# [1970] 1 S.C.R. 789

- **Citation:** [1970] 1 S.C.R. 789
- **Court:** Supreme Court of India
- **Decided:** 1969-08-08
- **Bench:** J. C. Shah, Acting C.J, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1970-1-s-c-r-789-4695
- **Pages:** 7

## Headnote

Wea/th Tax ACt, 1957. ss. 7(2)(a) and 27(6)-Va/uation of assets of
·running business-Value as given in balance-sheet and written down value
of dssets-Which tO be adopted for assessment-Assessee must
produce
material to show ihat value other than that shown in balance-sheet should
be adopted-Duty bi Tribunal on receiving judgment of High Court or··
Supreme Court.
The reSpondent: company
was assessed to wealth-tax fOr the assessment years 1957-58, 1958-59 and 1959-60. In computing the net wealth.
of the respondent on the respective valuation dates the Wealth Tax Officer
proceeded under s. 7(2) (a) of the Act and included the full value of the
fixed assets as shown by the respondent in the res~ctive balance-sheets
without any adjustment, after rejecting its contention that the fixed assets
should be assessed at. their written down value as computed for the pill'·
poses of mcome-tax. The Appellate Assistant Commissioner confirmed the
valuation but the Income-tax Appellate Tribunal held that it would be fair
in ,the circumstances of the case to adopt the written down value of the
assetS as value thereof for all the years under appeal. On refer~ce being
made to it under s. 27 ( 1) di the Wealth Tax Act the High Court held in
favour of the respondent. The Revenue appealed,
HELD : The rule of valuation on the basis of market value under
s. 7 ( 1) of the Act may not yield a true estimate of the net value of the
total assets in the case of a running business. The legislature has there-
• fore provided in sub-s. ( 2) (a) that when the assessee is carrying on a
business for which accounts are maintained by him regularly, the Wealth·
Tax Officer ma}'. determ,ine the net value df the business
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. Thie power conferred upon . the tax officer to make
adjustments as the J;ircumstances 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 repres<!nts 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 the balance-sheet for the relevant
year as the real value of tbe assets for the purposes of the Wealth-tax. It
is a qu.Stion of f~ in each case as to whether the depreciation has to be
taken into account in ascertaining the true value of the assets. The onus
di proof is- on the assel!see who must produce reliable material to sb6w
that the written down value of the assets and not the balancMbeet -'alue
is the true value. [793 E-794 CJ
790
SUPREME COURT REPORTS
[ 1970] 1 S.C.R.
If, thorefore, the assessce merely claims that the written down of the
assets should be adopted but fails to produce any material to show that
written down value is the true value, the Wealth-tax Officer is justified
in rejecting the claims and adopting the valuO! shown by the assessee himself in his balance.sheet as the true value of his assets. [794 C-D]
· Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth·
tax (Central) Calcutta, (1966) 59 I.T.R. 767, applied.
(ii) Section 27(6) of the Act requires the Tribunal on receiving a
copy of tho judgment of the Supreme Court or the High Court as the
case may be to pass such ordeN as are necessary to dispose of the case
conformably to such judgment. [794 E)
If the Supreme Court agrees with the view of the Tribunal the appeal
may

## Text

789
A
COMMISSIONER OF WEALTH-TAX, CALCUTIA, NOW
WEST BENGAL II
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v.
TUNGABHADRA INDUSTRIES LTD., CALCUTTA
August 8, 1969
[J. C. SHAH, ACTING C.J., V. RAMASWAMI AND A. N. GROVER, JJ.]
Wea/th Tax ACt, 1957. ss. 7(2)(a) and 27(6)-Va/uation of assets of
·running business-Value as given in balance-sheet and written down value
of dssets-Which tO be adopted for assessment-Assessee must
produce
material to show ihat value other than that shown in balance-sheet should
be adopted-Duty bi Tribunal on receiving judgment of High Court or··
Supreme Court.
The reSpondent: company
was assessed to wealth-tax fOr the assessment years 1957-58, 1958-59 and 1959-60. In computing the net wealth.
of the respondent on the respective valuation dates the Wealth Tax Officer
proceeded under s. 7(2) (a) of the Act and included the full value of the
fixed assets as shown by the respondent in the res~ctive balance-sheets
without any adjustment, after rejecting its contention that the fixed assets
should be assessed at. their written down value as computed for the pill'·
poses of mcome-tax. The Appellate Assistant Commissioner confirmed the
valuation but the Income-tax Appellate Tribunal held that it would be fair
in ,the circumstances of the case to adopt the written down value of the
assetS as value thereof for all the years under appeal. On refer~ce being
made to it under s. 27 ( 1) di the Wealth Tax Act the High Court held in
favour of the respondent. The Revenue appealed,
HELD : The rule of valuation on the basis of market value under
s. 7 ( 1) of the Act may not yield a true estimate of the net value of the
total assets in the case of a running business. The legislature has there-
• fore provided in sub-s. ( 2) (a) that when the assessee is carrying on a
business for which accounts are maintained by him regularly, the Wealth·
Tax Officer ma}'. determ,ine the net value df the business
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. Thie power conferred upon . the tax officer to make
adjustments as the J;ircumstances 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 repres<!nts 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 the balance-sheet for the relevant
year as the real value of tbe assets for the purposes of the Wealth-tax. It
is a qu.Stion of f~ in each case as to whether the depreciation has to be
taken into account in ascertaining the true value of the assets. The onus
di proof is- on the assel!see who must produce reliable material to sb6w
that the written down value of the assets and not the balancMbeet -'alue
is the true value. [793 E-794 CJ
790
SUPREME COURT REPORTS
[ 1970] 1 S.C.R.
If, thorefore, the assessce merely claims that the written down of the
assets should be adopted but fails to produce any material to show that
written down value is the true value, the Wealth-tax Officer is justified
in rejecting the claims and adopting the valuO! shown by the assessee himself in his balance.sheet as the true value of his assets. [794 C-D]
· Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth·
tax (Central) Calcutta, (1966) 59 I.T.R. 767, applied.
(ii) Section 27(6) of the Act requires the Tribunal on receiving a
copy of tho judgment of the Supreme Court or the High Court as the
case may be to pass such ordeN as are necessary to dispose of the case
conformably to such judgment. [794 E)
If the Supreme Court agrees with the view of the Tribunal the appeal
may be disposed of by a formal order.
But if the Supreme Court disagrees with the Tribunal on a question of law, the Tribunal must modify
its order in the light of the order of the Supreme Court. rt the Supreme
Court has held that the judgment of the Tribunal is vitiated because it is
based on no evidence or because the judgment proceeds upon a misconstruction of the statute, the Tribunal would be under a duty to dispose of
the case conformably with the opinion of the Supreme Court and on the
merits of the dispute and re-hear. the appeal. In all cases, however, opportunity must be afforded to the parties of being beard. [794 F-H]
Income-tax 4ppellate Tribunal, Bombay, v. S. C. Cambatta & Co. Ltd.
(1956) 29 J.T.R. 118, 120, and Esthuri AJwathiah v. Commissioner of
Income-tax, (1967) 66 J.T.R. 478 (S.C.l, applied.
C1v1L APPELi.ATE JUR1so1cT10N: Civil Appeal Nos. 1629 to
1631of1968.
Appeals from the judgment and order dated January 29, 1965
of the Calcutta High Court in Wealth Tax Matter No. 372 of 1961.
B. Sen, T. A. Ramachandran, R. N. Sachthey and B. D.
Sharma, for the appellant (in all the appeals).
M. C. Chag/a, R. K. Choudhury and B. P. Maheshwari, for the
respondent (in all the appeals).
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought by certificate granted
under s. 29(1) of the Wealth Tax Act, 1957 (hereinafter referred
to as the Act) against the judgment of the Calcutta High Court
dated January 29, 1965 in Wealth Tax Matter No. 372 of 1961.
The respondent is a company which is assessed to wealth·
tax for the assessment years 1957-58, 1958-59 and 1959-60.
In computing the net wealth of the respondent on the respective
valuation dates the Wealth Tax Officer proceeded under s. 7(2)(a)
of the Act and included the full value of the fixed
assets
as
shown by the respondent in the respective balance sheets without
any adjustment, after rejecting its contention that the fixed
assets should be assessed
at their written down value as computed for the purposes of income-tax. In the assessment order
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G.W.J;. l'; TtjNQABHADRA INDUSTRIES (Ramaswami, J.)
791
for
1957-58 .the Wealth-tax Qftl.cer gave his reasons as.
follows:-
"The assessee claimed that since the full amount of
depreciation which was admissible under the Incometax Act was not provided in the balance sheet the
amount of depreciation not provided for earlier should
now be deducted from the value of the assets in order
to arrive at the net
wealth.
This
contention
can
hardly be accepted: The depreciation allowable under
the Income-tax Act does not determine the market
value of the assets.
The object of allowing depreciation in the income-tax assessment
is quite different
For the purpQse of the wealth-tax assessment the
value of the assets as estimated by the assessee itself
in its balance sheet has been accepted".
Similarly in his assessment order for 1958-59 the
Wealth-tu
Officer stated as follows :-
"Excluding the value of land, the total value of the
fixed
assets
as
per
balance sheet
amounts
to
Rs. 60,53,811 whereas the assessee has shown in its
return the value of the same at Rs. 7,69,435. These
values have been shown by the assessee on the basis
of income-tax written down value and not on the
basis of the balance .sheet values as required under
the global system of valuation. It is common knowledge that the values of the imported machinery has
increased considerably during the last few years and,
on the valuation date, I do not think that their value
should be less than that provided for in the balance
sheet".
On appeal the Appellate Assistant Commissioner confirmed thct
valuation of the fixed assets.
On further appeal the Income-tax
Appellate Tribunal held that it would be fair in the circumstances
of the case to adopt the written down value of the assets as valuct
thereof for all the years under appeal. In the course of its
order the Appellate Tribunal said :
"The income-tax assessment depreciation is calculated upon the original cost in a scientific and systematic manner with due regard to the nature of the
asset.
Therefore,
the written down value as determined in thct' income-tax assessment may be taken as
the fair index of the net value of the business assets in
most cases. • . . . . . . It eannot however be laid down
as an inflexible rule of law that in every case the
written down value must be taken to be the net
792
SUPREME COURT REPORTS
(1970] I S.C.R.
value of the business assets.
Ii that were so, the
Legislature would have said so in clear terms instead
of indulging in the circumlocution in section 7(2)(a).
In this particular case, it appears, the assessee did not
make any reserve for depreciation and the assets are
old dating back from the inception of the business
. long ago. In these circumstances, in our opinion, it
would be fair to adopt the written down value of the
assets as the value thereof for all
the years
under
appeal .... "
At the instance of the Commissioner of Income-tax the Appellate Tribunal stated a case to the High Court under s. 27(1)
of the Act on the following question of law :-
"Whether on the facts and in the circumstances of
the case, for the purpose of determining the net value
of the assets of the assessee under section 7(2) of the
Wealth-tax Act, 1957 the Tribunal was right in directing that the written down value of the
fixed
assets
of the assessec should be adopted as the value thereof,
instead of their balance sheet value ?"
By its judgment dated January 29, 1965 the High Court answered the question in the affirmative and in favour of the respondent.
Section 7 of the Act stood as follows at the material time :-
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"(!) The value of any asset, other than cash, for
the purposes of this Act, shall be estimated to be the
price which in the opinion of the Wealth-tax Officer it
would fetch if sold in the open market on the valuation
date.
F
(2) Notwithstanding anything contained
in
sub-
.section (1),-
(a) where the assessce is carrying on a business for
which accounts are maintained by him regularly, 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 the circumstances of the case may require.
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C.W.T. v. TUNGAJIHADRA INDUSTRIES (Ramaswami, J.)
793
In Kesoram lfldustries & Cotton Mills Ltd. v. Commissioner
of Wealth Tax, (Central) Calcutta(') the appellant-company had
shown in its balance-sheet for the period ending March 31, 1957,
the appreciated value on revaluation of its assets, after making
certain adjustments, at Rs. 2,60,52,357 and had introduced in
the capital reserve surplus a corresponding balancing figure of
Rs. 1,45,87,000 representing the increase in the value of the
assets upon re-valuation. For the purposes , of wealth-tax the
officer took the sum of Rs. 2,60,52,357 as the value of the
· assets, whereas the company contended that an adjustment ought
to be made in view of the increase in the value shown in the
balance-sheet on. re,valuation. It was held by this Court that as
no one could kn9w better the value of the assets than the assessee
himself, the Wealth-tax Officer was justified in accepting the
value of the asse.ts at the vigour shown by the appellant-company
itself.
It was open to the appellant-company to convince the
authorities that that figure was inflated for acceptable reasons;
but it did not make any such attempt.
It was also open to
the Wealth-tax Officer to reject the figure given by the appellantcompany and t(> adopt another figure if he was, for sufficient
reasons, satisfied that the figure given by the appellant was
wrong.
It is argued on behalf of the appellant in the present case
that the High Coμrt was not right in holding that the principle
laid down by this Court jn Kesoram Industries(') case is pot
applicable.
fa our
opinion there
is justification for
this
argument.
Under sub-section ( 1) of section 7 of the Act the
Wealth-tax Officer is authorised to estimate for
the
purpose
of determining 'the value of any asset, the price which it would
fetch, if sold. in the open market on the valuation date.
But
this rule in the ca,se of a running business may often be inconvenient and may not yield a true estimate of the net value of
the total assets of the business.
The legislature has, therefore,
provided in sub-section (2) (a) that where the assessee is carrying
on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may determine the net value of the
assets of the business as a whole, having regard to the balancesheet of such business as on the valuation date and make such
adjustments therein as the circumstances
of the case
may
reqμire.
Tue 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 balanee sheet is artificially
(I) (1966) 59 l.T.R. 767.
794
SUPREME COURT REPORTS
[ 1970] 1 S.C.R.
inflated.
It is also open to the assessce to establish by acceptable reasons that the written dawn ·1alue 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 wat 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
!act in each case as to whether the Jepreciation has to be taken
into account in ascertaining the true value of the assets.
The
onus of proof is on the assessee who must
produce reliable
material to show that the written down value of the assets and
not the balance-sheet value is the true value.
If, therefore, the
assessee merely claims that the written down value of the assets
should be adopted but fails to produce any material to show that
the written down value is the true value, the Wealth-tax Officer
is justified in rejecting the claims and adopting the values shown
by the assessee himself in his balance sheet as the true value
of his assets. In our opinion the High Court should have based
its decision on the principle of Kesoram Industries(')
case and
the question of law should be answered in the manner stated by
us in this judgment.
But it is necessary to give certain effective directions in this
case. Section 27(6) of the Act requires the Tribunal on receiving
a copy of the judgment of the Supreme Court or the High Court
as the case may be to pass such orders as are
necessary
to
dispose of the case conformably to such judgment. This clearly
imposes an obligation upon the Tribunal to dispose of the appeal
in the light and conformably with the judgment of the Supreme
Court.
Before the Tribunal passes an order disposing of the
appeal there would normally be a hearing.
The scope of the
hearing must of course depend upon the nature of the order
passed by the Supreme Court. If the Supreme Court
agrees
with the view of the Tribunal the appeal may be disposed of
by a formal order.
But if the Supreme Court disagrees with the
Tribunal on a question of law, the Tribunal must modify
its
order in the light of the order of the Supreme Court. If the
Supreme Court has held that the judgment of the Tribunal is
vitiated because it is based on no evidence or because the judgment proceeds upon a misconstruction of the statute, the TribJnal
would be under a duty to dispose of the case conformably with
the opinion of the Supreme Court and on the merits of the
dispute and re-hear the appeal.
In all cases. however, opportunity must be afforded to the parties of being heard.
In lncome0 > [t966j l9 l.T.R. 767.
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C.W.T. v. TUNGABHADRA INDUSTRIES (Ramaswami, l.)
795
tax Appellate Tribunal, Bombay v. S. C. Cambatta & Co. Ltd. (1)
the Bombay High Court has expla.iined the procedure followed in
the disposal of an appeal conformably to the judgment of the High
Court. Chagla C.J. in deliverinp; the judgment of the Court
observed:-
" ..... when a reference is made to the High Court
either under section 66(1) or section 66(2) the decision
of the Appellate Tribunal cannot be looked upon as
final; in other words, the appeal is not finally disposed
of. It is only when the High Court decided the case,
exercises its advisory jurisdiction, and gives directions
to the Tribunal on questions of law, and the Tribunal
reconsiders the matter and decides it, that the appeal
is finally disposed of. ...... it is clear that what the
Appellate Tribunal is doing after the High Court has
heard the case is to exercise its appellate powers under
section 33 ...... The shape that the appeal would nltimately take and the decision that the Appellate Tribunal wonld ultimately" give wonld entirely depend upon
the view taken by the High Court."
This passage was quoted with approval by this Court in Esthuri
Aswathiah v. Commissioner of Income-tax(').
In the present
case, therefore, the answer we have furnished to the
question
in the reference means that the Appellate Tribunal must now,
in conformity with the judgment of this Court, act under s. 27(6)
of the Act, that is to say, dispose of the case after rehearing the
respondent-company and the Commissioner in the light of the
evidence and according to law.
There will be no order as to costs.
G.C.
(1) (1956) 29 I.T.R. llS, 120.
(2) (1967) 66 I.T.R. 478 (S.C.).