9911796707
TMI Blog1967 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... arch 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 Appellate Assistant Commissioner rejected the claim with the following observation : On behalf of the appellant, it is contended that the capital reserve was not made out of profits and was only a notional reserve and, therefore, should be excluded when 'global valuation' of the assets was being made. The language of section 7(2) was very general a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fact was brought to the notice of the Bombay Bench, the departmental representative submitted, that decision would have been otherwise. We do not agree with these arguments of the departmental representative. Following the decision of the Full Bench consisting of the three learned members, we hold that the department was not correct in valuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance-sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance-sheet under the heading 'Notes' at the end of that Part." Now, if balance sheets were prepared according to law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 will increase correspondingly. But because of the statutory rules it is not possible to reflect this by adding to the figures of share capital or share premium; instead, another balancing item will have to be added, to which the misleading name of 'reserve' is normally given. In other words, company law makes it impossible to describe the difference between the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed." 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 value on revaluation of the assets at Rs. 2,60,52,357. As the value of the assets had increased, a corresponding balancing figure, viz., Rs. 1,45,87,000, was introduced in capital reserve surplus; that figure represented the increase in the value of the assets. It was argued that revaluation was done for other purposes, that it did not represent the real value of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the assessment year under review and the shareholders knew that the assets as per accounts were valued at the revised figure." (Underlined for emphasis). In the instant case, however, the revaluation as appearing in the balance-sheet is not admittedly the proper valuation. The assessee took up the position: (a) That the capital reserve was not made out of profits and was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 Mills Ltd. in the passage that we have quoted above. The assessee gave several reasons why the revaluation figure as appearing in the balance-sheet should be taken to be wrong. The revenue authorities, as we have already indicated, did not seriously dispute the proposition that the revaluation was motivated revaluation done with a purpose. That being so, we are of the opinion that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 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. That is not, in our opinion, a correct approach and a correct appreciation of the procedure prescribed in section 7. Wherever an assessee gives good reasons that it would not be safe to proceed on the basis of the balance-sheet, the Wealth-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
