Judgment

GROVER, J. : These appeals have been brought from a judgment of the Calcutta High Court by certificate in a Wealth Tax Reference. Civil Appeal No. 1834 of 1968 is of the assessee and the other appeal has been filed by the Commissioner of Wealth Tax, West Bengal.

2. It is necessary to deal with the appeal of the Commissioner of Wealth Tax as the other appeal shall also stand disposed of once the question is answered in the Commissioner s appeal. The assessee is a public limited company. In the assesment year 1948-49 the assessee revalued its assets enhancing the existing book value by Rs. 1,45,00,000/- which was credited to the capital reserve account. In assessing the wealth tax payable by the assessee for the assessment year 1957-58 the relevant valuation date being March 31, 1957 the Wealth Tax . Officer proceeded under S.7 (2)of the Wealth Tax Act, hereinafter called the Act and took the valuation of the assets at Rs. 5,10,40,897 as shown in the balance sheet on the relevant date. The assessee claimed that a sum of Rupees 1,45,00,000/- by which the book value of the fixed assets was enhanced in 1948-49 should be deducted in the computation of the net value, It is not clear from the order of the Wealth Tax Officer, who rejected the claim, as to what was the ground taken for claiming this deduction. Before the Appellate Assistant Commissioner it was contended on behalf of the assessee that the capital reserve was not out of profits and was only a notional reserve and therefore it should be excluded when global valuation of the assets was being made. It was urged that the figure of reserve was purely artificial and had no relation to the working of the company and should not be taken into account in the valuation of the net assets. The Appellate Assistant Commissioner did not accede to the contention and confirmed the assessment. The Appellate Tribunal found that a similar point had come up for decision before a special bench of the Tribunal consisting of three members in Bombay and had been decided in favour of the assessee. Following that decision the Tribunal allowed the appeal and held that the department was not justified in valuing the assets at the enhanced figure for the purpose of computation of the net wealth of the assessee. The relevant question that was referred was as follows:

"Whether on the facts and in the circumstances of the case the Tribunal was justified in excluding the sum of Rupees 1,45,00,000/- from the net valuation of the assets as shown in the balance sheet of the assessee as on 31-3-57."

The High Court was of the view that the Revenue had taken the stand before the Tribunal that the motive of the assessee in revaluing the assets at a higher figure was to declare the bonus share which, however, could not be so declared as the permission of the Central Government was withheld in that behalf. According to the High Court there was a motive for revaluation of the assets and therefore the valuation in the balance-sheet could not furnish the correct basis. It was pointed out that the conduct of the assessee was "far from what was to be desired" because even in the successive balance sheets the revaluation figure appeared even after the assessee had failed to get the permission of the Central Government to issue bonus shares. But according to the High Court an erroneous figure did not become a correct figure by lapse of time. The following portion of the judgment of the High Court may be reproduced:

"The Tribunal was, therefore, in a sense right in excluding a sum of Rs. 1,45,00,000/- from the net value of the assets as shown in the balance sheet of the assessee, as on March 31, 1957. We, however, make it clear that in answering question No. 1 in the affirmative we did not mean that the net value of the assets should be taken at the figure as appearing in the balance sheet reduced by Rs. 1,45,00,000/- What we mean to say is that in valuing the assets the addition of Rupees 1,45,00,000/- may not have