1967 (1) TMI 24 - HC - Wealth-tax

Whether in the facts and circumstances of this case the sum of Rs. 7, 89, 611 shown in the balance-sheet as asset and said to have been paid as bonus to the employees for the year 1952-53 was a permissible deduction under the Wealth-tax Act - Held yes

Summary

Issues:
1. Deductibility of bonus payment as an asset under the Wealth-tax Act for the year 1952-53.
2. Determination of the value of fixed assets for wealth-tax assessment under section 7(2) of the Wealth-tax Act.
3. Interpretation of the term 'set up' in relation to exemption claimed under section 5 of the Wealth-tax Act for a new industrial undertaking.

Analysis:

1. The first issue pertains to the deductibility of a bonus payment as an asset under the Wealth-tax Act for the year 1952-53. The sum of Rs. 7,89,611 was shown in the balance-sheet as an asset, representing a bonus paid to employees. The Supreme Court reduced the bonus amount by half during the pendency of appeals, leading to the sum being considered an advance payment by the employer to employees. The Tribunal accepted the contention that the sum could not be recovered from the employees, treating it as a bad debt rather than an asset. The Tribunal's decision was based on the natural course of conduct between employer and employee, and was upheld as a finding of fact not open to challenge in the reference.

2. The second issue involves the determination of the value of fixed assets for wealth-tax assessment under section 7(2) of the Wealth-tax Act. The dispute centered around whether the Appellate Tribunal was justified in directing the deduction of normal depreciation allowed under the Indian Income-tax Act in addition to the depreciation shown in the balance-sheet. The Tribunal's decision was based on the view that the written down value of assets after deducting normal depreciation under the Income-tax Act should form the basis for wealth-tax valuation. However, a clerical error in formulating the question led to a correction, aligning it with the Supreme Court's interpretation that the figure in the balance-sheet should be accepted unless proven incorrect.

3. The final issue concerns the interpretation of the term 'set up' in the context of claiming exemption for a new industrial undertaking under section 5 of the Wealth-tax Act. The Tribunal's order of remand to ascertain whether the industrial undertaking was set up after a specified date was deemed legally valid. This interpretation was supported by recent judgments, including that of the Supreme Court, emphasizing the acceptance of balance-sheet figures unless proven incorrect by the assessee or taxing authorities.

In conclusion, the judgment addressed the issues of deductibility of bonus payments, valuation of fixed assets for wealth-tax assessment, and the interpretation of terms under the Wealth-tax Act, providing detailed analysis and aligning decisions with relevant legal precedents.