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TMI Blog1968 (3) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the estimated income-tax liability was legally and validly deductible in arriving at the net wealth of the assessee ? " The assessee is a limited company and carries on its business in the name of Messrs. Parshva Properties Limited. The assessee was engaged in the extraction of limestone, share dealings and held immovable properties. The assessee submitted return of its net wealth together with the balance-sheet for the purpose of assessment of wealth-tax under section 14(2) of the Wealth-tax Act, 1957 (hereinafter referred to as the Act), for the assessment years 1957-58 (Tax Case No. 44 of 1966), 1958-59 (Tax Case No. 45 of 1966) and 1959-60 (Tax Case No. 46 of 1966) and the corresponding valuation dates were January 31, 1957, 1958 and 1959, respectively. Under section 211 of the Companies Act, every company is required to give a true and fair view of the state of affairs in the balance-sheet of the company at the end of the financial year. Rule 3(b) of the Wealth-tax Rules enjoins on the assessee which carries on business to furnish, along with the return of net wealth, a copy of the balance-sheet or a true balance as on the valuation date or on the date of closing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to any year for which assessment is to be made under this Act, means the last day of the previous year as defined in clause (11) of section 2 of the Income-tax Act if an assessment was to be made under that Act for that year. Section 7 of the Act provides the mode of ascertaining the value of assets for the purposes of the Act. It runs as follows : " 7. (1) The value of any asset, other than cash, for the 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. " Section 7(1) makes provisions for the ascertainment of the value of the assets of all classes of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h represented the rental which the properties fetched in a particular year, but the officer found it unacceptable in the circumstances of the case, because the properties in the office area might fetch more and in a residential area the rental might be low, but the value of the properties in the residential area might be very high. The house in question is situated in the best residential locality in Calcutta and is fitted with certain latest luxurious amenities which are not available in an ordinary house. In his opinion, in a previous income-tax case of the assessee, municipal valuation in this case was considered to have no relation either to the annual costs of the house or to its value at a particular date. Hence, he thought that the value of the properties as given in the balance-sheet was an ascertained fact and, therefore, he determined the net wealth on the valuation of the properties as given in the assessee's balance-sheet. The Income-tax Appellate Tribunal, however, took a different view. In the opinion of the Tribunal under both sub-section (1) and sub-section (2)(a) of section 7 the market value of the properties is to be determined. According to it, the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the rest of the properties to fall back under section 7(2)(a) by adopting the valuation as given in the balance-sheet. The Tribunal was of the opinion that section 7(2)(a) of the Act itself provided that in the balance-sheet valuation the Wealth-tax Officer could make necessary adjustments and, therefore, with regard to the house properties valuation could be determined under section 7(1) of the Act. Having regard to the valuation as shown in the balance-sheet of the business and making such adjustments therein as the circumstances of the case may require does not mean that he should proceed partly under section 7(1) and partly under section 7(2)(a). Under section 7(2)(a) the net value of the business as a whole has got to be taken, as mentioned in the balance-sheet, whereas under section 7(1) the market value of the assets has got to be determined. In the former case, the Wealth-tax Officer is not to determine the market value, but to take the value as a whole for the purpose of the tax. Of course, some adjustments could be made if the circumstances of the case so require. In this respect the Tribunal took a wrong view of the law that under both the clauses of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable under the Income-tax Act. Therefore, the matter required further consideration. However, the Tribunal was justified in allowing deduction on account of normal wear and tear and extra shift allowance, but not with a view to allowing deduction so as to correspond to the written down value. Provision was made also in the balance-sheet for the payment of income-tax of the years of account. The Wealth-tax Officer refused to make allowance on that account in determining the net wealth of the company. The Tribunal noticed the conflict of views of the High Courts about the deductibility of the income-tax liability in the absence of normal assessment and notice and the legal question as to whether such liability would be " a debt " under those circumstances ; but it held that, as the market value of the assets was bound to depreciate due to anticipated income-tax liability and the prospective buyer of the undertaking would pay lesser price, the assessee was justified in deducting the estimated income-tax liability. In the recent judgment of their Lordships of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner on Wealth-tax , it has been held by a major ..... X X X X Extracts X X X X X X X X Extracts X X X X
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