Full Judgment Text
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PETITIONER:
COMMISSIONER OF WEALTH TAX, WEST BENGAL
Vs.
RESPONDENT:
ALUMINUM CORPORATION LTD.
DATE OF JUDGMENT30/08/1971
BENCH:
ACT:
Wealth Tax Act (27 of 1957), s. 7(2)-Value of assets as
shown in balance-sheet-Whether should be accepted-
Depreciation, if permissible
Practice and Procedure-Remand by Supreme Court-High Court
examining competency of Supreme Court--Propriety.
HEADNOTE:
The assessee-company made a revaluation of its assets,
namely, land, buildings, plant and machinery in 1956, and
the increase in value was carried over to subsequent years.
For the assessment year 19’57-58, on the questions, (1)
whether in determining the net value of the assets under s.
7(2) of the Wealth Tax Act the value as shown in the balance
sheet should be substituted by the written down value as per
the income tax records, and (2) whether, even on the basis
of the value as shown in the balance sheet an adjustment on
account of normal depreciation of the assets for arriving at
the net value is justified, the High Court, on reference,
answered the first question in favour of the assessee and
did not answer the second question. This Court, on appeal,
set aside that judgment and remanded the case to the High
Court. Meanwhile, the High Court, for the assessment years
1958-59 and 1959-60, also on reference answered the first
question in favour of the assessee and did not answer the
second question.
After remand, with respect to the assessment year 1957-58,
the High Court, answered the first question in favour of the
Revenue and the second question in favour of the assessee.
In appeal to this Court, with respect to all the three
assessment years,
HELD : (1) (a) Wealth Tax is levied on the value of the
assets of the assessee on the valuation date. Section 7(2)
of the Wealth Tax Act requires the Wealth Tax Officer to
have regard to the balance sheet. it is open to the assessee
to satisfy the authorities that the valuation in the balance
sheet is not correct, but, in the absence of such proof, the
Wealth Tax Officer will be justified in proceeding on the
basis that the value shown in the balance-sheet is correct,
because, no one can know the value of the assets of a
business better than those who are in charge of the
business. [488 D--F]
Therefore, in the present case, the revaluation of the
assets made in 1956, undoubtedly afforded a sound basis for
valuing the assessee’s assets in the absence of any evidence
showing that it was incorrect, and the answer to the first
question for all the three years should be in favour of the
Department. The High Court was in error in holding that the
evidence afforded by the balance sheet could not be
considered as prima facie evidence of the value of the
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assets. [488 F-H]
C.I.T. West Bengal v. Aluminum Corporation, 78 I.T.R. 483
(S.C.) and Kesoram Industries Case, 59, I.T.R. 767 (S.C.),
followed.
(2) But the assets in the present case were subject to wear
and tear and there was no evidence to show that the market
value of these assets had ,-One up after the revaluation in
1956. Hence, when the value of the
485
assets had to be determined on the concerned valuation
dates, the Wealth Tax Officer should have deducted from the
1956 valuation the value of the depreciation of those assets
after the revaluation. Therefore, the answer to the second
question for all the three years should be in favour of the
assessee. [488 H; 489 A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1691. and
1962 of 1968 and 1075 of 1971.
Appeals by certificate/special leave from the judgments and
orders dated August 18, 1967 and May 7, 1970 of the Calcutta
High Court in Matters Nos. 298 of 1963 and 69 of 1962.
S. C. Manchanda, R. N. Sachthey, B. D. Sharma and S. P.
Nayar, for the appellant (in all that appeals).
B. Sen, N. R. Khaitan, B. P. Maheshwari and O. P. Khaitan,
for the respondent (in all the appeals).
The Judgment of the Court was delivered by
Hegde, J. Civil Appeals Nos. 1691-1692 of 1968 are by
certificate and Civil Appeal No. 1075 of 1971 is by special
leave. These appeals are brought by the Commissioner of
Wealth Tax, West Bengal. In all these appeals we are
dealing with the case of the same assessee, namely Aluminum
Corporation Ltd. The relevant assessment years are 1957-58,
1958-59 and 1959-60 and the material valuation dates are 31-
3-1957, 31-3-1958 and 31-3-1959. So far as the assessment
of the assessee for the assessment year 1957-58 is concerned
the matter had come up to this Court on an earlier occasion.
This Court remanded the case to the High Court to decide the
case afresh, if necessary after reframing the first question
in the light of the principles enunciated by this Court in
the order of remand-see Commissioner of Wealth Tax, West
Bengal v. Aluminum Corporation Ltd.(1) The High Court after
expressing doubts about the competence of this Court to
remand the case brought to this Court under the Provisions
of the Wealth ’Tax Act has answered the first question in
favour of the Revenue. So far as the second question is
concerned it has answered, the same in favour of the
assessee. As against that order the Department has brought
Civil Appeal No. 1075 of 1971. The other two appeals relate
to the assessment of the assessee for the assessment years
1958-59 and 1959-60. Here, the High Court has answered the
first question referred to it in favour of the assessee and
did not answer the second question.
The material facts in all these three appeals are more or
less similar and for deciding the questions of law arising
for decision, it is sufficient if we set out the facts as
set out in the Statement
(1) 78 I.T.R. 483.
486
of the case submitted by the Tribunal to the High Court
along with the questions of law arising for decision in
respect of the ,assessment of the assessee for the
assessment years 1958-59 and 1959-60. From that Statement
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we get the following facts :
The assessee company’s fixed assets namely, land, buildings,
plant and machinery were valued at Rs. 2,19,982/-, Rs.
36,13,906/- and Rs. 93,78,868/- respectively as on 31-3-
1955. This valuation did not take into account a
depreciation for the year ending 31-3-1955 in respect of
buildings, plant and machinery. A year later i.e. on 31-3-
1956 the same assets were valued at Rs. 4,99,340/-, Rs.
1,08,40,840/- and Rs. 1,89,23,449/This valuation was also
without taking into account depreciation for the year ending
31-3-1956 in respect of buildings, plant and machinery. The
increase in the value of these assets, after making
allowance for all additions made to the assets, was due to
the revaluation of the assets made by the company before 31-
3-56. The increase in value on account of revaluation was
to the tune of Rs. 2,83,871/-, Rs. 72,31,204/- and Rs.
98,67,481/- in the case of land, buildings and machinery
respectively. The Directors of the company in their annual
report for the year ended 31-3-1956 noted that these assets
had been revalued so as to indicate a true picture of their
value and that evaluators had given due consideration to
depreciation which the buildings, plant and machinery had
been already subjected to. A corresponding capital reserve
of an amount of Rs. 1,73,82,556/- was created against ,the
increase in the value of the assets. The increase in the,
value of assets effected before 31-3-1956 was carried over
to 31-3-1958 and 31-3-59, the relevant valuation dates and
the capital reserve ,aforesaid continued to remain
unaltered.
The company in submitting its return of wealth-tax as at the relev
ant valuation dates claimed before the Wealth-tax
Officer that its lands, buildings and machinery should be
valued according to the written down value as per income-tax
records after allowing depreciation according to the Income-
tax Act. According to the company the value of these assets
should be respectively, Rs. 2,26,786/- Rs. 12,38,109/- and
Rs. 11,46,979/- as at 31-3-1958 and Rs. 2,28,188/-, Rs.
13,64,198/- and Rs. 9,16,626/- as at 31-3-1959. These
written down values were determined on the basis of the
original cost as it stood before the assets were revalued in
1955-56. The Wealth-tax Officer in including these assets
in the net wealth of the company, however, took the value
thereof to be Rs. 5,10,657/-, Rs. 1,02, 53,392/- and Rs.
1,71,24,711/- as at 31-3-1958 and Rs. 5,12,059/-, Rs.
1,02,71,383/- and Rs. 1,65,02,524/- as at 31-3-1959 as shown
’in the company’s balance sheets as at 31-3-1958 and 31-3-
1959. ’The Wealth-tax Officer was of the view that the
valuation of the
487
assets having been made under section 7 (2) of the Wealth
Tax Act, there was no need to analyse individually the value
of particular assets. He also took the view that the value
of the assets after revaluation was the correct one. He
rejected the request of the company to make an allowance for
the wear and tear of the assets even on the basis of the
revised values for the period between the date of the
revaluation of the assets and the Wealth-tax valuation
dates.
The Appellate Assistant Commissioner of Wealth-tax disagreed
with the Wealth-tax Officer and allowed the assessee’s
appeal holding that the value of the block assets should be
taken to be their write down value as per, the income-tax
records and not the value shown by the assessee in its
balance sheets.
The Department appealed to the Tribunal against the order of
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the Appellate Assistant Commissioner. The Tribunal allowed
the appeal partially. It upheld the action of the Wealth-
tax Officer in determining the value of the fixed assets on
the basis of the values shown in the balance sheets of the
company, but it, however, held that the assessee was
entitled to an allowance in respect of these assets on
account of wear and tear during the period subsequent to the
revaluation. Thereafter at the instance of the assessee as
well as the Commissioner, the Tribunal stated a case and
submitted the following questions seeking the opinion of the
High Court.
(1) Whether on the facts and in the
circumstances of the case, in determining the
net value of the assets of the assessee
company under section 7(2) of the Wealth-tax
Act, the value of the company’s fixed assets
as shown in its balance sheet as on the valua-
tion dates should have been substituted by the
written down value of those assets as per the
company’s income-tax records ?
(2) If the answer to the first question is
in the negative, whether on the facts and in
the circumstances of the case, for the
purposes of determining the net value of the
assets of the company under Section 7(2) of
the Wealth-tax Act an adjustment on account of
normal depreciation of the fixed assets from
the date of revaluation of the assets to the
valuation dates was justified ?
Now reverting back to the assessment of the assessee for the
assessment year 1957-58, we have earlier noted the decision
of the High Court. Aggrieved by the, answer given by the
High
488
Court on the second question, the Commissioner has brought
Civil Appeal 1075 of 1971. The assessee has not appealed
against the decision of the High Court on the first
question.
Before adverting to the merits of the contentions of the
parties, we consider it necessary to observe that we are
wholly unable to comprehend the attitude of the High Court
while dealing with the case. The High Court quite clearly
exceeded its jurisdiction in examining the competence of
this Court to remand an appeal brought to this Court under
the provisions of the Wealth-tax Act. It would have done
well to remind itself that it was bound by the orders of
this Court and could not entertain or express any argument
or views challenging their correctness. The judicial
tradition and propriety required that court not to attempt
to sit on judgment over the decisions and orders of this
Court.
Now turning to the second question referred to the High
Court, we agree with the High Court that the valuation of
the assets shown in the balance sheet is not conclusive.
Wealth-tax is levied on the value of the assets of the
assessee on the valuation date. Section 7(2) of the Wealth-
tax Act merely requires the Wealth-tax Officer to have
regard to the balance-sheet. It is open to the assessee to
satisfy the authorities under the Wealth-tax Act that the
valuation shown in the balance sheet is not correct. But in
the absence of such a proof, the Wealth Tax Officer will be
justified in proceeding on the basis that the value shown in
the balance-sheet is correct because no one can know the
value of the assets of a business more than those who are in
charge of the business. In other words, the value of the
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assets shown in the balance sheet can justifiably be made
the primary basis of valuation for the purpose of the
Wealth-tax Act. In other words it can be taken as prima
facie evidence of the value of the assets. Here again the
High Court ignoring the ratio of the decision of this Court
in Kesoram Industries(1) case as well as the other deci-
sions of this Court held that the evidence afforded by the
balance sheet cannot be considered as primary evidence or
prima facie evidence of the value of the assets of the
business. To say the least. the learned Chief Justice
indulged in an unnecessary mental exercise forgetting the
fact that the law as interpreted by this Court is binding on
all courts and Tribunals.
Turning to the facts of the assessee’s case, the revaluation
of the assets was made in 1956. That revaluation in the
absence of any evidence to show that it was incorrect,
undoubtedly afforded a sound basis for valuing the
assessee’s assets. But then, when the value of those assets
had to be determined on the valuation dates concerned in
these cases, the Wealth-tax Officer should have deducted
from the 1956 valuation the value of the depreciation of
(6) 59. I.T.R. 767.
489
those assets after the date they were revalued. Undoubtedly
those assets were subject to wear and tear and there was no
evidence to show that the market value of those assets had
gone up after they were revalued in 1956.
Our conclusion regarding the, valuation for the year 1957-58
applies with equal force as regards the valuation for 1958-
59 and 1959-60.
Following the decision of this Court in Aluminum Corporation
of India Ltd.’s case(1) we answer the first question re-
ferred to the High Court in all these appeals in favour of
the Department. On this question we see no justification
for the reservations made by the High Court in the judgment
under appeal in Civil Appeal No. 1075 of 1971.
Now turning to the second question, we are of the opinion
that the finding of the Tribunal on that question was
essentially a finding of fact. That finding was based on
relevant evidence. It is not vitiated in any manner. In
our opinion, the Tribunal took a correct view of the scope
of s. 7 (2) of the Wealth-tax Act and its approach to the
question was in accordance with law. Hence our answer to
the second question is in the affirmative and in favour of
the assessee. In the result, these appeals are allowed to
the extent mentioned above. In the circumstances of these
cases, we direct the parties to bear their own costs both in
the High Court as well as in this Court.
V.P.S. Appeals allowed.
(1) 78 I.T.R. 483.
490