1971 (8) TMI 7 - SC - Wealth-tax

Balance-sheet showed the service connections as assets of the assessee and also the market value. Therefore, the assessee was not entitled to claim deduction in respect of these assets - Assessee s appeal dismissed

Summary

Issues Involved:

1. Deductibility of consumer contributions in determining net value of assets under Section 7(2)(a) of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Deductibility of Consumer Contributions in Determining Net Value of Assets:

The primary issue in this judgment is whether the sum of lb8,54,948, representing contributions made by consumers for service connections, is deductible in determining the net value of the assessee's assets under Section 7(2)(a) of the Wealth-tax Act, 1957.

The assessee, a sterling company incorporated in the U.K., engaged in supplying electric energy in Calcutta, claimed this deduction in its balance-sheet for the valuation date of March 31, 1959. The Wealth-tax Officer assessed the net wealth under Section 7(2) of the Act but refused to grant the claimed deduction, although he accepted the valuation of the assets as shown in the balance-sheet.

The Appellate Assistant Commissioner allowed the appeal, holding that the Wealth-tax Officer must accept the balance-sheet as a whole if he proceeds under Section 7(2). The Tribunal upheld this decision, noting that the market value of the undertaking should consider special features, including the fact that the company could not sell the undertaking except as per the Indian Electricity Act, 1910, and the valuation should exclude service lines constructed at the expense of consumers.

The High Court, however, answered the question against the assessee, leading to the present appeal.

Legal Provisions and Interpretation:

Section 7 of the Wealth-tax Act, 1957, deals with the mode of determination of asset value. Subsection (2)(a) allows the Wealth-tax Officer to determine the net value of the business assets as a whole, considering the balance-sheet, but does not bind him to accept every entry in the balance-sheet. The Officer can reject deductions he deems impermissible.

In this case, the Wealth-tax Officer accepted the asset values shown in the balance-sheet but did not accept that the service lines were not owned by the assessee. The balance-sheet showed these service lines as the company's assets, and there was no material evidence to suggest otherwise. The source of funds for acquiring these assets (consumer contributions) was deemed irrelevant for the purpose of the Act, which only concerns ownership on the valuation date.

Ownership and Market Value Considerations:

The Tribunal's concern was that under Section 7A(2) of the Indian Electricity Act, 1910, the value of service lines constructed at consumers' expense would not be considered in the market value of the undertaking upon sale. However, this provision applies specifically to sales under Section 5(1) of the Electricity Act. For sales under Section 8, the licensee can include the value of these service connections in the sale price, indicating ownership by the licensee.

The judgment clarifies that Section 7 of the Wealth-tax Act does not account for hypothetical scenarios in asset valuation but focuses on the true market value on the valuation date. The assessee's balance-sheet admission was considered sufficient evidence of ownership and value.

Conclusion:

The Supreme Court concluded that the service lines constructed at consumers' expense are indeed assets of the company, and their value should be included in the net wealth assessment. The appeals were dismissed, upholding the High Court's decision against the assessee.

Result:

Appeals dismissed with costs, affirming that consumer contributions for service connections are not deductible in determining the net value of assets under Section 7(2)(a) of the Wealth-tax Act, 1957.