Calcutta Electric Supply Corporation LTD. vs Commissioner Of Wealth Tax, W. B.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1971 Supreme(SC) 402

SUPREME COURT OF INDIA
K.S. HEGDE AND A.N. GROVER, JJ.
Calcutta Electric Supply Corporation (In both the appeals), Appellant
Versus
The Commissioner of Wealth Tax, West Bengal (In both the Appeals), Respondent.
Civil Appeals Nos. 1656 and 1657 of 1968 D/- 12-8-1971.
Advocates appeared
Mr. M.C. Chagla, Sr. Advocate, (Mr. D.N. Mukherjee, Advocate, with him), for Appellant, (in both the Appeals); Mr. B.Sen, Sr. Advocate, (M/s. A.N. Kirpal, R.N. Sachthey and B.D. Sharma, Advocates, with him), for Respondent, (In both the Appeals)

Headnote:
Indian Electricity Act – Wealth -tax Act – Sections 8, 7, 27, 4 – Value of assets – Assessment – Whether on facts and in circumstances of case, sum of lb. 8,54,948 was deductible in determining net value of assets of assessee s business under section 7 (2) (a) of Wealth -tax Act – Held, Sec. 7A provides for determination of purchase price on revocation of licence under S. 4. Whenever a licence of a licencee under Indian Electricity Act is revoked under S. 4, it is open to State Government to acquire undertaking itself or to direct licensee to sell undertaking to one or other of authorities or person designated therein. When a sale in pursuance of such a direction is effected, valuation of undertaking is made in accordance with Section 7A. – It is true that in view of S.7A (2) of Electricity Act, is computing market value of undertaking sold under sub-s. (1) of S. 5 of that Act, value of service lines which had been constructed at expense of consumer will not be taken into consideration. – Reason for this provision is obvious. – It will be duty of new licensee to not only maintain and repair those lines but also to replace them when they become unserviceable. – But S. 7 of Electricity Act only deals with sales under S. 5 (1) of Act. – But if a sale is effected under S.8, licensee shall have option to dispose of all land, building, works, material and plants belonging to undertaking in such manner as he may think fit. – In such sales, it is open to him to value service connections put up at expense of consumers and add same in computing sale price. – It is clear from Ss. 5 to 8 of Electricity Act that licensee is owner of service connections put up at expense of consumer. – If that is not so, there was no purpose in mentioning in Section 7A that while determining market value of undertaking, value of service connections shall not be taken into consideration. – Further S. 8 would not have permitted licensee to pocket value of those service connections. – Fact that value of one or more of assets of an undertaking will not be taken into consideration in computing 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 valuable asset. – Section 7 of Act does not take note of hypothetical possibilities in matter of valuation of assets. – It merely concerns itself as to what is true market value of assets in question on valuation date. – So far as market value of asset with which we are concerned in this case there is no difficulty. – Court have assessee s own admission in its balance sheet. – Appeals Dismissed

Judgment

HEGDE, J: These appeals arise form 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 as the Act). In that decision, the High Court was requested to give its opinion on two questions of law referred to it by the Income-tax Appellate Tribunal, B Bench, Calcutta, Following the decision of this Court in Commr. of Wealth-tax v. Ramaraju Surgical Cotton Mills Ltd. 63 ITR 478 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. That question reads:

"Whether on the facts and in the circumstances of the case, the sum of lb. 8,54,948 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?"

2. 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 1b. 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.

Extended to March 31, 1957 Added during year Cost of items scrapped during year Total at 31st March 1958 Total at 31st March 1957 Added from the revenue of the year Depreciation written off an assets scrapped Total 31st March 1958 Net Expenditure at Cost less Depreciation at 31st, March 1958

Connections. 87,25,205 8,93,707 50,242 95,68,670 29,54,497 1,99,239 11,598 31,42,138 64,26,532

Less : Consumer s Contributions for Mains and Service Connections since 10th September, 1948.

7,17,059/-

3. The Wealth-tax Officer proceeded to assess the net wealth of the assessee under section 7 (2) of the Act. But he refused to grant the deduction claimed though he accepted the valuation of the assets as shown in the balance-sheet. 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. 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 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 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 accordance with the provisions in S. 7A of the Act. While computing the value of the undertaking under S. 7A 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 agreed with the conclusions reached by the Appellate Assistant Commissioner.

4. As mentioned earlier at the instance of the Department,

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