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PETITIONER: COMMISSIONER OF WEALTH TAX

       Vs.

RESPONDENT: HINDUSTAN MOTORS LIMITED

DATE OF JUDGMENT10/03/1976

BENCH: GOSWAMI, P.K. BENCH: GOSWAMI, P.K. KHANNA, HANS RAJ

CITATION:  1977 AIR  142            1976 SCR  (3) 579  1977 SCC  (3) 356

ACT:      Wealth Tax  Act, 1957  (Act XXVII of 1957)Sec. 7(1)(2)- Valuation of’  depreciable  assets-Valuation  of  assets  in balance Sheet, if not proper, whether depreciation under the Income Tax  Act can  be taken  into account  Onus  to  prove valuation.

HEADNOTE:      The respondent  assessee maintains  accounts regularly. In the  accounts maintained  by  him  adequate  depreciation could not  be provided in the balance sheet in regard to the depreciable fixed  assets on  account of  paucity of profits and hence  the depreciation as provided in the balance sheet was very  much lower  than the  depreciation allowable under the Income  Tax Act.  The assessee claimed before the Wealth Tax officer that in computing the wealth on the basis of the balance sheet  he should reduce the book value of the assets by the  difference between the written down value that would be determined  for the  purpose of  Income Tax  Act and  the actual book  figures disclosed  by the  balance  sheet.  The Wealth Tax  officer rejected  the contention of the assessee and estimated  the net  value of  the assets as shown in the balance sheets  for the  respective.  years.  The  appellate Assistant Commissioner  confirmed the  orders of  the Wealth Tax  officer.   The  Appellate  Tribunal,  however,  took  a contrary view  and held  that where  proper depreciation has not been allowed in the balance sheet it is proper to accept the written  down value  of the assets as worked out for the purpose of  income tax  assessments. On  a reference made to the High  Court, the  High Court  answered the  question  in favour of the assessee.      Allowing an  appeal by certificate under section 29 (1) of the Wealth Tax Act. ^      HELD: Under  Section 7(1)  of-the Wealth  Tax  Act  the value of  any  asset  is  the  market  value.  Section  7(2) provides that notwithstanding anything in section 7(1) where the assessee  carries on  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

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to the  balance sheet  of such  business as on the valuation date  and   making   such   adjustments   therein   as   the circumstances of  the case  might require. The object of the Wealth Tax  officer under section 7 is to arrive at the true value of the assets of the business. If what is shown in the balance sheet  is not the true value of the assets disclosed it is  open to  the  assessee  to  satisfy  the  Wealth  Tax Officer. by  producing relevant  materials  that  the  value given of  the fixed  assets in the balance sheets is not the true value,  and, therefore  a reduced  value of  the assets should be taken into account. In case the assessee wants the written down  value to  be accepted  it is  open to  him  to establish, by  acceptable reason that the written down value represent the  proper value  of the  assets at  the relevant date. The  onus in  that  case  would  be  entirely  on  the assessee. Merely  a statement  that on account of paucity of profits adequate  depreciation would  not be provided for in the balance  sheet is  not sufficient  to discharge the onus which rests  upon the  assessee. The  judgment of  the  High Court is  set aside  and the  question answered  against the assessee. [581E-H, 582A-B, H, 583A. 584C]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 894-896 of 1971.      From the Judgment and order dated the 29th January 1965 of the Calcutta High Court in Wealth Tax Matter No. 21/52. 580      R.N. Sechthey and S. P. Nayar, for the Appellant.      Leila Seth,  Neelima Thakur,  Praveen Kumar  and B.  P. Maheshwari for the Respondent.      The Judgment of the Court was delivered by      GOSWAMI, J.-These  appeals are  by certificate  of  the Calcutta High  Court under  section 29(1)  of the Wealth-tax Act (briefly the Act).      The  assessment   years  of   the  respondent   company (hereinafter to  be described  as the  assessee) involved in the composite  reference to  the High  Court  under  section 27(1) of  the Act are 1957-58, 1958-59 and 1959-60 for which the corresponding valuation dates are 31st March, 1957, 31st March, 1958 and 31st March, 1959.      The only  common question  of law which was referred to the High  Court appertaining  to all  the  three  assessment years is in the following terms:-           "Whether on  the facts and in the circumstances of      the case  and in view of the provisions of section 7(2)      of the  Wealth-tax Act,  an adjustment could be made in      ascertaining the net value of the depreciable assets of      the assessee  company by  substituting the written down      value of  the assets  computed under the Indian Income-      tax Act for the value as shown in the balance sheet’’.      The facts  appearing from  the statement of the case as well as  the various orders annexed therewith are briefly as follows:-      The assessee claimed before the Wealth-tax officer that in computing  the wealth  on the  basis of balance sheet the Income-tax officer  should reduce  the  book  value  of  the assets by the difference between the written down value that would be  determined for  the purpose  of Income-tax Act and the actual  book figures disclosed by the balance sheet. The difference between the book value and the written down value amounted  to   Rs.  95,69,070/-,  Rs.  67,78,304/-  and  Rs. 36,15,678/-  respectively   for  the   three   years   under

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reference. The  only contention  common to the three appeals related  to  the  valuation  of  the  fixed  assets  of  the assessee. The  Wealth-tax officer  proceeded  under  section 7(2) (a) and computed the value of the assets at the figures shown in the balance sheets on the material valuation dates. The assessee,  however, contended  that regard  being had to the depreciable assets the written down value determined for the purpose  of Income-tax  assessment should be taken to be the value  of the assets for the purpose of inclusion in the net wealth and not the value shown in the respective balance sheets. It was not disputed that adequate depreciation could not be  provided for  in the balance sheets in regard to the depreciable fixed  assets on  account of  paucity of profits and hence  the depreciation as provided for in the books was very much  lower than  the depreciation  allowable under the provisions of  the Indian  Income-tax  Act.  The  Wealth-tax officer  rejected   the  contention   of  the  assessee  and estimated the  net value  of the  assets  as  shown  in  the balance sheets  for  the  respective  years.  The  Appellate Assistant Commissioner  confirmed the  orders of the Wealth- tax officer in the appeals filed by the assessee. 581      The Appellate  Tribunal, however,  took a contrary view and held that-           "in all  such cases  where proper depreciation has      not been  allowed for  in the  balance  sheet  for  any      reason whatsoever,  it is  proper to accept the written      down value  of the assets as worked out for the purpose      of the Income-tax assessments." The Tribunal,  therefore, directed the Wealth-tax officer to adopt the  written down  value of  the assets  as the  value thereof for  inclusion in  the net  wealth for all the years under reference.      At the  instance of  the Commissioner of Wealth-tax the question set  out earlier  was referred  to the  High  Court under section  27(1) of  the Act.  The  High  Court  by  the impugned judgment  of January  29, 1965,  following  another decision delivered  on  the  same  day  in  Commissioner  of Wealth-tax,  Calcutta   v.  Tungabhadra  Industries  limited answered the  question in  the affirmative  and in favour of the assessee. Hence the present appeals by certificate.      The decision  in  the  Tungabhadra  Industries  Limited (supra), which  was followed by the High Court, was reversed by this  Court  in  the  Commissioner  of  Wealth-tax,  West Bengal-II v.  Tungabhadra Industries Ltd. on August 8, 1969. This Court  following an  earlier decision  of this Court in Kesoram Industries  and Cotton Mills Ltd. v. Commissioner of Wealth-tax (Central),  Calcutta, accepted  the contention of the Revenue.      Section 7  of the  Act at  the material  time stood  as follows:-           "(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  fech 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

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                   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......." It is,  therefore, clear  that when the assessee is carrying on a  business for  which accounts  are  maintained  by  him regularly it  is open to the Wealth tax officer to determine the net  value of the assets of the business as a whole with reference to  the balance  sheet  of  such  business  as  on valuation date  and to  make such adjustments therein as the circumstances 582 of the  case may  require.  The  object  of  the  Wealth-tax officer in determining the value of the assets under section 7 is  to arrive  at the  true value  of the  assets  of  the business. If what has been shown in the balance sheet is not the true  value of  the assets  disclosed, it is open to the assessee to  satisfy the  Wealth-tax  officer  by  producing relevant materials  that the value given of the fixed assets in the balance sheet is not the true value and, therefore, a reduced value  of the  assets should  be taken into account. The onus in that case would be entirely upon the assessee to satisfy the  Wealth-tax officer  that what  is shown  in the balance sheet is not the actual and true value of the assets on the  valuation date.  The decision  will depend  upon the facts and circumstances disclosed in each case.      This Court  in the  Tungabhadra Industries case (supra) dealing with the same question observed as follows:-           "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 materials  to show  that the      written down  value is  the true  value, the Wealth-tax      officer  is   justified  in  rejecting  the  claim  and      adopting the  values shown  by the  assessee himself in      his balance sheet as the true value of his assets".      We should  have thought  that the  question  raised  in these appeals  is squarely  covered by  the above  decision. Even so, Mrs. Leila Seth submits that in the instant case it is admitted that adequate depreciation could not be provided for in  the balance sheet in regard to the depreciable fixed assets on  account of  paucity  of  profits  and  hence  the depreciation as provided in the balance sheet was much lower than the  depreciation allowable.  According to  the learned counsel this  fact is  sufficient to  displace  the  balance sheet as  a prima facie evidence and substitute in its place the written  down value  and onus  shifts on  the Revenue to establish that paucity of profits is wrong.      It is  true, as described in the Statement of the case,

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that it  was not  disputed that  adequate depreciation could not be  provided for  in the  balance sheet  on  account  of paucity of  profits. But we are unable to hold that merely a statement to that effect is sufficient to discharge the onus which rests upon the assessee to establish that the value of the 583 assets shown  in the  balance sheet is not the real value of the assets  as on   the valuation date. If the contention of the learned  counsel is  accepted, it  will be tantamount to laying down  a rule  that in  determination of  the value of assets the written down value allowable under the Income-tax Act shall  always be the value of the assets. In that event, there would  be no necessity for any exercise by the Wealth- tax officer.  That is, however, not the intention of section 7 which  clearly shows  that the Wealth-tax officer may make such adjustments  in the  value of  the assets  shown in the balance sheet  in accordance  with the  requirements of  the circumstances disclosed by the assessee. Those circumstances which will  be disclosed  by the assessee must relate to the determination of  the real  value of the assets irrespective of what  is shown in the balance sheet if the assessee seeks a lower  figure than appearing in the same. Thus onus is not discharged by  merely stating  that since profits in a given year are  less or  nil little  or no  provision was made for depreciation  of  the  assets  in  the  balance  sheet.  The assessee  must   also  show   further  to  what  extent  the depreciation has  resulted in  lowering  the  value  of  the assets compared  to that  mentioned in the balance sheet and whether the  written down  value computed  under the  Indian Income-tax Act  in fact  represents the  lower value.  It is open, as  observed by  this Court in the case of Tungabhadra Industries (supra),  to establish  after producing  relevant material that  the value  of the fixed assets in the balance sheet is artificially inflated. Further in case the assessee wants the  written down  value to be accepted, it is open to him to  establish, as  mentioned in that case, by acceptable reason, that  the written  down value  represents the proper value of the assets at the relevant date.      The learned  counsel  also  drew  our  attention  to  a decision of  this Court  in the  Commissioner of Wealth-tax, West Bengal  v. Aluminium  Corporation of  India  Ltd.,  (1) where at  page 172 there is an observation that the value of the assets shown in the balance sheet is not conclusive. The value of  the assets  shown in  the  balance  sheet  is  not conclusive in  the sense  that it  can be demonstrated to be more or less than what is shown therein. That is the core of determination  under  section  7(2)  (a)  of  the  Act.  The observation of  this Court  in the  above  case  has  to  be understood only in that context.      We may  in this  connection refer  to clause (b) of the proviso to  clause (vi)  of sub-section (2) of section 10 of the Income-tax  Act, 1922  where a  provision  is  made  for carrying forward of depreciation allowance for the following year or  years where  full effect  cannot be  given  to  the allowance in  a particular  year owing  to  there  being  no profits or  gains chargeable  for that  year or owing to the profits and  gains chargeable being less than the allowance. If an  assessee chooses  to carry  forward the  depreciation allowance, and shows the value of the assets at a particular figure in  the balance  sheet, he cannot by merely asserting that there  was no  profit or  very little profit compel the tax authorities  to  discard  the  value  mentioned  in  the balance sheet  and to  accept the  written down  value.  The depreciation must  have nexus  with real value of the assets

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itself and  the burden  is upon  the assessee to satisfy the Wealth-tax officer by producing relevant reliable materials 584 for determination  of the  actual  and  true  value  of  the assets. It  may be  that in  a given  year the  written down value may be the real value of the assets but that cannot be the inexorable  rule in  determining the value of the assets under section 7 of the Act.      Mrs. Seth  drew our  attention to  a  decision  of  the Calcutta  High  Court  in  the  Commissioner  of  Wealth-tax (Central) Calcutta  v. Mohan  Lal Nopany. This was a case of break up  value of  certain shares  of a  company. There was material in that case to indicate that the balance sheet did not  represent   the  correct   value  of  the  shares.  The observation in that case must be taken to be confined to its own facts.  To the  extent observations  are  made  in  that contrary to  the view we have taken in the matter, we cannot agree with them.      In the  result the  judgment of  the High  Court is set aside and  the question  is answered in the negative against the assessee  and in  favour of the Revenue. The appeals are allowed with one set of costs. P.H.P.                                      Appeals allowed. 585