TMI Blog1977 (11) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... tten down value computed for the purposes of income-tax and was more approximate to the market value. In respect of the assessment year 1958-59, apart from the valuation of the assets of the assessee-company, another question which was to be considered by the Wealth-tax Officer was whether the amount of contingencies reserve, tariff and dividend control reserve and development reserve was liable to be excluded from the computation of the total net wealth of the assessee. The Wealth-tax Officer rejected the plea of the assessee that the amount set apart in the form of these three reserves was liable to be excluded. An additional question which arose before the Wealth-tax Officer in respect of the assessment year 1959-60 was whether the amount of Rs. 13,38,188 on account of charges for service line connections were also liable to be excluded for the purposes of computation of the net wealth assessee. The Wealth-tax Officer rejected the contention of the assessee and treated the aforesaid amount as a part of the net wealth in addition to the amount of contingencies reserve, tariff and dividend control reserve and development reserve. When the net wealth of the assessee was assessed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance-sheet as being balance in service line contribution account and it was contended on behalf of the assessee before the Appellate Assistant Commissioner that this amount should also be excluded for the purposes of computation of net wealth on the ground that the said amount was excluded from the capital base of the company and that it had to be handed over to the State Government or to the State Electricity Board in the event of the undertaking being taken over at some future time. This contention was also rejected by the Appellate Assistant Commissioner. As a result of these orders passed by two Appellate Assistant Commissioners in two sets of appeals, appeals came to be filed both by the assessee-company and the Wealth-tax Officer before the Appellate Tribunal. The appeal by the Wealth-tax Officer arose out of the order of the Appellate Assistant Commissioner in respect of the assessment year 1957-58 by which the Appellate Assistant Commissioner had directed that the written down value of the fixed assets arrived at for the purposes of the Income-tax Act should be treated as value of the assets for the purposes of the Wealth-tax Act. The other three appeals were filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s earmarked against these reserves were shown at Rs. 1,69,669 on 31st March, 1958, and Rs. 2,16,411 on 31st March, 1959. After referring to the relevant provisions of the Electricity Act, 1910, and the Supply Act, 1948, the Tribunal took the view that though the assets earmarked against the contingencies reserve were the property of the assessee, " their value for the purposes of wealth-tax had to be taken at nil or, in the alternative, if the net value of the assets of all the business as a whole were to be taken, suitable adjustment had to be made for deduction of the contingencies reserve in the special circumstances of the case, since the latter amount was larger than the former reduction would be due of the larger amount (sic). " In arriving at the conclusion that the amount of contingencies reserve had to be excluded for the computation of net wealth, the Tribunal found that under the provisions of the Sixth Schedule the company was bound to make over the amount of contingencies reserve to the purchaser and that while the company was running, the contigencies reserve could be used only for three specified purposes subject to the approval of the Government having regard to cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany's property, it held that the company was entitled to a deduction of the value of the service lines contributed by the consumers, again " in the special circumstances of the case ". Both the revenue and the assessee were aggrieved by the findings recorded against each of them. Thus, the following three questions have been referred to this court under section 27(1) of the Wealth-tax Act : " (1) Whether, on the facts and in the circumstances of the case, for the purpose of including in the net wealth of the company for the assessment years 1957-58 and 1958-59, the value of the fixed assets of the company should be taken at the written down value thereof as determined under the Income-tax Act or at the written down value as shown in the balance-sheet on the relevant valuation dates ? (2) Whether, on the facts and in the circumstances of the case, in determining the net wealth of the company for the assessment years 1958-59 and 1959-60, the amounts lying to the credit of contingency reserve, tariff and dividend control reserve and development reserve should be excluded ? (3) Whether, on the facts and in the circumstances of the case, in determining the net wealth of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the option of disposing of all lands, buildings, works, materials and plant belonging to the undertaking in such manner as be may think fit, provided that, if the licensee does not exercise such option within a period of six months, the State Government may proceed to take action as provided under section 5, sub-section (4), proviso, with which we are not concerned. Turning to the provisions in the Sixth Schedule to the Supply Act, 1948, it is sufficient to refer to the relevant clauses which provide for the creation of the different kinds of reserves in question. Clause III of the Sixth Schedule provides for creation either from existing reserves or from the revenues of the undertaking a reserve to be called " contingencies reserve ". The extent of the contribution to the contingencies reserve is provided in clause IV and clause V(1) provides for restrictions in the manner of use of those reserves. Clause V(2) provides that on the purchase of the undertaking, the contingencies reserve, after deduction of the amounts drawn under sub-paragraph (1), shall be handed over to the purchaser and maintained as such contingencies reserve. There is a proviso which provides that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermissible under the Supply Act came to Rs. 6,55,767, under the Income-tax Act, the permissible depreciation came to Rs. 15,78,957. Thus, according to the learned counsel, the value of the fixed assets shown in the balance-sheet prepared in accordance with the provisions of the Supply Act must be taken to be inflated and the written down value in accordance with the provisions of the Income-tax Act, should be taken as the value of the net wealth for the purposes of the assessment to wealth- tax. Reliance was placed by Mr. Dwarkadas on two decisions of this court in Commissioner of Wealth-tax v. Raghuvanshi Mills Ltd. [1976] 104 ITR 544 (Bom) and an unreported decision in Commissioner of Wealth-tax v. Vishnu Cotton Mills Ltd., Wealth-tax Reference No. 11 of 1967, decided on 13th July, 1977, by Kantawala C. J. and Tulzapurkar J. (since reported in [ 1978] 112 ITR 546 (Bom)) in support of the proposition that it is proper to take written down value determined for the purposes of income-tax as the value of the assets for the purposes of assessment to wealth-tax. Now, so far as the chargeability of wealth-tax is concerned, under section 3 of the Wealth-tax Act, the tax is charged in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance-sheet is the proper market value or not. In other words, section 7 of the Wealth-tax Act is intended to enable the Wealth-tax Officer to arrive at the true market value of the assets on the valuation date. Where it is the case of the assessee that the valuation as shown in the balance-sheet does not represent the true value of the assets, the burden is on the assessee to show that the value is inflated. It is important to remember that the Wealth-tax Act and the Income-tax Act have different fields to operate in. While the provisions of the Income-tax Act are intended to levy a tax on the real income, the provisions of the Wealth-tax Act are intended to levy a tax on the net wealth with reference to the true market value on the valuation date. The real income under the Income-tax Act is to be computed having regard to the provisions made in the Income-tax Act and the Rules thereunder. The rules for computation of profits or real income would, therefore, have to operate within the limited field for which they have been made and their operation cannot be extended any further than the purpose for which they have been intended and framed. Thus, though for the purposes of determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax records, but the Wealth-tax Officer has power to make such adjustment if it was shown by the assessee that circumstances existed which required the making of such adjustment. The difference between the nature of the assessments made under the Wealth-tax Act and the Income-tax Act was dealt with by a Division Bench of this court in Commissioner of Wealth-tax v. Bombay Suburban Electric Supply Ltd. [1976] 103 ITR 384 (Bom), where the Division Bench observed as follows : "At the outset it may be stated that every principle which may or may not be relevant for determining the income of an assessee which can be brought to tax, is not necessarily attracted for determining the net wealth of an assessee which can be subjected to wealth-tax. Income-tax is a tax on the real income, i.e., profits arrived at on commercial principles subject to the provisions of the Income-tax Act. The real profits can be ascertained only by making the permissible deductions." Then after referring to the provisions of section 3 of the Wealth-tax Act, it was further observed : " Such net wealth is to be computed in the manner indicated in section 4 and the assets which are to exempted from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss as a whole, having regard to the balance-sheet of such business as on the valuation date and make such adjustments therein as the circumstances of the case may require. The power conferred upon the tax officer to make adjustments as the circumstances of the case may require is also for the purpose of arriving at the true value of the assets of the business. It is of course open to the assessee in any particular case to establish after producing relevant materials that the value given of the fixed assets in the balance-sheet is artificially inflated. It is also open to the assessee to establish by acceptable reasons that the written down value of any particular asset represents the proper value of the asset on the relevant valuation date. In the absence of any material produced by the assessee to demonstrate that the written down value is the real value, the Wealth-tax Officer would be justified in a normal case in taking the value given by the assessee itself to its fixed assets in its balance-sheet for the relevant year as the real value of the assets for the purposes of the wealth-tax. It is a question of fact in each case as to whether the depreciation has to be taken into ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this court in Raghuvanshi Mills Ltd. [1976] 104 ITR 544 (Bom) shows that the decision turned mainly on two circumstances, namely, that the textile mill in question was a fairly old mill with old machinery and that for want of profits, full depreciation could not be given effect to in the balance-sheet. The facts as they appear from the judgment indicate that before the Wealth-tax Officer the contention of the assessee was that the value of the assets as worked out after allowing for depreciation in accordance with rule 8 under the Income-tax Rules, 1922, should be accepted for the years 1957-58 and 1958-59. This was, however, rejected and the Wealth-tax Officer adopted balance-sheet values of the assets. In appeal, the Appellate Assistant Commissioner accepted the contention of the assessee for the year 1957-58 but rejected the same contention for the assessment year 1958-59 as a result of which both the assessee and the Wealth-tax Officer filed appeals before the Tribunal. The Tribunal allowed the appeal of the assessee and rejected the appeal of the Wealth-tax Officer, following an earlier decision of this court in Commissioner of Wealth-tax v. Indian Standard Metal Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining is ours). Later in the judgment, while again pointing out that the ratio of the decision of the Supreme Court in the case of Aluminium Corporation of India Ltd. [1972] 85 ITR 167 was not attracted, the Division Bench further observed : " On the contrary, in a textile mill having old machinery if the global method of valuation was adopted, then the depreciation as permissible under the Income-tax Act had to be adjusted in order to determine the market value at the relevant valuation date and this is what the Tribunal has done in the present case and we find no reason why the method adopted by the Tribunal cannot be regarded as a correct one." It will thus appear that the view taken by the Division Bench was taken specifically on the ground that the assessee owned a textile mill which had old machinery and that in that case the market value would properly be determined by taking the depreciation as permissible under the Income-tax Act. The decision must, therefore, be restricted to the facts of the case before the Division Bench and we are unable to read this decision as laying down an absolute proposition of law that in all cases where the net value of the assets is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the determination of the value of assets the written down value allowable under the Income-tax Act shall always be the value of the assets. In that event, there would be no necessity for any exercise by the Wealth-tax Officer. That is, however, not the intention of section 7 which clearly shows that the Wealth-tax Officer may make such adjustments in the value of the assets shown in the balance-sheet in accordance with the requirements of the circumstances disclosed by the assessee. Those circumstances which will be disclosed by the assessee must relate to the determination of the real value of the assets irrespective of what is shown in the balance-sheet if the assessee seeks a lower figure than appearing in the same. Thus, onus is not discharged by merely stating that since profits in a given year are less or nil little or no provision was made for depreciation of the assets in the balance-sheet. The assessee must also show further to what extent the depreciation has resulted in lowering the value of the assets compared to that mentioned in the balance-sheet and whether the written down value computed under the Indian Income-tax Act in fact represents the lower value." (Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. As the Tribunal has observed, the assessee has not chosen to get a fresh valuation made by the valuers. In view of the series of decisions of the Supreme Court referred to above, it is difficult to hold that there was any error in the order of the Tribunal when it came to the conclusion that the value of the assets as reflected in the balance-sheet was rightly taken for the purposes of computing the net wealth of the assessee. Consequently, the answer to the first question will be that the written down value of the assets as determined under the Income-tax Act could not be taken as the value of the fixed assets of the company but that the written down value as shown in the balance-sheet on the relevant valuation dates should be taken as the value of the fixed assets of the company. It will be convenient now to deal first with the third question because the decision of the point as to whether the amount lying to the credit in the service line contribution account should be excluded for computation of the net wealth of the assessee is concluded by the decision of the Supreme Court in Calcutta Electric Supply Corporation v. Commissioner of Wealth-tax [1971] 82 ITR 154. The Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are created in accordance with the provisions of the Sixth Schedule of the Supply Act, 1948, were liable to be excluded for the purposes of computation of the net wealth. So far as the contingency reserve and the development reserve are concerned, this court has expressly dealt with their includibility as part of the net wealth of the assessee in the Bombay Suburban Electric Supply Ltd.'s case [1976] 103 ITR 384 (Bom), and it was held that the amount standing to the credit of development reserve and the contingencies reserve was liable to be included in the net wealth of the assessee. Now, so far as the tariff and dividend control reserve is concerned, in our view, the ratio of the decision in the Bombay Suburban Electric Supply Ltd.'s case [1976] 103 ITR 384 (Bom), will also be attracted in that case. The tariff and dividend control reserve is also created out of the profits of the licensee under clause II of the Sixth Schedule. A part of it is made available to the licensee and just as in the case of the contingencies reserve and the development reserve, even the tariff and dividend control reserve has to be handed over to the purchaser under sub-clause (3) of clause 11 in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es refuse to exercise the option, an outside purchaser would be in the field and even that outside purchaser has necessarily to take into account the fact that resale by him will be subject to the restrictions and the options in the Sixth Schedule. We wish to point out here that so far as the provisions of section 6 are concerned, if neither the State Electricity Board nor the State Government nor the local authority purchase the undertaking under section 6 of the Electricity Act, 1910, there is no provision in the Act which would enable the licensee to transfer the undertaking as such to any third party who is referred to as an outside purchaser. The business of supply of electricity has to be done in accordance with a licence granted under the Electricity Act and that is why even the transfer of such an undertaking has been regulated by the provisions of section 6. If none of these three statutory purchasers exercise their option, the consequence is laid down in section 8 of the Electricity Act which provides : " Where, on the expiration of any of the periods referred to in section 6, subsection (1), the undertaking is not purchased by the State Electricity Board, the State Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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