 of 1961.     B.  Sen,  T.A. Ramachandran, R.N.  Sachthey   and   B.D. Sharma, for the appellant (in ’all the appeals).

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   M.C. Chagla, R.K. Choudhury and B.P. Maheshwari, for the respondent (in all the appeals).     The Judgment of the Court was delivered by     Ramaswami,  J.   This appeal is brought  by  certificate granted   under  s.  29(1)  of  the  Wealth   Tax   Act,1957 (hereinafter referred to as the Act) against the judgment of the Calcutta High Court dated January 29, 1965 in Wealth Tax Matter No. 372 of 1961.     The  respondent  is  a  company  which  is  assessed  to wealthtax for the assessment years 1957-58,1958-59 and 1959- 60.  In  computing the net wealth of the respondent  on  the respective valuation dates the Wealth Tax Officer  proceeded under  s. 7(2)(a) of the Act and included the full value  of the  fixed   assets   as  shown by  the  respondent  in  the respective  balance  sheets without  any  adjustment,  after rejecting its  contention that  the  fixed assets should  be assessed   at their written down  value as computed for  the purposes of income-tax.  In the assessment order 791 for   1957-58  the Wealth-tax Officer  gave his reasons   as follows :--                    "The assessee claimed that since the full               amount  of depreciation which  was  admissible               under  the Incometax Act was not  provided  in               the balance  sheet  the amount of depreciation               not   provided  for  earlier  should  now   be               deducted from the value of the assets in order               to   arrive   at  the   net    wealth.    This               contention   can  hardly  be  accepted.    The               depreciation  allowable under  the  Income-tax               Act  does not determine  the  market value  of               the   assets.    The   object   of    allowing                             depreciation  in the income-tax assess ment   is               quite  different  For  the  purpose  of    the               wealth-tax   assessment   the  value  of   the               assets as estimated by the assessee itself  in               its balance sheet has been accepted". Similarly  in his assessment order for 1958-59 the   Wealth- tax Officer stated as follows :--                   "Excluding  the value of land,  the  total               value  of the fixed  assets  as  per   balance               sheet   amounts  to Rs. 60,53,811 whereas  the               assessee has shown in its return the value  of               the  same at Rs. 7,69,435.  These values  have               been  shown  by the assessee on the  basis  of               income-tax  written  down value and   not   on               the  basis  of  the balance  sheet  values  as               required    under   the   global   system   of               valuation.   It is common knowledge  that  the               values of the imported machinery has increased               considerably during the last few years and, on               the valuation date, I do not think that  their               value should be less than that provided for in               the balance sheet". On appeal the Appellate Assistant Commissioner confirmed the valuation  of  the  fixed assets.   On  further  appeal  the Income-tax Appellate Tribunal held that it would be fair  in the  circumstances  of the case to adopt  the  written  down value of the assets as value thereof for all the years under appeal.  In the course  of its order the Appellate  Tribunal said:                    "The  income-tax assessment  depreciation               is  calculated  upon the original  cost  in  a               scientific  and   systematic manner  with  due

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             regard   to   the  nature   of    the   asset.               Therefore,    the  written   down   value   as               determined in the income-tax assessment may be               taken  as the fair index of the net  value  of               the  business assets in most  cases   ........               It   cannot  however  be  laid  down   as   an               inflexible  rule of law that  in  every   case               the written down value must  be taken  to   be               the  net 792               value  of the business assets.  If  that  were               so.  the  Legislature would have  said  so  in               clear  terms  instead  of  indulging  in   the               circumlocution  in  section 7(2)(a).  In  this               particular case, it appears, the assessee  did               not make any reserve for depreciation and  the                assets  are old dating back from the  inception               of    the   business  long  ago.    In   these               circumstances,  in  our opinion, it  would  be               fair  to adopt the written down value  of  the               assets  as  the  value thereof  for  all   the               years  under appeal  ....  " At  the  instance  of the  Commissioner  of  Income-tax  the Appellate Tribunal stated a case to the High Court under  s. 27(1) of the Act on the following question of law :--                     "Whether   on  the  facts  and  in   the               circumstances of the case, for the purpose  of               determining the net value of the assets of the               assessee under section 7(2) of the  Wealth-tax               Act, 1957 the Tribunal was right in  directing               that  the  written down value  of  the   fixed               assets  of the assessee should be  adopted  as               the  value thereof, instead of  their  balance               sheet value ?" By  its  judgment  dated January 29,  1965  the  High  Court answered  the question in the affirmative and in  favour  of the  respondent. Section  7 of the Act stood as follows at the material  time :--                     "(1) 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  subsection (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 the  circumstances  of               the case may require. 793       In   Kesoram  Industries  &  Cotton  Mills   Ltd.   v. Commissioner  of  Wealth  Tax,  (Central)  Calcutta(1)   the appellant-company  had  shown in its balance-sheet  for  the period  ending  March 31, 19.57, the  appreciated  value  on revaluation of its assets, after making certain adjustments, at Rs. 2,60,52,357 and had introduced in the capital reserve surplus a corresponding balancing figure of Rs.  1,45,87,000

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representing  the increase in the value of the  assets  upon re-valuation.  For the purposes  of  wealth-tax  the officer took  the  sum  of Rs. 2,60,52,357 as  the  value   of   the assets,  whereas  the company contended that  an  adjustment ought to be made in view of the increase in the value  shown in  the balance-sheet on re-valuation.  It was held by  this Court  that  as no one could know better the  value  of  the assets than the assessee himself, the Wealth-tax Officer was justified   in   accepting  the value of the assets  at  the vigour  shown by the appellant-company itself.  It was  open to  the appellant-company to convince the  authorities  that that figure was inflated for acceptable reasons; but it  did not  make any such attempt. It was also open to the  Wealth- tax   Officer   to   reject  the   figure   given   by   the appellant-company and to adopt another figure if he was, for sufficient  reasons,  satisfied  that  the  figure given  by the appellant was wrong.       It  is  argued  on  behalf of  the  appellant  in  the present   case that the High Court was not right in  holding that  the  principle   laid down by this  Court  in  Kesoram Industries(1)  case is   not   applicable.  In our   opinion there  is justification  for  this   argument.  Under   sub- section (1 ) of section 7 of the Act  the Wealth-tax Officer is  authorised to estimate for  the  purpose of  determining the  value of any asset, the price which it would fetch,  if sold  in  the open market on the valuation date.   But  this rule  in  the  case  of a  running  business  may  often  be inconvenient  and may not yield a true estimate of  the  net value of the total assets of the business.  The  legislature has,  therefore, provided in sub-section (2) (a) that  where the  assessee is carrying on a business for  which  accounts are maintained by him regularly, the Wealth-tax Officer  may determine  the not value of the assets of the business as  a whole, having regard to the balancesheet of such business as on  the valuation date and make such adjustments therein  as the  circumstances  of  the  case   may require.  The  power conferred  upon the tax officer to make adjustments  as  the circumstances  of  the  case may require  is  also  for  the purpose  of arriving at the true value of the assets of  the business.   It  is  of course open to the  assessee  in  any particular  case  to  establish  after  producing   relevant materials  that  the value given of the fixed as.sets in the balance sheet is artificially (1) (1966) 59 I.T.R. 767. 794 inflated.   It is also open to the assessee to establish  by acceptable  reasons  that  the written  down  value  of  any particular asset represents the proper value of the asset on the relevant valuation date.  In the absence of any material produced  by  the assessee to demonstrate that  the  written down  value is the real value, the Wealth-tax Officer  would be  justified in a normal case in taking the value given  by the assessee itself to its fixed assets in its balance sheet for  the relevant year as the real value of the  assets  for the purposes of the wealth-tax.  It is a question of fact in each  case  as to whether the depreciation has to  be  taken into  account in ascertaining the true value of the  assets. The  onus  of  proof is on the assessee  who  must   produce reliable material to show that the written down value of the assets  and not the balance-sheet value is the  true  value. If,  therefore, the assessee merely claims that the  written down  value  of the assets should be adopted  but  fails  to produce any material to show that the written down value  is the  true  value,  the Wealth-tax Officer  is  justified  in rejecting  the claims and adopting the values shown  by  the

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assessee  himself in his balance sheet as the true value  of his assets.  In our opinion the High Court should have based its decision on the principle of Kesoram Industries(1)  case and  the  question of law should be answered in  the  manner stated by us in this judgment.     But it is necessary to give certain effective directions in  this  case.   Section  27(6) of  the  Act  requires  the Tribunal on receiving a copy of the judgment of the  Supreme Court  or  the High Court as the case may be  to  pass  such orders as are  necessary  to dispose of the case conformably to  such judgment.  This clearly imposes an obligation  upon the  Tribunal  to  dispose of the appeal in  the  light  and conformably with the judgment of the Supreme Court.   Before the Tribunal passes an order disposing of  the appeal  there would normally be a hearing.  The scope of the hearing  must of  course depend upon the nature of  the  order  passed  by the  Supreme Court.  If the Supreme  Court  agrees with  the view  of  the Tribunal the appeal may be disposed  of  by  a formal  order.  But if the Supreme Court disagrees with  the Tribunal on a question of law, the Tribunal must modify  its order  in the light of the order of the Supreme  Court.   If the Supreme Court has held that the judgment of the Tribunal is  vitiated because it is based on no evidence  or  because the judgment proceeds upon a misconstruction of the statute, the  Tribunal would be under a duty to dispose of  the  case conformably with the opinion of the Supreme Court and on the merits   of   the dispute and re-hear the  appeal.   In  all cases, however, opportunity must be afforded to the  parties of being heard.  In Income(l) [1966] 59 I.T.R. 767. 795 tax Appellate Tribunal, Bombay v.S.C. Cambatta & Co. Ltd.(1) the  Bombay High Court has explained the procedure  followed in the disposal of an appeal conformably to the judgment  of the High Court.  Chagla C.J. in delivering the judgment  .of the  Court observed :-                   ".....   when a reference is made  to  the               High  Court    e her under  section  66(1)  or               section 66(2) the decision   of the  Appellate               Tribunal cannot be looked upon  as  final;  in               other   words,  the  appeal  is  not   finally               disposed  of.  It is only when the High  Court               decided  the  case,  exercises  its   advisory               jurisdiction,  and  gives  directions  to  the               Tribunal on questions of law, and the Tribunal               reconsiders  the matter and decides  it,  that               the appeal finally disposed of  .......  it is               clear  that  what the  Appellate  Tribunal  is               doing after the High Court has heard the  case               is  to  exercise its  appellate  powers  under               section 33  ......  The shape that the  appeal               would  ultimately take and the  decision  that               the  Appellate Tribunal would ultimately  give               would  entirely depend upon the view taken  by               the High Court." This  passage  was  quoted with approval by  this  Court  in Esthuri Aswathiah v. Commissioner of Income-tax(2).  In  the present case, therefore, the answer we have furnished to the question in the reference means that the Appellate  Tribunal must now, in conformity with the judgment of this Court, act under  s. 27(6) of the Act, that is to say, dispose  of  the case   after  rehearing  the  respondent-company   and   the Commissioner  in the light of the evidence and according  to law.       There will be-no order as to costs. G.C.

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(1) (1956) 29 I.T.R. 118, 120. (2)  (1967) 66 I.T.R. 478 (S.C.). 796