TMI Blog1967 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of assets was made by the assessee-company remained unfulfilled. In the assessment year 1957-58, the Wealth-tax Officer proceeded to value the assets of the assessee under section 7(2) of the Wealth-tax Act and took the value of the assets at Rs. 5,01,40,897, as shown in the balance-sheet on the relevant valuation date, namely, March 31, 1957. The assessee objected to the method of valuation and claimed that the sum of Rs. 1,45,00,000, by which the book value of the fixed assets were enhanced in the year 1948-49, should be deducted from the computation of the net wealth. The Wealth-tax Officer rejected the plea with the observation: " The assessee has claimed exclusion of revaluation of Rs. 1,45,00,000, being the enhancement of the value of the fixed assets in 1948-49, to conform to the market price. This claim cannot be accepted as the value of the assets shown in the balance-sheet is being taken into account in terms of section 7(2) and as the assessee itself had put a market value on its assets, there is no justification for diminishing it. " The assessee appealed against the order before the Appellate Assistant Commissioner and pressed the same claim. The Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g order : The appellant-company revalued its assets in the assessment year 1948-49 and thereby enhanced the book figure by Rs. 1,45,00,000. The corresponding amount was credited to the capital reserve account. For purposes of the Wealth-tax Act, the assessee contended that, although the assets were revalued at enhanced figures, their values for purposes of the Wealth-tax Act should be taken at the figures as they stood before the enhancement. This contention was negatived by the wealth-tax authorities. This very point came up for decision before different Benches of the Tribunal and conflicting views have been expressed by different Benches. However, there is a Full Bench decision of three learned Members upholding the contention of the assessee. The departmental representative tried to distinguish the Bombay case by pointing out to us that in this case, the motive of the assessee was to revalue the assets at higher figures in order to declare bonus shares and this motive was absent in the Bombay case. He further submitted that under section 211 of the Indian Companies Act, the balance-sheet of the company must be a true and fair statement of the affairs of the company. If this f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The value of any asset, other than cash, for purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. (2) Notwithstanding anything contained in sub-section (1),- (a) Where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as the circumstances of the case may require." Mr. B. L. Pal, learned counsel for the appellants strongly relied upon the language of section 211 of the Companies Act, 1956, the material portion of which reads as follows : "211. (1) Every balance-sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allotted shares---or debentures----which are paid up wholly or in part out of those profits. The amount paid by the company out of its divisible profits on account of these newly issued shares is known as the bonus, and the shares are referred to as bonus shares." In Gower's Treatise on the Principles of Modern Company Law (2nd edition), the following passage appears at pages 103-04: "...... the company's initial balance-sheet will resemble that of an individual or partnership in that the right hand side will show the assets at a valuation, balanced on the left by an equivalent amount of 'capital'. But, in contrast, the item 'capital' may now have to be divided into two, share capital and the share premium account, the former showing the nominal amount of the paid up capital and the latter the aggregate amounts of any premiums. Capital in this sense will only equal capital in the earlier sense of net worth if the company makes profits and annually distributes the whole of them to the shareholders by way of dividend. If it makes profits but fails to distribute them, the net worth will increase and the guarantee fund of the creditors and the value of the proprietor's shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general distribution. The floating capital used in the company which formerly consisted of subscribed capital and the reserves now becomes the subscribed capital. The amount said to be payable to the shareholders as income goes merely to increase the capital of the company and in the hands of the shareholders the certificates are property from which income will be derived." Mr. Pal argued that the assessee-company must be deemed to have arrived at the proper valuation of its assets, when it intended to issue bonus shares and the Wealth-tax Officer was right in proceeding on that valuation as appearing in the balance-sheet. In this context, he relied upon a judgment of the Supreme Court in Kesoram Industries Cotton Mills Ltd. v. Commissioner of Wealth-tax in which the Supreme Court was pleased to observe as follows : " Under this section (meaning sub-section (2) of section 7) in the case of an assessee carrying on business, the Wealth-tax Officer may determine the net value of the assets of the business as a whole having regard to the balance-sheet of the business as on the valuation date. The balance-sheet, as indicated earlier, as on March 31, 1957, showed the appreciated va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons satisfied that the figure given by the assessee in the balance-sheet was wrong. In the case of Kesoram Industries Cotton Mills Ltd. the Supreme Court was pleased to uphold the action of the Wealth-tax Officer in proceeding on the basis of the balance-sheet, because there was no dispute that the balance-sheet was a properly prepared document, in which the valuation had been correctly made. This appears from the following passage in the statement of case before the High Court, which is printed along with the High Court judgment in Kesoram Cotton Mills Ltd. v. Commissioner of Wealth-tax : " The Appellate Tribunal held that in the year ending upon 31st March, 1950, the assessee found as a fact that the value of the assets as per account books being the cost price of the assets was not the actual price of those assets and, therefore, it valued these property and increased the value of the assets by Rs. 1,45,87,000 and as a result of revaluation, there was a surplus, which surplus was transferred to the account under the head of 'reserve and surplus'. This state of affairs of the company was placed before the shareholders and passed as such. It continued to be so for years till t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets was higher than the proper value. We are not satisfied with the explanation sought to be given by Mr. Pal. The Tribunal wanted to rely on a Full Bench judgment of the Income-tax Appellate Tribunal in which a revaluation figure appearing in a balance-sheet was rejected for reasons stated therein. The revenue authorities wanted to distinguish the instant case from that case with the contention that in the case which was before the Full Bench, there was no motive involved but in the instant case there was such a motive. This goes to show that the revenue authorities were also of the opinion that the revaluation was a motivated revaluation. If that is so, then the revaluation figure as appearing in the balance-sheet is an unsafe figure for the Wealth-tax Officer to rely upon. Mr. Pal next contended that the revaluation was made by the assessee-company itself and it must be taken as an admission by itself. The assessee, he contended, should not be allowed to go behind the admission without more. It is true that admission binds a party making the admission but all admissions can be shown to be wrong. This is what the Supreme Court also pointed out in Kesoram Industries Cotton M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein as the circumstances of the case may require. Sub-section (2) confers a discretion upon the Wealth-tax Officer to proceed on the balance-sheet. This discretion is, however, not arbitrary discretion but may be resorted to in such contingencies as where the figures appearing in the balance-sheet are accepted as true and correct figures by the assessee and where the Wealth-tax Officer is himself satisfied that it would be safe to proceed on the basis of the figures as appearing in the balance-sheet. If, however, the assessee gives reasons for manipulation of figures in the balance-sheet, then it is the bounden duty of the Wealth-tax Officer to examine the reasons given by the assessee and to dispose of them before proceeding on the basis of the balance-sheet. If he finds that the reasons given by the assessee are unsubstantial reasons or if he finds that the assessee was trying to wriggle out of a tight corner by condemning correct figures given in the balance-sheet, he may discard the reasons and proceed on the basis of the balance-sheet. In the instant case, the Wealth-tax Officer proceeded on the basis as if sub-sections (1) and (2) of section 7 gave him a right to proceed on e ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
