2004 (8) TMI 51 - HC - Wealth-tax

Whether Tribunal was right in holding that though the right to exploit a particular film for a particular period is property it is not such an asset whose value can be added by making adjustments in the balance-sheet while acting under the provisions of section 7(2)(a) of the Wealth-tax Act? - we find that the value of unexpired period of exploitation rights of the motion pictures constitutes an asset which is determined in accordance with the provisions of rule 2C(d) of the Rules as the same has not been shown in the balance-sheet. Thus we answer the question of law referred to us in the negative i.e. in favour of the Revenue and against the assessees.

Summary

Issues:
Interpretation of Wealth-tax Act regarding valuation of film exploitation rights as assets for wealth tax assessment.

Analysis:
The judgment concerns a reference made by the Income-tax Appellate Tribunal under section 27(1) of the Wealth-tax Act, 1957, regarding the treatment of film exploitation rights as assets for wealth tax assessment. The case involved three partners deriving income from film distribution, exploitation, and exhibition. The Wealth-tax Officer valued the distribution rights of certain films as assets not reflected in the balance-sheet, adding the value to the partners' wealth. The Appellate Assistant Commissioner deleted the addition, citing rule 9B of Income-tax Rules. The Tribunal held that the right to exploit a film is an asset whose value must be determined per the Act's rules. It differentiated between Income-tax and Wealth-tax Rules, concluding that undisclosed assets must be considered for wealth tax purposes.

The Revenue argued that the film exploitation rights should be considered assets under the Wealth-tax Act, relying on precedents like CIT v. A. Krishnaswami Mudaliar. The respondents contended that since expenses were treated as revenue expenditure, the rights had no value at the valuation date. The court referred to the wide interpretation of "property" and "asset" by the apex court, emphasizing that even if expenses were fully deductible, the rights remained assets. It cited rulings like Mrs. Khorshed Shapoor Chenai and CWT v. U. C. Mehatab to support the valuation of such rights as assets for wealth tax assessment.

The judgment highlighted that while certain expenditures might be fully deductible under the Income-tax Act, they could still be considered assets with market value under the Wealth-tax Act. It referred to decisions like CWT v. Pachigolla Narasimha Rao to establish that ownership indicia are sufficient to qualify accrued interest as an asset. Ultimately, the court held that the unexpired period of film exploitation rights constituted an asset under rule 2C(d) of the Rules, not disclosed in the balance-sheet, and should be included in the wealth of the partners. Consequently, the question of law was answered in favor of the Revenue, with each party bearing its own costs.