1993 (6) TMI 104 - AT - Wealth-tax

Summary

Issues: Valuation of partner's share in a firm's depreciation reserve account and inclusion of advance tax in partner's net wealth.

Valuation of partner's share in depreciation reserve account:
The appeals concern the valuation of partner's share in a firm's depreciation reserve account for the assessment years 1975-76 and 1976-77. The original assessments were reopened by the WTO as the share of the assessee in the depreciation reserve account was not included in the original assessments. The WTO added the share in the depreciation reserve account to each partner based on the profit and loss ratio and completed the assessments. The AAC held that the reserve for depreciation should not be added while valuing the partner's share in the firm. The department contended that the AAC granted double deduction and erred in agreeing with the assessee's submission. However, the Counsel for the assessee argued that the adjustment as required under Rule 2D(a) of the WT Rules was made in respect of assets where depreciation is admissible, and the depreciation reserve account represents accumulated depreciation over the years, thus should be ignored. The Tribunal upheld the AAC's decision, stating that the depreciation reserve account is a provision for depreciation and should be excluded from valuation, as it does not set apart profit of the firm's assets.

Inclusion of advance tax in partner's net wealth:
For the assessment year 1976-77, an additional ground was taken regarding the inclusion of each partner's share in the advance tax paid by the firm. The WTO added the share of each partner in the advance tax to the total wealth, which the AAC disagreed with. The department argued that the advance tax should be included as per Rule 2D(a) of the WT Rules, regardless of its reflection in the balance sheet. However, the Counsel for the assessee contended that advance tax is not an asset and should be ignored for wealth tax computation purposes. The Tribunal agreed with the assessee, stating that advance tax is a part payment towards the firm's liability and does not hold any value as an asset, whether reflected in the balance sheet or not. Therefore, it cannot be considered an asset under the Act, and the rule providing adjustments in the value of assets does not apply. The Tribunal dismissed all six appeals, upholding the decisions of the AAC regarding both issues.