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TMI Blog2004 (8) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in the balance-sheet while acting under the provisions of section 7(2)(a) of the Wealth-tax Act?" The present reference relates to the assessment year 1975-76. By a consolidated order, the Tribunal has referred the aforementioned question of law in respect of three assessees, namely, Narendra Kumar Gupta, Prem Kumar Gupta and Smt. Krishna Kumari, who were the partners, in the firm, M/s. Film Angels, hereinafter referred to as the "firm". Briefly stated the facts giving rise to the present reference are as follows: All the aforementioned three persons, as stated hereinabove, were the partners in the firm which was deriving income from distribution, exploitation and exhibition of cinema films in the territory of Delhi and Uttar Pradesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net wealth of the firm and consequently of the partners. Relying upon a decision of the apex court in the case of CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122, he held that the value of the unexploited period is to be treated as assets which was valued by him at Rs. 24 lakhs with corresponding share of each of the partners at Rs. 8 lakhs. Accordingly, an addition of Rs. 8 lakhs was made to the wealth of each of the partners. However, in appeal, the Appellate Assistant Commissioner taking note of the rule 9B of the Income-tax Rules deleted the addition. In further appeal before the Tribunal, the Tribunal after considering various case laws has held that the right to exploit a cinema film in a particular territory for a particular perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was treated as revenue expenditure, the provisions of rule 2C of the Wealth-tax Rules were clearly attracted and, therefore, the value of the right to exploit a cinema film ought to have been included in the net wealth of the partners. He relied upon the following decisions: 1. CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122 (SC); 2. Mrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21 (SC); and 3. CWT v. U. C. Mehatab [1998] 231 ITR 501 (SC). Sri P. K. Jain, learned counsel for the respondents-assessees, however, submitted that under the Act, the firm was entitled to claim the entire expenses incurred for the exploitation and distribution rights of the film as a revenue expenditure. He submitted that prior to insertion of ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits and gains of the business. It is true that prior to the insertion of rule 9B of the Income-tax Rules, under the circulars issued by the Central Board of Direct Taxes the entire expenses for exploitation/distribution of motion pictures were allowed as deduction while computing the income of the firm. None the less it remains the stock-in-trade, which is an asset under section 2(e) of the Act. Since the entire cost of acquiring distribution rights had been allowed as revenue expenditure, its value has not been reflected in the balance-sheet. Once it is held that the right to exploit the film was a valuable right and has rightly been so held by the Tribunal, the value of such right had to be included in the wealth of the firm and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Act. The Andhra Pradesh High Court in the case of CWT v. Pachigolla Narasimha Rao [1982] 134 ITR 640 while considering as to whether the accrued interest is "property" as defined in section 2(e) of the Act and is liable to be valued as an asset for the computation of net wealth, has held that the fact that the assessee is maintaining his accounts on cash basis and has not received the interest is not relevant. The analogy of the Income-tax Act cannot be extended to the Wealth-tax Act, because the Wealth-tax Act by means of section 2(m) read with section 2(e) defines what constitutes "net wealth" and an "asset". The indicia of ownership is enough to qualify the accrued interest as an "asset". Applying the principles laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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