1967 (2) TMI 14 - HC - Wealth-tax

Bonus shares - WTO proceeded on the basis as if sub-ss. (1) and (2) of s. 7 gave him a right to proceed on either of two alternative basis and he was at liberty to proceed on the balance-sheet if he liked despite the objections by the assessee the procedure prescribed in s. 7 - Tribunal was justified in excluding the sum from the net value of the assets as shown in the balance-sheet of the assessee

Issues Involved:
1. Exclusion of the revaluation amount from the net value of assets.
2. Rejection of the department's petition for enhancement of net wealth.
3. Determination of the date of 'set-up' of an industrial undertaking.

Issue-wise Detailed Analysis:

1. Exclusion of the Revaluation Amount from the Net Value of Assets:
The primary issue revolves around whether the sum of Rs. 1,45,00,000, which was added to the book value of the assets during the assessment year 1948-49, should be excluded from the net value of the assets for the assessment year 1957-58. The Wealth-tax Officer took the value of the assets as shown in the balance-sheet on the valuation date, March 31, 1957, which included the revaluation amount. The assessee objected, arguing that the revaluation was made for issuing bonus shares, which did not materialize, making the revaluation amount a notional reserve that should not be included in the net wealth calculation. The Appellate Assistant Commissioner and the Tribunal had differing views, with the Tribunal ultimately siding with the assessee, directing that the original figures before revaluation be considered. The High Court examined the language of section 7 of the Wealth-tax Act and section 211 of the Companies Act, concluding that the balance-sheet prepared for issuing bonus shares need not be conclusively binding. The court emphasized that the revaluation was motivated and not a true reflection of the asset value, thus supporting the Tribunal's decision to exclude the revaluation amount from the net wealth.

2. Rejection of the Department's Petition for Enhancement of Net Wealth:
The second issue was whether the Tribunal was justified in rejecting the department's petition under section 24(5) for enhancement of the net wealth of the assessee. This issue was not pressed by the appellant's counsel during the hearing, as the answers were found in a Supreme Court judgment. Therefore, the High Court did not delve into this issue, leaving it resolved by the precedent set by the Supreme Court.

3. Determination of the Date of 'Set-up' of an Industrial Undertaking:
The third issue concerned whether the date on which the construction of the cement factory commenced was the date on which the industrial undertaking was 'set-up' within the meaning of section 5(1)(xxi) of the Wealth-tax Act, 1957. Similar to the second issue, this question was also not pressed by the appellant's counsel, as it was addressed by the Supreme Court's judgment. Consequently, the High Court did not provide a separate analysis for this issue.

Conclusion:
The High Court affirmed the Tribunal's decision to exclude the revaluation amount from the net value of the assets, emphasizing that the revaluation was motivated and not a true reflection of the asset value. The court clarified that the net value of the assets should be determined under section 7(1) of the Wealth-tax Act, now that the balance-sheet's revaluation figures were not unequivocally accepted by both the assessee and the revenue authorities. The court's decision necessitates a review of the assessment by the Tribunal in light of these observations. The assessee was awarded the costs of the reference.

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