TMI Blog1962 (10) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained in section 7(2) having regard to the balance-sheet of the company. The assessee also claimed a deduction in respect of a sum of ₹ 3,91,645 on account of provision for the tax payable up to and inclusive of the assessment year 1957-58. This sum has been subsequently reduced to ₹ 3,61,645 being the actual amount of income-tax and super-tax payable by the assessee after taking into account the amount paid by way of advance payment of tax. The assessee also claimed a deduction in respect of a sum of ₹ 4,78,853 on account of the alleged liability for gratuity based on certain awards and agreements. The assessee also preferred a claim for deduction on account of proposed dividends. As the question in relation to the proposed dividends has not been pressed before us, we will not advert to the facts in connection with the same. The Wealth-tax Officer came to the conclusion that the correct market value of the machinery was not only more than the value shown by the assessee in the return but also exceeded the value shown in the books of account. He adopted the value as shown in the books of account for the purpose of assessment to tax. We may mention that the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the basis of the awards made prior to the valuation date . As regards the claim made on account of taxes, the Tribunal, following the Full Bench decision of the Tribunal in the case of Raipur Manufacturing Company Ltd. in Wealth-tax Applications Nos. 87 and 99 of 1958-59, held that the unpaid income-tax liability relating to the year of account should be taken into account in ascertaining the net wealth of the assessee-company on the valuation date. In connection with the claim made on the basis of the written down value of the assets of the company following its decision in the case referred to above, it directed that ordinary depreciation should be allowed on the basis that an asset loses in value on account of use and wear and tear. At the instance of the Commissioner this reference has been made referring for our determination the questions following : (1)Whether, on the facts and circumstances of the case, in ascertaining the net wealth of the assessee as on the valuation date, the taxation liability of ₹ 3,61,645 up to and including the assessment year 1957-58 should be taken into account ? (2)Whether, on the facts and circumstances of the case, in ascert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter 15 years' continuous service in the company: 15 months' salary. (4)A gratuity will not be paid to any employee who is dismissed for dishonesty or misconduct, but will be paid to the employees who have been discharged between 4-5-1949 and the date of the registration of this agreement. Salary for the purpose of calculating gratuity shall mean substantive salary (exclusive of allowance of an employment of the mill). The mills may at their discretion grant gratuity in excess of the above. A statement has been filed before us showing that under this agreement the amount payable to the members of the clerical staff of the company who had on the valuation date completed 15 years of service in the company would be ₹ 57,217-8-0 on the basis of the substantive salary of the said employees on the valuation date if the said employees would cease to be in the employment of the mills otherwise than on account of dismissal for dishonesty or misconduct on the valuation date. The statement further shows that a sum of ₹ 10,167-8-0 would be payable by the assessee to the members of the clerical staff of the company who had put in 10 years of continuous service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not terminate the service but before completion of 15 years' continuous service the employee voluntarily retires or resigns, then the company would be under no obligation to pay any sum of money whatsoever to the employee by way of gratuity. It is not a liability which could be said to have ripened into a debt. It could not be said to be an existing obligation. It is an obligation which would attach on the condition precedent, namely, the termination of the service by the company being fulfilled. It is a contingent liability and a liability in connection therewith cannot be regarded as a debt owing by the company. As regards the liability which it is said has accrued in connection with the employees who have put in 15 years' continuous service, it was very strongly urged that the obligation in connection with the same was an existing obligation. It was said that the termination of the service of the employees may be brought about either by the voluntary retirement or resignation of the employees or by the termination of the service by the company. In both the events the company would be under an obligation to pay the amount due in connection with gratuity. If the termina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business as a whole having regard to the balance-sheet of such business as on the valuation date. He is no doubt entitled to make such adjustments as the circumstances of the case may require. What we have to consider in this case is whether there are any circumstances which require the Wealth-tax Officer to make any adjustment in the balance-sheet in the manner submitted by the company. As has been held by the Supreme Court in the case of Indian Hume Pipe Co. Ltd. v. Workmen [1960] 2 SCR 32, 36 ; AIR [1960] SC 251, 253. Gratuity is a kind of retirement benefit like the provident fund or pension. At one time it was treated as payment gratuitously made by the employer to his employee at his pleasure, but as a result of a long series of decisions of industrial tribunals gratuity has now come to be regarded as a legitimate claim which workmen can make and which, in a proper case, can give rise to an industrial dispute. Gratuity paid to workmen is intended to help them after retirement, whether the retirement is the result of the rules of superannuation or of physical disability. The general principle underlying such gratuity schemes is that by their length of service workmen are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the present case, we find that no material has been placed before the wealth-tax authorities which would enable the wealth-tax authorities to place any valuation on this liability. No evidence has been led of any circumstances which necessitate the making of any adjustment in the balance-sheet. In our view, on the facts and in the circumstances of the present case, the sums of ₹ 57,217-8-0 and ₹ 10,167-8-0 less 10 per cent. are not liable to be deducted in determining the net wealth of the assessee. As regards the question of substituting the written down value computed under the Income-tax Act for the value of the block assets as shown in the balance-sheet, we have dealt with a similar question in Wealth-tax Reference No. 1 of 1960. There is no invariable rule that the written down value computed under the Income-tax Act should be taken to be the value of the block assets as shown in the balance-sheet. In our view no circumstances exist which require the making of any adjustment in the value of the block assets as shown in the balance-sheet. Our answers to the questions are the following : (1)Our answer to question No. 1 is in the affirmative. (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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