1968 (3) TMI 23 - HC - Wealth-tax

Immovable properties - valuation of properties method adoptted - annual value or value given in balance sheet - determining the net worth

Issues Involved:
1. Justification of the Appellate Tribunal in valuing immovable properties at market value.
2. Legality of the basis for determining the market value of immovable properties by the Appellate Tribunal.
3. Justification of the Appellate Tribunal in valuing fixed assets after adjustments for depreciation and extra shift allowance.
4. Legality of deducting estimated income-tax liability in arriving at the net wealth of the assessee.

Detailed Analysis:

Issue 1: Justification of the Appellate Tribunal in Valuing the Immovable Properties at Market Value
The primary issue was whether the Appellate Tribunal was justified in valuing immovable properties at their market value, departing from the valuation taken by the Wealth-tax Officer under section 7(2) of the Wealth-tax Act, 1957. The Tribunal had determined that the house properties were not business assets and thus should be valued under section 7(1) rather than section 7(2)(a). However, the court found that the Tribunal's distinction between "assets in the business" and "assets of the business" was not substantiated by sufficient materials. The court held that the Wealth-tax Officer's method of using the global value of the assets as given in the balance-sheet was correct and that the Tribunal was not justified in its departure from this method.

Issue 2: Legality of the Basis for Determining the Market Value of Immovable Properties by the Appellate Tribunal
The Tribunal's basis for determining the market value of immovable properties was deemed erroneous in law. The Tribunal had partly used the market value under section 7(1) and partly the balance-sheet value under section 7(2)(a). The court clarified that section 7(2)(a) involves taking the net value of the business as a whole from the balance-sheet with necessary adjustments, not a mix of methods. The Tribunal's approach was incorrect as it did not follow the prescribed method under the Wealth-tax Act.

Issue 3: Justification of the Appellate Tribunal in Valuing Fixed Assets After Adjustments for Depreciation and Extra Shift Allowance
The Tribunal was justified in allowing adjustments for depreciation and extra shift allowance in valuing the fixed assets. The court referred to a previous decision in Commissioner of Wealth-tax v. Rohtas Industries Ltd., which supported the adjustment of book value to correspond with the written down value after depreciation. However, the Tribunal erred in allowing depreciation solely at the rates under the Income-tax Act without considering whether the depreciation shown in the balance-sheet was accurate. The matter required further consideration to ensure the correct depreciation was applied.

Issue 4: Legality of Deducting Estimated Income-Tax Liability in Arriving at the Net Wealth of the Assessee
The Tribunal had allowed the deduction of estimated income-tax liability, reasoning that the market value of assets would depreciate due to anticipated tax liabilities. The court upheld this view, citing the Supreme Court's decision in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, which held that the liability to pay income-tax is a present liability and therefore deductible as a debt under section 2(m) of the Wealth-tax Act.

Conclusion:
- Questions 1 and 2: Answered in the negative; the Tribunal's method was incorrect.
- Question 3: The Tribunal was justified in valuing fixed assets after adjustments for depreciation and extra shift allowance but erred in its approach to depreciation rates.
- Question 4: Answered in the affirmative; the deduction of estimated income-tax liability was justified.

In the circumstances of the case, there was no order as to costs.

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