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HIGH COURT OF CALCUTTA
BANERJEE, K.L.ROY, JJ.
Textile Machinery Corporation Ltd. - Appellant
Versus
Commissioner Of Wealth Tax – Respondent
Appeal No : WT Matter No. 392 of 1962
Decided On : May 17, 1967
WEALTH TAX - Deductions - Provision for bonus, income-tax, sales-tax and bad and doubtful debts - Whether permissible - Valuation of assets - Whether written down value of fixed assets as per income-tax records can be taken instead of value shown in balance sheet - Held, provision for bonus, income-tax and sales-tax were permissible deductions - Provision for bad and doubtful debts not permissible - Written down value of fixed assets as per income-tax records cannot be taken instead of value shown in balance sheet.
Fact of the Case:
The assessee, a public limited company, was carrying on business in manufacture of textile machinery. The assessment years in question were 1957-58, 1958-59 and 1959-60. The assessee had made provisions for bonus, income-tax, sales-tax and bad and doubtful debts. The assessee also claimed that in determining the net value of its assets, buildings and machinery should be taken at their written down value, as per income-tax records, instead of the value of those assets as shown in the balance sheet. The WTO rejected all these claims of the assessee-company, except the claim in respect of the tax liabilities for the three years which he partly allowed. The Tribunal affirmed the order of the WTO.
Finding of the Court:
The Tribunal correctly stated the law but in framing the questions fell into the same error which they themselves had pointed out. The assessee is entitled to claim for deduction not under the erroneous section quoted by the Tribunal but under some other section.
Issues: Whether, in the facts and circumstances of the case, in determining the net wealth of the assessee, deduction of the following amounts as on the respective valuation dates, were permissible: (a) Provision for bonus for each of the three years (b) Provision for taxation (c) Bad and doubtful debts amounting to (d) Liability for sales-tax for the asst. yr. 1958-59
Ratio Decidendi: 1. Provision for bonus, income-tax and sales-tax were permissible deductions. 2. Provision for bad and doubtful debts not permissible. 3. Written down value of fixed assets as per income-tax records cannot be taken instead of value shown in balance sheet.
Final Decision: Question Nos. 1(a), 1(b), 1(d) were answered in the affirmative. Question No. 1 (c) and question No. 3 were not pressed and are, therefore, answered in the negative. It is not necessary for us to answer question No. 2 and were it necessary for us so to do, we would have answered the question in the affirmative.
BANERJEE, J.
1. THIS is a reference under s. 27(1) of the WT Act, 1957, made in circumstances hereinafter stated. The assessee is a public limited company, doing business in manufacture of textile machinery. The assessment years in question are 1957-58, 1958-59 and 1959-60, the material valuation dates being 31st Dec., 1956, 31st Dec., 1957, and 31st Dec., 1958. There is no dispute that the accounts of the business, carried on by the assessee, are regularly maintained on mercantile basis.
2. AS is now the common feature with most of the manufacturing concerns, the employees of the assessee-company were carrying on an industrial dispute with the assessee, concerning payment of bonus. This dispute is not of recent origin. In the year 1955, the employees made a claim for bonus and carried the matter before an Industrial Tribunal, which made an award of Rs. 5,65,000 in favour of the employees. This award was implemented in the year 1956. For similar claims concerning the years 1956, 1957 and 1958, there were disputes pending before Industrial Tribunals but as late as the year 1961, the Tribunals did not make any award. Be that as it may, the assessee seems to have learnt a lesson from the award made in respect of the claim for bonus for the year 1955 and made provision for Rs. 6,00,000 in the year 1956, Rs. 12,00,000 in the year 1957 and Rs. 16,93,000 in the year 1958, for bonuses likely to become payable to the workmen in the respective years. Not only was such provision made, but the assessee made advances to the workmen during the years 1956, 1957 and 1958 against bonuses, that might become payable to them in future, the amounts advanced being Rs. 1,76,414 as on 31st Dec., 1956, Rs. 5,93,824 as on 31st Dec., 1957 and Rs. 11,75,468 as on 31st Dec., 1958. The amounts, which the assessee had provided for bonuses, were included in the accounts under the head "Sundry provision", in the section for current liabilities, and were shown in the balance sheets. The amounts, which were advanced out of the bonus fund, were included under the item "loans and advances" in the balance sheets.
Further, the assessee made provisions for income-tax liability, in respect of assessments which were not completed up to the respective valuation dates. The provision for taxation amounted to Rs. 31,00,000 as on 31st Dec., 1956, Rs. 60,15,000 as on 31st Dec., 1957, and Rs. 99,65,743 as on 31st Dec., 1958. Also, the assessee showed, amongst its assets, loans and advances amounting to Rs. 70,37,932, Rs. 76,50,605 and Rs. 1,06,77,932, as on 31st Dec., 1956, 31st Dec., 1957, and 31st Dec., 1958, respectively; these amounts included the sums of Rs. 24,44,998, Rs. 27,50,969 and Rs. 45,17,133, being the amounts of debt outstanding for more than three months and were separately shown in Schedule G of the respective balance sheets. The assessee-company anticipated short recoveries in respect of some of these debts and against such short recoveries made specific provisions, amounting in all to Rs. 1,38,406, Rs. 1,32,512 and Rs. 1,14,866, respectively, for the three assessment years.
3. Lastly, although the assessee had not made any provision in respect of its liability for sales-tax, in the balance sheets, as on respective valuation dates, the amounts of outstanding sales-tax demand under appeal were shown in a foot-note. On 31st Dec., 1957, which was the valuation date for the asst. yr. 1958-59, such liability for sales-tax for the years 1953 and 1954 was said to be Rs. 3,13,000. Out of this sales-tax for the year 1954 was determined at Rs. 2,16,475 but the demand notice in respect thereof was issued on 3rd Jan., 1958, and was served on the assessee after two or three days, that is to say, a few days after the end of the relevant valuation date.
4. The book value of the assessee's fixed assets were Rs. 1,56,17,729 as on 31st Dec., 1956, Rs. 2,08,38,494 as on 31st Dec., 1957, and Rs. 2,18,41,602 as on 31st Dec., 1958. These figures are not in dispute and det
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