1987 (10) TMI 104 - AT - Wealth-tax

Summary

Issues Involved:
1. Valuation of assets of M/s. Universal Oxygen Company for wealth tax purposes.
2. Whether depreciation should be considered in the valuation.
3. Determination of market value versus written down value (WDV) of gas cylinders.
4. Applicability of section 7(1) and 7(2) of the Wealth Tax (WT) Act.
5. Burden of proof regarding the market value of depreciable assets.

Issue-wise Detailed Analysis:

1. Valuation of Assets of M/s. Universal Oxygen Company for Wealth Tax Purposes:
The primary issue is whether the assets of M/s. Universal Oxygen Company, where the assessee is a partner, should be valued based on the balance sheet figures or if adjustments, particularly for depreciation, should be considered. The balance sheet as on 31-3-1981 showed gas cylinders valued at Rs. 29,70,725.80, without accounting for depreciation. The assessee's 1/3rd interest in the firm's depreciation amounted to Rs. 9,90,242, which was not reflected in the balance sheet due to consistent losses.

2. Whether Depreciation Should Be Considered in the Valuation:
The assessee argued that the value of gas cylinders should reflect the 100% depreciation granted under the Income-tax Rules, which was not accounted for in the balance sheet. The ITO and AAC rejected this, stating that the market value should be considered without depreciation adjustments, and the written down value (WDV) from income-tax records does not represent the market value for wealth tax purposes.

3. Determination of Market Value Versus Written Down Value (WDV) of Gas Cylinders:
The Tribunal analyzed whether the market value of the gas cylinders exceeded their WDV by more than 20% as per Rule 2B(2) of the WT Rules. The WTO failed to provide tangible evidence or comparable sale instances to prove that the market value was 20% higher than the WDV. The Tribunal emphasized that the burden of proof lies with the Department to establish this excess market value.

4. Applicability of Section 7(1) and 7(2) of the Wealth Tax (WT) Act:
Section 7(1) requires the value of assets to be estimated as the price they would fetch in the open market. Section 7(2)(a) allows the WTO to determine the net value of business assets as a whole, considering the balance sheet and making prescribed adjustments. The Tribunal noted that while the WTO can make adjustments, they must be based on tangible evidence, especially when claiming that market value exceeds WDV by more than 20%.

5. Burden of Proof Regarding the Market Value of Depreciable Assets:
The Tribunal held that the WTO did not meet the burden of proof to show that the market value of the gas cylinders was significantly higher than their WDV. The WTO's opinion alone was insufficient without concrete evidence, such as comparable sales or specific market data. The Tribunal also referenced the Chief Controller of Explosives' letter, which indicated that empty cylinders could not be sold without specific permission, limiting the market for such sales.

Conclusion:
The Tribunal concluded that the WTO and AAC erred in not considering the depreciation of gas cylinders in the valuation. The Tribunal directed that the depreciation amount of Rs. 9,90,000 should be allowed as a liability, effectively reducing the assessee's taxable wealth. The appeal of the assessee was allowed, and the order of the AAC was set aside. The Tribunal rejected the Departmental Representative's request to remand the case for further evidence on the market value of the cylinders, as it would unfairly allow the revenue to fill gaps in their case.