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PETITIONER: COMMISSIONER OF WEALTH TAX, WEST BENGAL

       Vs.

RESPONDENT: ALUMINUM   CORPORATION LTD.

DATE OF JUDGMENT30/08/1971

BENCH:

ACT: Wealth  Tax  Act (27 of 1957), s. 7(2)-Value  of  assets  as shown   in   balance-sheet-Whether   should   be   accepted- Depreciation, if permissible Practice  and Procedure-Remand by Supreme  Court-High  Court examining competency of Supreme Court--Propriety.

HEADNOTE: The  assessee-company  made  a revaluation  of  its  assets, namely,  land, buildings, plant and machinery in  1956,  and the increase in value was carried over to subsequent  years. For  the  assessment year 19’57-58, on  the  questions,  (1) whether in determining the net value of the assets under  s. 7(2) of the Wealth Tax Act the value as shown in the balance sheet should be substituted by the written down value as per the  income tax records, and (2) whether, even on the  basis of the value as shown in the balance sheet an adjustment  on account of normal depreciation of the assets for arriving at the  net value is justified, the High Court,  on  reference, answered  the first question in favour of the  assessee  and did not answer the second question.  This Court, on  appeal, set  aside that judgment and remanded the case to  the  High Court.  Meanwhile, the High Court, for the assessment  years 1958-59  and 1959-60, also on reference answered  the  first question  in favour of the assessee and did not  answer  the second question. After  remand, with respect to the assessment year  1957-58, the High Court, answered the first question in favour of the Revenue and the second question in favour of the assessee. In  appeal  to  this Court, with respect to  all  the  three assessment years, HELD  :  (1) (a) Wealth Tax is levied on the  value  of  the assets of the assessee on the valuation date.  Section  7(2) of  the  Wealth Tax Act requires the Wealth Tax  Officer  to have regard to the balance sheet. it is open to the assessee to satisfy the authorities that the valuation in the balance sheet is not correct, but, in the absence of such proof, the Wealth  Tax Officer will be justified in proceeding  on  the basis that the value shown in the balance-sheet is  correct, because,  no  one  can know the value of  the  assets  of  a business  better  than  those  who  are  in  charge  of  the business. [488 D--F] Therefore,  in  the  present case, the  revaluation  of  the assets made in 1956, undoubtedly afforded a sound basis  for valuing the assessee’s assets in the absence of any evidence showing  that it was incorrect, and the answer to the  first question for all the three years should be in favour of  the Department.  The High Court was in error in holding that the evidence  afforded  by  the  balance  sheet  could  not   be considered  as  prima  facie evidence of the  value  of  the

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assets. [488 F-H] C.I.T.  West Bengal v. Aluminum Corporation, 78  I.T.R.  483 (S.C.)  and Kesoram Industries Case, 59, I.T.R. 767  (S.C.), followed. (2)  But the assets in the present case were subject to wear and  tear and there was no evidence to show that the  market value of these assets had ,-One up after the revaluation  in 1956.  Hence, when the value of the  485 assets  had  to  be determined on  the  concerned  valuation dates, the Wealth Tax Officer should have deducted from  the 1956 valuation the value of the depreciation of those assets after the revaluation.  Therefore, the answer to the  second question for all the three years should be in favour of  the assessee. [488 H; 489 A-B]

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos. 1691.  and 1962 of 1968 and 1075 of 1971. Appeals by certificate/special leave from the judgments  and orders dated August 18, 1967 and May 7, 1970 of the Calcutta High Court in Matters Nos. 298 of 1963 and 69 of 1962. S.   C. Manchanda, R. N. Sachthey, B. D. Sharma and S. P. Nayar,    for the appellant (in all that appeals). B.   Sen, N. R. Khaitan, B. P. Maheshwari and O. P. Khaitan, for the respondent (in all the appeals). The Judgment of the Court was delivered by Hegde,  J.  Civil  Appeals Nos. 1691-1692  of  1968  are  by certificate and Civil Appeal No. 1075 of 1971 is by  special leave.   These  appeals are brought by the  Commissioner  of Wealth  Tax,  West  Bengal.  In all  these  appeals  we  are dealing with the case of the same assessee, namely  Aluminum Corporation Ltd.  The relevant assessment years are 1957-58, 1958-59 and 1959-60 and the material valuation dates are 31- 3-1957,  31-3-1958 and 31-3-1959.  So far as the  assessment of the assessee for the assessment year 1957-58 is concerned the matter had come up to this Court on an earlier occasion. This Court remanded the case to the High Court to decide the case afresh, if necessary after reframing the first question in  the light of the principles enunciated by this Court  in the  order  of remand-see Commissioner of Wealth  Tax,  West Bengal v. Aluminum Corporation Ltd.(1) The High Court  after expressing  doubts  about the competence of  this  Court  to remand  the case brought to this Court under the  Provisions of  the Wealth ’Tax Act has answered the first  question  in favour  of  the Revenue.  So far as the second  question  is concerned  it  has  answered,  the same  in  favour  of  the assessee.  As against that order the Department has  brought Civil Appeal No. 1075 of 1971.  The other two appeals relate to  the assessment of the assessee for the assessment  years 1958-59 and 1959-60.  Here, the High Court has answered  the first question referred to it in favour of the assessee  and did not answer the second question. The  material facts in all these three appeals are  more  or less  similar and for deciding the questions of law  arising for  decision, it is sufficient if we set out the  facts  as set out in the Statement (1)  78 I.T.R. 483. 486 of  the  case submitted by the Tribunal to  the  High  Court along  with  the questions of law arising  for  decision  in respect   of  the  ,assessment  of  the  assessee  for   the assessment  years 1958-59 and 1959-60.  From that  Statement

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we get the following facts : The assessee company’s fixed assets namely, land, buildings, plant  and  machinery  were valued at  Rs.  2,19,982/-,  Rs. 36,13,906/-  and  Rs. 93,78,868/- respectively as  on  31-3- 1955.    This  valuation  did  not  take  into   account   a depreciation  for  the year ending 31-3-1955 in  respect  of buildings, plant and machinery.  A year later i.e. on  31-3- 1956  the  same assets were valued at  Rs.  4,99,340/-,  Rs. 1,08,40,840/-  and Rs. 1,89,23,449/This valuation  was  also without taking into account depreciation for the year ending 31-3-1956 in respect of buildings, plant and machinery.  The increase  in  the  value  of  these  assets,  after   making allowance  for all additions made to the assets, was due  to the revaluation of the assets made by the company before 31- 3-56.   The increase in value on account of revaluation  was to  the  tune of Rs. 2,83,871/-, Rs.  72,31,204/- and  Rs. 98,67,481/-  in  the case of land, buildings  and  machinery respectively.  The Directors of the company in their  annual report for the year ended 31-3-1956 noted that these  assets had been revalued so as to indicate a true picture of  their value  and  that evaluators had given due  consideration  to depreciation  which the buildings, plant and  machinery  had been already subjected to.  A corresponding capital  reserve of  an amount of Rs. 1,73,82,556/- was created against  ,the increase  in the value of the assets.  The increase in  the, value  of assets effected before 31-3-1956 was carried  over to  31-3-1958 and 31-3-59, the relevant valuation dates  and the   capital   reserve  ,aforesaid  continued   to   remain unaltered. The company in submitting its return of wealth-tax as at the relev ant  valuation  dates claimed  before  the  Wealth-tax Officer  that its lands, buildings and machinery  should  be valued according to the written down value as per income-tax records after allowing depreciation according to the Income- tax Act.  According to the company the value of these assets should  be respectively, Rs. 2,26,786/- Rs. 12,38,109/-  and Rs.  11,46,979/-  as at 31-3-1958 and  Rs.  2,28,188/-,  Rs. 13,64,198/-  and  Rs.  9,16,626/- as  at  31-3-1959.   These written  down  values were determined on the basis  of  the original cost as it stood before the assets were revalued in 1955-56.   The Wealth-tax Officer in including these  assets in  the net wealth of the company, however, took  the  value thereof  to  be Rs. 5,10,657/-, Rs. 1,02, 53,392/-  and  Rs. 1,71,24,711/-  as  at  31-3-1958  and  Rs.  5,12,059/-,  Rs. 1,02,71,383/- and Rs. 1,65,02,524/- as at 31-3-1959 as shown ’in  the company’s balance sheets as at 31-3-1958 and  31-3- 1959.   ’The  Wealth-tax Officer was of the  view  that  the valuation of the  487 assets  having been made under section 7 (2) of  the  Wealth Tax Act, there was no need to analyse individually the value of particular assets.  He also took the view that the  value of  the  assets after revaluation was the correct  one.   He rejected the request of the company to make an allowance for the  wear  and tear of the assets even on the basis  of  the revised  values  for  the period between  the  date  of  the revaluation  of  the  assets and  the  Wealth-tax  valuation dates. The Appellate Assistant Commissioner of Wealth-tax disagreed with  the  Wealth-tax  Officer and  allowed  the  assessee’s appeal holding that the value of the block assets should  be taken  to be their write down value as per,  the  income-tax records  and  not  the value shown by the  assessee  in  its balance sheets. The Department appealed to the Tribunal against the order of

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the Appellate Assistant Commissioner.  The Tribunal  allowed the  appeal partially.  It upheld the action of the  Wealth- tax Officer in determining the value of the fixed assets  on the  basis of the values shown in the balance sheets of  the company,  but  it,  however,  held  that  the  assessee  was entitled  to  an  allowance in respect of  these  assets  on account of wear and tear during the period subsequent to the revaluation.  Thereafter at the instance of the assessee  as well  as  the Commissioner, the Tribunal stated a  case  and submitted the following questions seeking the opinion of the High Court.               (1)   Whether   on  the  facts  and   in   the               circumstances of the case, in determining  the               net  value  of  the  assets  of  the  assessee               company  under section 7(2) of the  Wealth-tax               Act,  the value of the company’s fixed  assets               as shown in its balance sheet as on the valua-               tion dates should have been substituted by the               written down value of those assets as per  the               company’s income-tax records ?               (2)   If  the answer to the first question  is               in  the negative, whether on the facts and  in               the   circumstances  of  the  case,  for   the               purposes  of determining the net value of  the               assets  of the company under Section  7(2)  of               the Wealth-tax Act an adjustment on account of               normal  depreciation of the fixed assets  from               the  date of revaluation of the assets to  the               valuation dates was justified ? Now reverting back to the assessment of the assessee for the assessment year 1957-58, we have earlier noted the  decision of  the High Court.  Aggrieved by the, answer given  by  the High 488 Court  on the second question, the Commissioner has  brought Civil  Appeal 1075 of 1971.  The assessee has  not  appealed against  the  decision  of  the  High  Court  on  the  first question. Before  adverting  to the merits of the contentions  of  the parties,  we  consider it necessary to observe that  we  are wholly  unable to comprehend the attitude of the High  Court while  dealing with the case.  The High Court quite  clearly exceeded  its  jurisdiction in examining the  competence  of this  Court to remand an appeal brought to this Court  under the  provisions of the Wealth-tax Act.  It would  have  done well  to  remind itself that it was bound by the  orders  of this  Court and could not entertain or express any  argument or  views  challenging  their  correctness.   The   judicial tradition  and propriety required that court not to  attempt to  sit  on judgment over the decisions and orders  of  this Court. Now  turning  to the second question referred  to  the  High Court,  we agree with the High Court that the  valuation  of the  assets  shown in the balance sheet is  not  conclusive. Wealth-tax  is  levied  on the value of the  assets  of  the assessee on the valuation date.  Section 7(2) of the Wealth- tax  Act  merely  requires the Wealth-tax  Officer  to  have regard to the balance-sheet.  It is open to the assessee  to satisfy  the authorities under the Wealth-tax Act  that  the valuation shown in the balance sheet is not correct.  But in the absence of such a proof, the Wealth Tax Officer will  be justified in proceeding on the basis that the value shown in the  balance-sheet  is correct because no one can  know  the value of the assets of a business more than those who are in charge  of the business.  In other words, the value  of  the

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assets  shown in the balance sheet can justifiably  be  made the  primary  basis  of valuation for  the  purpose  of  the Wealth-tax  Act.   In other words it can be taken  as  prima facie  evidence of the value of the assets.  Here again  the High Court ignoring the ratio of the decision of this  Court in  Kesoram  Industries(1) case as well as the  other  deci- sions  of this Court held that the evidence afforded by  the balance  sheet cannot be considered as primary  evidence  or prima  facie  evidence  of the value of the  assets  of  the business.   To  say  the least. the  learned  Chief  Justice indulged  in an unnecessary mental exercise  forgetting  the fact that the law as interpreted by this Court is binding on all courts and Tribunals. Turning to the facts of the assessee’s case, the revaluation of  the  assets was made in 1956.  That revaluation  in  the absence  of  any  evidence to show that  it  was  incorrect, undoubtedly   afforded  a  sound  basis  for   valuing   the assessee’s assets.  But then, when the value of those assets had  to  be determined on the valuation dates  concerned  in these  cases,  the Wealth-tax Officer should  have  deducted from the 1956 valuation the value of the depreciation of (6)  59. I.T.R. 767.  489 those assets after the date they were revalued.  Undoubtedly those assets were subject to wear and tear and there was  no evidence  to show that the market value of those assets  had gone up after they were revalued in 1956. Our conclusion regarding the, valuation for the year 1957-58 applies with equal force as regards the valuation for  1958- 59 and 1959-60. Following the decision of this Court in Aluminum Corporation of  India  Ltd.’s case(1) we answer the first  question  re- ferred  to the High Court in all these appeals in favour  of the  Department.  On this question we see  no  justification for the reservations made by the High Court in the  judgment under appeal in Civil Appeal No. 1075 of 1971. Now  turning to the second question, we are of  the  opinion that  the  finding  of the Tribunal  on  that  question  was essentially  a finding of fact.  That finding was  based  on relevant  evidence.  It is not vitiated in any  manner.   In our  opinion, the Tribunal took a correct view of the  scope of  s. 7 (2) of the Wealth-tax Act and its approach  to  the question  was in accordance with law.  Hence our  answer  to the second question is in the affirmative and in favour  of the  assessee.  In the result, these appeals are allowed  to the  extent mentioned above.  In the circumstances of  these cases, we direct the parties to bear their own costs both in the High Court as well as in this Court. V.P.S.                         Appeals allowed. (1) 78 I.T.R. 483. 490