TMI Blog1974 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... valuing the respondent's assets for the assessment year 1957-58, to be valued on March 31, 1957, was passed by the WTO on September 25, 1958 (vide petitioner's annex. "B"). The respondent is a limited company manufacturing and selling staple fibre yarn and cloth. In the balance-sheet of the company an ad interim provision for depreciation was made to the extent of Rs. 1,32,00,000 as shown in the balance-sheet. But at the time of assessment, the respondent claimed the depreciation to the extent of Rs. 2,83,49,526. However, the WTO allowed the depreciation to the extent of Rs. 50,51,515. On an appeal to the AAC, he, by order, dated January 22, 1959 (petitioner's annex. "C"), allowed the depreciation to the extent of Rs. 1,32,00,000, as shown in the balance-sheet of the respondent's accounts for the relevant year. Against the order of the AAC, the department and the assessee both filed appeals before the Income-tax Appellate Tribunal and as per order, dated January 16, 1964 (petitioner's annex. "D"), the Appellate Tribunal, relying on a decision of the Bombay High Court in CWT v. Indian Standard Metal Company Ltd. [1963] 49 ITR 832, dismissed the appeal filed by the department and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take the balance-sheet of the business as the basis for making the valuation and make such adjustments as he considers necessary. In valuing the assets of the assessee's business for purposes of wealth-tax, the WTO proceeded under sub-s. (2) of s. 7 and took the book value of the assets shown in the balance-sheet, viz., Rs. 21,56,655, as the value of the assets without deducting the sum of Rs. 8,70,000, which was shown in the balance-sheet as accumulated arrears of depreciation. The AAC held that the amount of depreciation which had been allowed by the I. T. authorities should be deducted from the book value shown in the balance-sheet. The Tribunal had agreed with that view. The learned judges of the Bombay High Court held that the assessee was entitled to claim deduction of the amount of accumulated depreciation allowance in its fixed assets, not written off in the books, but allowed by the department in the I. T. assessments, for the purpose of computing the net wealth under s. 7 of the W. T. Act. The learned judges also further held that the mere fact that in the balance-sheet, the fixed assets were shown at the book value and the depreciation had not been accounted for by setti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue does not represent the real or the correct value of the assets. That is a conclusion which logically flows from the very language of the section itself. Therefore, in the case of Hira Mills Ltd. v. CWT (M. C. C. No. 322 of 1968---6-4-73), a Division Bench of this court expressed the view that the view as expressed in CWT v. Swadeshi Cotton and Flour Mills Ltd. [1968] 69 ITR 539 (MP), was based on the pronouncement of their Lordships of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. In that view, it was laid down in that case that the balance-sheet value need not be conclusive and the correct market value can be found out by the taxing authorities even apart from the balance-sheet value and it was also held that on such faulty reasoning, as was adopted by the learned Members of the Tribunal, the mandatory provision of s. 7(2)(a) of the Act could not be given a go-by so as to deny to the assessee the deduction for depreciation that he might be entitled to under the Act. In that case, the learned counsel for the department relied on the pronouncement of their Lordships of the Supreme Court in CWT v. Tungabhadra Industries Ltd. [1970] 75 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the cases mentioned above. It is true that an assessee might be entitled to depreciation for the purposes of s. 10(2)(vi)(a) of the Indian I. T. Act, 1922. The Bombay High Court expressed the view that such depreciation as is allowed in the assessment proceedings for the purposes of income-tax might be relevant in some types of cases. We may observe that the learned Members of the Income-tax Appellate Tribunal misinterpreted the observations of their Lordships of the Bombay High Court in thinking that what their Lordships laid down was that the depreciation allowable under s. 10(2)(vi)(a) of the Indian I. T. Act, 1922, would automatically have to be allowed for the purpose of arriving at the valuation under s. 7(2) of the W. T. Act, 1957. We may observe that the depreciation allowable under the Indian I. T. Act, 1922, would not at all be material for the purpose of arriving at the valuation under s. 7(2) of the W. T. Act, 1957. It may be that in a rare case if there be no other material and the only material is the depreciation allowed under the Indian I. T. Act, 1922, that might be a relevant factor to be taken into consideration. But, ordinarily, such allowable deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egularly, 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 may be prescribed." We may observe that although the valuation as shown in the balance-sheet might be taken as the basis, yet there would be room for making such adjustments therein as may be prescribed and, consequently, the Appellate Tribunal would have to arrive at the correct figure of depreciation anywhere between the one shown in the balance-sheet and the amount of depreciation will certainly be more than the amount shown in the balance-sheet. But in any case, it will be less than what was unjustifiably claimed by the respondent-assessee at a figure of Rs. 2,83,49,526. While answering this reference it is not for, us to say anything more except to give our opinion on the questions referred to us. It would be for the Appellate Tribunal to arrive at the correct figure. As a result of the discussion aforesaid, we answer the two questions as follows : (1) That, on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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