# CALCUTTA ELECTRIC SUPPLY CORPORATION v. COMMISSIONER OF WEALTH TAX, WEST BENGAL

- **Citation:** [1972] 1 S.C.R. 159
- **Court:** Supreme Court of India
- **Decided:** 1971-08-12
- **Bench:** K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/calcutta-electric-supply-corporation-v-commissioner-of-wealth-tax-west-bengal-5339
- **Pages:** 9

## Headnote

Wealth Tax Act. 1957 s. 7-Computation of value of assets underAssets as shown in balance-sheet can be accepted but Wealth-tax Officer
not bound to accept valuation as shown therein-Electricity company
seeking deduction of value of service connections installed at cost of consumers-Assessee failing to prove that service connections H'ere·not in
ownership of company-Shown in ha/ance sheet as company's assetsWealth Tax Officer justified in
refusing deduction-Fact that service
connections are not to be included in company's assets under s.7 A of Indian
Electricity Act is irrelevant.for the purpose of s. 7 of Wealth Tax Act.
The assessee carried on the business of supplying electrical energy
in the City of Calcutta. During the year 1959-60 the corresponding valuation date being March 31, 1959, the assessee showed in its balance sheet
a deduction from the value of its total assets on the ground that the
sum in question represented the contribution made by the consumers
for putting up service connections. The Wealth Tax Officer proceeded
to assess the net wealth of the assessee under s. 7 (2) of the Wealth Tax
Act, 1957 and in doing so refused to grant the deduction claimed, though
he accepted the valuation of the assets as shown in the balance-sheet.
The Appellate Assistant Commissioner and the Appellate Tribunal
however held that the deduction must be allowed. The Tribunal was
influenced in its decision by the fact that in computing the value of the
undertaking under s. 7 (A) of the Indian Electricity Act the value of
service lines and other capital works or any part thereof which had
been constructed at the cost of the consumers had to
be ignorned.
The High Court in rtf,renco decided against assessee. In appeal to
this Court by the assessee,
HELD: (i) Section 7 (2) of the Wealth
Tax Act authorises the
Wealth-tax officer to accept the valuation of the assets of a business as
shown in the balancesheet of a company.
He is not bound to accept
any deduction shown in the balance sheet if he comes to the conclusion
that the said deduction was impermissible.
Section 7(2) does not say
that the Wealth Tax Officer should accept the balance sheet as a whole
or reject it as a whole. He is merely authorised to accept the value of
the assets of the business as shown in the balance sheet. In the present
case the wealth tax officer had accepted the value of the assets of the
business as shown in the balance sheet but had not accepted the fact
that the service lines were not owned b~ the assessee. [164 B-D]
(ii) There was no material before the authorities under the Act
to hold that the service connections were not the assets of the company.
The fact that those assets were acquired by the company by utilising the
contributions made by the consumers was a wholly irrelevant circumstance. The balance sheet showed the service connections as the assets
160
SUPREME COURT REPORTS
[1972] l S.C.R.
of the assessee. It was not said that they were the assets of the consumers on the relevant valuation date. The admission in the balance
sheet (profit and loss accounts) was not rebutted by any other evidence.
Hence the Wealth Tax Officer was justified in holding that they were
assessee's assets.
(164 E-H]
A
(iii) It is true that in view of s.7(A)(2) of the Electricity Act, in
computing the market value of the undertaking sold under sub-s.(1) of
B
s.5 of that Act, the value of service lines and other capital works or any
part thereof which had been constructed at the expense of the
consumers will not be taken into consideration. But s.7(A) only
deals with sales under s.5(1) of the Act. If a sale is effected under s.8
the licensee shall have the option to dispose of all land building, works,
materials and plants belonging to the undertaking in such manner as
he may think fit.
In such sales it is open to him to value the service
connections put up at the expense of the consumers and add the same
in computing the sale price. It is dear from ss.5 to 8 of the Electric

## Text

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B
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159
CALCUTTA ELECTRIC SUPPLY CORPORATION
v.
COMMISSIONER OF WEALTH TAX, WEST BENGAL
August 12, 1971
[K. S. HEGDE AND A. N. GROVER, JJ.]
Wealth Tax Act. 1957 s. 7-Computation of value of assets underAssets as shown in balance-sheet can be accepted but Wealth-tax Officer
not bound to accept valuation as shown therein-Electricity company
seeking deduction of value of service connections installed at cost of consumers-Assessee failing to prove that service connections H'ere·not in
ownership of company-Shown in ha/ance sheet as company's assetsWealth Tax Officer justified in
refusing deduction-Fact that service
connections are not to be included in company's assets under s.7 A of Indian
Electricity Act is irrelevant.for the purpose of s. 7 of Wealth Tax Act.
The assessee carried on the business of supplying electrical energy
in the City of Calcutta. During the year 1959-60 the corresponding valuation date being March 31, 1959, the assessee showed in its balance sheet
a deduction from the value of its total assets on the ground that the
sum in question represented the contribution made by the consumers
for putting up service connections. The Wealth Tax Officer proceeded
to assess the net wealth of the assessee under s. 7 (2) of the Wealth Tax
Act, 1957 and in doing so refused to grant the deduction claimed, though
he accepted the valuation of the assets as shown in the balance-sheet.
The Appellate Assistant Commissioner and the Appellate Tribunal
however held that the deduction must be allowed. The Tribunal was
influenced in its decision by the fact that in computing the value of the
undertaking under s. 7 (A) of the Indian Electricity Act the value of
service lines and other capital works or any part thereof which had
been constructed at the cost of the consumers had to
be ignorned.
The High Court in rtf,renco decided against assessee. In appeal to
this Court by the assessee,
HELD: (i) Section 7 (2) of the Wealth
Tax Act authorises the
Wealth-tax officer to accept the valuation of the assets of a business as
shown in the balancesheet of a company.
He is not bound to accept
any deduction shown in the balance sheet if he comes to the conclusion
that the said deduction was impermissible.
Section 7(2) does not say
that the Wealth Tax Officer should accept the balance sheet as a whole
or reject it as a whole. He is merely authorised to accept the value of
the assets of the business as shown in the balance sheet. In the present
case the wealth tax officer had accepted the value of the assets of the
business as shown in the balance sheet but had not accepted the fact
that the service lines were not owned b~ the assessee. [164 B-D]
(ii) There was no material before the authorities under the Act
to hold that the service connections were not the assets of the company.
The fact that those assets were acquired by the company by utilising the
contributions made by the consumers was a wholly irrelevant circumstance. The balance sheet showed the service connections as the assets
160
SUPREME COURT REPORTS
[1972] l S.C.R.
of the assessee. It was not said that they were the assets of the consumers on the relevant valuation date. The admission in the balance
sheet (profit and loss accounts) was not rebutted by any other evidence.
Hence the Wealth Tax Officer was justified in holding that they were
assessee's assets.
(164 E-H]
A
(iii) It is true that in view of s.7(A)(2) of the Electricity Act, in
computing the market value of the undertaking sold under sub-s.(1) of
B
s.5 of that Act, the value of service lines and other capital works or any
part thereof which had been constructed at the expense of the
consumers will not be taken into consideration. But s.7(A) only
deals with sales under s.5(1) of the Act. If a sale is effected under s.8
the licensee shall have the option to dispose of all land building, works,
materials and plants belonging to the undertaking in such manner as
he may think fit.
In such sales it is open to him to value the service
connections put up at the expense of the consumers and add the same
in computing the sale price. It is dear from ss.5 to 8 of the Electricity
Act that the licensee is the owner of the service connections put up at
the expense of the consumers. If that is not so, there is no purpose
in mentioning in s.7A that while determining the market value of the
undertaking the value of the service connections shall not be taken into
consideration. Further s.8 would not have permitted the licensee to
pocket the value of those service connections. The fact that the value
of one or more of the assets of an undertaking will not be taken into
consideration in computing the value of an undertaking when sold under
compulsion of law because of some statutory provision does not by it·
self show that it is not a valuable asset within the meaning of s.7 of the
Wealth TaxJ Act. [166 D-H]
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos
1656 and 1657 of 1968.
Appeals from the judgment and order dated August 22,
1967 of the Calcutta High Court in Income-tax Reference
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Nos. 250 and 325 of 1963.
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M. C. Chagla and D. N. Mukherjee, for the appellant
(in both the appeals).
B. Sen, A. N. Kirpal, R. N. Sachthey and B. D. Sharma,
for the respondent (in both the appeals).
The Judgment of the Court was delivered by
Hegde,. J. These appeals arise from the decision of the
High Court of Calcutta in a Reference under s. 27(1}
of the Wealth Tax Act, 1957 (to be hereinafter referred to
G
as the
Act). In
that
decision,
the
High Court
was requested to give its opinion on two questions of H
law referred to it by the Income-tax Appellate Tribunal,
'B' Bench, Calcutta. Following the decision of this Court
CALCUTTA ELEC. CORP. V. C.W.T. (Hegde, !.)
!61
A in
Commissioner of Wealth-tax v. Ramaraju
Surgical
Cotton Mills Ud.,['] the High Court answered the second
question against the Revenue. That decision has become
final.
At present we are only concerned with the first
question of law referred to the High Court for its opinion.
8
That question reads:
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"Whether on the facts and in the circumstances of
the case, the sum of £s,54,948 was deductible in determining the net value of the assets of the assessee's
business under Section 7(2)(a) of the Wealth-tax Act?"
The assessee is a Sterling Company incorporated in U .K.
It carries on business of supplying electric energy in the
city of Calcutta. During the year 1959-60, the corresponding
valuation date being March 31, 1959, the assessee showed in
its balance-sheet a deduction of £8,54,948 from the value
of its total assets on the ground that the sum in question
represents the contribution made by the consumers for
putting up service connections. The relevant portion
of the balance sheet reads thus:
"THE CALCUTTA ELECTRIC SUPPLY
CORPORATION LIMITED
ACCOUNT OF CAPITAL EXPENDITURE AND OF
DEPRECIATION
For the year ended 31st March, 1958
Mains & Service
Connections.
Extended to
Added
March, 31,
during year
1957
8,725205
893,707
Cost or
interns scraped during
year
3
50242
T{ital
at 31<,t
f\.tarch
1958
4
9568670
------- ---
-----
--
-~--
-·
Total
al 31st
March
1957
Added
Deprecia
frum
tion writthe reten off on
ven'Je of
Asset-;
the year
scrapped
total
Net Expenditure
at 31st
at Cost kss
March
Depreci~iti0n
1958
at 31st l\1<1rch
19<8
5
6
7
8
9
---------
2,954497 . 199239 ___ 11598 -- 3142138-
;<
Less: Consumer's Contributions for Mains and Service Connections ~ince
10th September, 1948.
717,059
---- ----------
The Wealth-tax
Officer proceeded to assess the net
H wealth of the assessee under s.7(2) of the Act. But he
refused to grant the deduction claimed though he accepted
I. 53, 1.T.R.478;
162
SUPREME COURt REPORTS
[1972] l S.C.R.
the valuation of the assets as shown in the balance sheet.
A
Thereafter the assessee went up in appeal to the Appellate
Assistant Commissioner of Wealth-tax. The
Appellate
Assistant Commissioner allowed the appeal holding that as
the Wealth Tax Officer has proceeded to assess the assessee
under s. 7(2), he must accept the balance sheet as a whole.
B
Hence it was impermissible for him not to allow the deduction shown in the balance sheet. He
accordingly
deleted the amount added back by the Wealth Tax Officer.
As against that order, the Department went up in appeal to
the Income-tax Appellate Tribunal. The Tribunal held
that although the entire undertaking of the company c
including portions of Mains and Service Connections put
up at the expense of consumers was the property of the
company, it would not be correct to include the value of
such portions in the net wealth of the company computed
under s. 7(2). The Tribunal further held that the marketability of the Electric
Undertaking had certain special
D
features which had to be taken into consideration in assessing its Valuation. One such special feature the Tribunal
noted was that the company could not sell the undertaking
except in accordance with the provisions of s.5 of the Indian
Electricity Act, 1910, and the market value of the undertaking in the event of sale had to be determined in accorE
dance with the provisions in s. 7(A) of the Act. While computing the value of the undertaking under s.7(A) of that Act,
the value of service lines and other capital works or any
part thereof which has been constructed at the expense of
the consumers has to be ignored. In the result the Tribunal F
agreed with the conclusions reached by the Appellate
Assistant Commissioner.
As mentioned earlier at the instance of the Department,
the Tribunal submitted two questions of law. We have already set out the question with which we are concerned
in these appeals.
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The High Court answered the questions referred to it
for its opinion against the assesse~.
Section 7 of the Act deals with the mode of determination of the value of the assets. It reads thus:
"7. Value of assets how to be determine:!.-
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(I) Subject to any rules made in this behalf,
the value of any asset, other than cash, for the pur-
CALCUTTA ELEC. CORP. v. c.W.T. (Hegde, !.)
163
A
poses 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.
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(2) Notwithstanding anything contained in
Sub section(!),
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(a) where the assessee 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 valua:
tion date and making such adjustments therein
as may be prescribed;
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(b) where the assessee carrying on the business, is a company not resident in India and a
computation in accordance with clause (a) cannot be made by reason of the absence of any
separate balance-sheet drawn up for the affairs
of such business in India, the Wealth-tax
Officer may take the net value of the assets of
the business in India to be that proportion of
the net value of the assets of the business as a
whole wherever carried or determined as aforesaid as the income arising from the business
in India during the year ending with the
valuation date bears to the aggregate income
from the business wherever arising during that
year."
As seen earlier, the Wealth-tax Officer had determined
G the value of the assets under s. 7(2). There is no dispute
that the assessee is maintaining regular accounts for the
business it is carrying on.
Therefore it was open to the
Wealth-tax Officer, instead of determining separatly the
value of each asset held by the assessee as a part of its
business, to determine the net value of the assets of the
H business as a whole as on the valuation date having regard
to the balance-sheet of such business. This section nowhere says that the Wealth-tax Officer while proceeding
164
SUPREME COURT REPORTS
[ 1972] I S.C.R.
under s. 7(2) is bound to accept every entry in the balanceA
sheet. What the section permits the Wealth•tax Officer is
that instead of separately valuing each asset forming part
of the business, he may determine the net value of the
business as a whole having regard to the balance-sheet of
such business as on the valuation date. In other words
B
s. 7(2)
authorises the Wealth-tax Officer to accept the
valuation of the assets of a business as shown in the balance
sheet of the company. He is not bound to accept any
deduction shown in the balance-sheet if he comes to the
conclusion that the said deduction was impermissible.
Section 7(2) does not say that the Wealth-tax Officer should c
accept the balance-sheet as a whole or reject it as a whole.
He is merely authorised to accept the value of the assets
of the business as shown in the balance-sheet. In the
present case, the Wealth-tax Officer has accepted the value
of the assets of the business as shown in the balance-sheet.
But he has not accepted the fact that the service lines are
D
not owned by the assessee.
We shall proceed to consider whether the service lines
which were constructed at the expense of consumers are the
assets of the company. In
1 the balance-sheet they are
shown as the assets of the company. There was no material
E
before the authorities under the Act to hold that they were
not the assets of the company. The fact that those assets
were acquired by the company by utilizing the contributions
made by the consumers is a wholly irrelevant circumstance.
The only thing relevant for the purpose of the Act is that
the assessee should be the owner of the assets in question
F
on the relevant valuation date. The Act does not concern
itself with the mode in which those assets were acquired.
It is immaterial for the purpose of the Act whether the
assessee acquired those assets from his own money or with
the assistance of others. The balance-sheet shown those
service connections as the assets of the assessee. It was
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not said that they were the assets of the consumers on the
relevant valuation date. The admission in the balancesheet (profit and loss accounts) is not rebutted by any other
evidence. Hence the Wealth-tax Officer was justified in
holding that they were assessee's assets. The Tribunal
was impressed by the fact that if and when the undertaking
H
is sold the assessee will not get any price for the service
.connections in view of s 7 (A) ( 2) of the Indian Electricity
CALCUTTA ELEC. CORP. v. C.W.T. (Hegde, J.)
165
A Act 1910. Section 7(A) provides for the determination of
the purchase price orr revocation of licence under
s. 4.
Whenever a licence of a licensee under the Indian Electricity Act is revoked under s. 4
it is open to the State
Government to acquire the undertaking itself or to direct
B the licensee to sell the undertaking 1o one or the other of
the authorities or person designa1 ed therein. When a
sale in pursuance of such a direction is effected valuation of
undertaking is made in accordance with s. 7(A). Section 7
(A) reads:
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"7A. (1) Where an undertaking of a licensee not
being a local authority is sold under sub-section(!)
ofsection 5 the purchase price of the undertaking
shall be the market value of the undertaking at the
time of purchase or where the undertaking has been
delivered before the purchase under su b-s. (3) of that
section at the time of the delivery of the undertaking
and ifthere is any difference or dispute regarding such
purchase price the same shall be determined by arbitration.
(2) The market value of an undertaking for the
purpose of sub-section(!) shall be deemed to be the
value of all lands, buildings. works, materials and
plant of the licensee suitable to, and used by him, for
the purpose of the undertaking, other than (i) a
generating station declared by the licensee not to form
part of the undertaking for the purpose of purchase
and (ii) service-Jines or other capital works or any
part thereof which have been constructed at the
expense of consumers, due regard being had to the
nature and condition for the time being of such
lands, buildings, works, materials and plant and the
state of repair thereof and to the circumstance that
they are in such position as to be ready for immediate
working and to the suitability of the same for the
purpose of the undertaking, but without any addition
in respect of compulsory purchase or of goodwill or
of any profits which may be or might have been made
from the undertaking or of any similar consideration.
(3) Where an undertaking of a licensee being "
local authority is sold under sub-section(!) of section
5 the purchase price of the undertaking shall be such
166
SUPREME COURT REPORTS
[1972] I S.C.R
as the State Government having regard to the market
value of the undertaking at the- date of delivery of the
undertaking may determine.
(4) Where an undertaking of a licensee is purchased under section 6, the purchase price shall be
the value thereof as determined in accordance with
the provisions of sub-sections(!) and (2) :
Provided that there shall be added to such
value such percentage if any, not exceeding
twenty per cent um of that value as may be specified
in the licence on account of compulsory purchase.
It is true that in view of s. 7(A)(2) of the Electricity Act
A
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in computing the market value of the undertaking sold under
sub-s.(I) of s. 5 of that Act the value of service lines which
had been constructed at the expense of the consumers will
0
not be taken into consideration. The
reason for this
provision is obvious. It will be the duty of the new
licensee to not only maintain and repair those lines but
also to replace them when they become unserviceatle. But
s. 7 (A) of the Electricity Act only deals with sales under
s. 5(1) of the Act.
But if a sale is effected under s. 8 the
licensee shall have the option to dispose of all land building works material and plants belonging to the undertaking in such manner as he may think fit.
In such sales it is
open to him to value the service connections put up at the
expense of the consumers and add the same in computing
E
the sale price. It is clear fro'll ss. 5 to 8 of the Electricity
F
Act that the licensee is the owner of the service connections
put up at the expense of the consumers. If that is not so
there was no purpose in mentioning in section 7(A) that
while determining the market value of the undertaking the
value of the service connections shall not be taken into
consideration. Further s. 8 would not. have
permitted
G.
the licensee to pocket the value of those service connections.
The fact that the value of one or more of the assets of an
undertaking will not be taken into consideration in computing the value of an undertaking when sold under compulsion
of law because of some statutory provision does not by itself
show that it is not a v?lu<>tle rsset.
Section 7 of the Act
H
does not take note of hypothetical possibilities in the matter
of valuation of the assets. It merely concerns itself as to
A
CALCUTTA ELEC. CORP. v. C.W.T. (Hegde, !.)
167
what is the true market value of the assets in question on the
valuation date.
So ,.ar as the market value of the asset
with which we are concerned in this case
there is no
difficulty
We have the assessee's own admission in its
balance sheet.
B
In the result these appeals fail and they are dismissed
with costs-hearing fee one set.
G.C.
Appeals dismissed.
12-M1245Sup.Cl/72