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HIGH COURT OF CALCUTTA
G. K. Mitter, Laik
KESORAM COTTON MILLS LTD. , CALCUTTA - Appellant
Versus
COMMISSIONER OF WEALTH TAX, CALCUTTA - Respondent
Matter 178 Of 1960
Decided On : MAY 14, 1962
WEALTH TAX - Net wealth - Valuation of assets - Revaluation of fixed assets - Whether increase in valuation to be ignored - Proposed dividend - Whether deductible - Provision for payment of income-tax and super-tax - Whether debt owed - Wealth Tax Act, 1957 (27 of 1957), Ss. 2(m), 7(1), (2)(a).
Fact of the Case:
The assessee, a company, revalued its fixed assets in 1950 at a figure exceeding the book value thereof by Rs. 1,45,87,000/-. The Wealth Tax Authorities ignored this increase in valuation and rejected the assessee's claim for deduction of the proposed dividend and the provision for payment of income-tax and super-tax in computation of the net wealth.
Finding of the Court:
1. The increase in valuation of the fixed assets could not be ignored. The revaluation was made because the book value did not represent the correct value of the assets. The increase in valuation was not subject to any reservation or qualification and was reflected in the balance sheet as a capital reserve. This did not mean that the value of the assets had to be determined on the basis of the cost thereof less depreciation. 2. The proposed dividend was not deductible as it did not become a debt until it was declared by the company in a general meeting. 3. The provision for payment of income-tax and super-tax was not a debt owed on the valuation date. The liability to pay income-tax arose only after the close of the year of account and the exact amount of the liability could not be ascertained on the valuation date because the rate of income-tax was fixed every year by the Finance Act on a date after April 1. A debt must be for a liquidated sum of money and it can be either owed or accruing. In this case, the liability was not a debt owed but a debt accruing.
Issues: 1. Whether the increase in valuation of the fixed assets ought to be ignored altogether in computation of the net wealth under the Act? 2. Whether the amount of the proposed dividend was deductible from the total assets? 3. Whether the amount of the provision for payment of income-tax and super-tax in respect of the year of account was a debt owed within the meaning of Section 2 (m) of the Wealth Tax Act, 1957 and as such deductible in computing the net wealth of the assessee?
Ratio Decidendi: 1. The value of the assets was not properly represented by the book value borne in the books of the company in the year 1950 and that is why the company found it necessary to revalue the same. A reserve or surplus had to be shown as against this increase otherwise the figure on the right hand side and the left hand side would not have tallied but this does not mean that in determining the net value of the assets the increase ought to be ignored. 2. No share-holder can sue a company for payment of a dividend unless it is sanctioned at a general meeting. 3. Until the close of the year i. e. the valuation dale which in this case was March 31, 1957 it was not possible to say whether as a result of the whole year's working the assessee would incur any liability to income-tax for the accounting year. Even in a case where an assessee suffers no loss during the accounting year and it is possible to compute his income on the valuation date the exact amount of the liability to tax cannot be ascertained on that date because the rate of income-tax is fixed every year by the Finance Act on a date after April 1. There is no room for doubt that a debt must be for a liquidated sum of money and it can be either owed or accruing.
Final Decision: The questions referred were answered as follows: Question No. 1 in the affirmative. Question No. 2 in the negative. Question No. 3 in the negative.
( 1 ) THIS is a Reference under Section 27 (1) of the Wealth Tax Act of 1957 for determination of the following questions: (1) Whether on the facts and in the circumstances of the case, the Wealth Tax Officer was justified in taking the value of the assets of the assesses as shown in its balance sheet on the relevant valuation date? (2) Whether on the facts and in the circumstances of the case, in computing the net wealth of the assessee, the amount of proposed dividend was deductible from the total assets? (3) Whether on the facts and circumstances of the case, in computing the net wealth of the assessee, the amount of the provision for payment of income-tax and super-tax in respect of the year of account was a debt owed within the meaning of Section 2 (m) of the Wealth Tax Act, 1957 and as such deductible in computing the net wealth of the assessee?
( 2 ) THE facts are as follows: the assessee is a company incorporated under the Indian Companies Act. Its subscribed capital at the end of the relevant accounting year was Rs. 2,29,99,125/ -. In Schedule 'd' annexed to the balance sheet its fixed assets were shown as being worth Rs. 2,60,52,357/-, the original cost of the same being Rs. 2,30,32,833/ -. The assets had been revalued during the year ending on March 31, 1950 when a sum of Rs. 1,45,87,000/- was added to the value at cost. On the valuation date the figure of Rs. 2,60,52,357/- was arrived at after making certain adjustments. The first question relates to this revaluation. The contention of the assessee is that the increase of Rs. 1,45,87,000/- ought to be ignored altogether in computation of the net wealth under the Act. This amount has been shown in Schedule 'b' to the balance sheet as capital reserve not available for dividend. In the profit and loss account a sum of Rs. 15,29,855/- has been shown as the amount of dividend proposed to be distributed for the year ending on March 31, 1957. This dividend was declared by the company at the general meeting held on November 27, 1957. As the declaration was made after the accounting year the Wealth Tax Authorities rejected the assessee's contention that the amount of the net wealth should be computed after giving a deduction for the above. Provision was also made in the balance sheet for income-tax and super-tax payable by the company for the year of account and a claim for deduction of the same in computation of the net wealth was raised. This too was not accepted by the Wealth Tax Authorities on the ground that there was no debt owed by the assessee on the valuation date.
( 3 ) BEFORE going into the merits of the case it is necessary to note the relevant provisions of the Wealth Tax Act. Section 2 (m) of the Act defines 'net wealth' as the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than certain debts not relevant for the purpose of this Reference. Under Section 2 (q) 'valuation date' in relation to any year for which an assessment is to be made under the Act, means the last date of the previous year as defined in Clause (11) of Section 2 of the Income-tax Act if an assessment were to be made under that Act for that year. Section 3, the charging section provides that a tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company shall be charged for every financial year commencing on and from the first day of April, 1957 at the rate or rates specified in the Schedule. Section 7 lays down how the value of the assets are to be determined for the purpose of the Wealth Tax Act. The relevant provision thereof is as follows: (1) The value of any asset, other than cash, for the p
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