1992 Supreme(Raj) 833
RAJASTHAN HIGH COURT
Farooq Hasan, N.C.Sharma, JJ.
Commissioner of Wealth & Ors. - Appellants
Versus
Gopi Chand Rawat & Anr. - Respondents
D.B. Wealth Tax Reference Application No. 2 of 1989.
Decided On : 20-08-1992
The applicability of Section 7(2)(a) of the Wealth-tax Act, 1957, and Rule 2B(2) of the Wealth-tax Rules, 1957, is subject to the conditions that the assessee carries on a business and maintains regular accounts, including a balance-sheet as on the valuation date.
Headnote:
WEALTH TAX - Valuation of assets - Net value of assets of business as a whole - Applicability of Section 7(2)(a) of the Wealth-tax Act, 1957 and Rule 2B(2) of the Wealth-tax Rules, 1957 - Regular maintenance of accounts and preparation of balance-sheet - Conditions precedent - Absence of findings by Wealth-tax Officer - Applicability of Section 7(1) of the Act - Alternative plea not raised by Revenue - Exemption under Section 5(1)(xxxii) of the Act - Findings in earlier cases - No question of law arises.
Fact of the Case:
The assessee, a partner in a firm dealing in precious and semi-precious stones, ornaments, and jewelry, filed a revised return declaring his total wealth. The Wealth-tax Officer applied Rule 2B(2) of the Wealth-tax Rules, 1957, to increase the value of closing stock in two accounts, holding that the market value exceeded the book value by more than 20%. The assessee appealed, and the Appellate Assistant Commissioner deleted the addition, relying on earlier decisions of the Tribunal. The Wealth-tax Officer appealed to the Tribunal, which confirmed the deletion, holding that Rule 2B(2) was not applicable and that the firm was an industrial undertaking exempt under Section 5(1)(xxxii) of the Wealth-tax Act, 1957.
Finding of the Court:
The court held that the Wealth-tax Officer did not have the jurisdiction to apply Rule 2B(2) because the assessee did not maintain regular accounts or prepare a balance-sheet as required for the applicability of Section 7(2)(a) of the Wealth-tax Act, 1957. The court also held that the Revenue did not raise an alternative plea that the Wealth-tax Officer should have valued the assets under Section 7(1) of the Act. The court further held that the findings on the question of whether the firm was an industrial undertaking were based on earlier decisions and did not raise any question of law.
Issues: 1. Whether Rule 2B(2) of the Wealth-tax Rules, 1957, was applicable in the assessee's case, considering the absence of regular maintenance of accounts and preparation of a balance-sheet. 2. Whether the Tribunal was right in holding that the firm was an industrial undertaking within the meaning of Section 5(1)(xxxii) of the Wealth-tax Act, 1957.
Ratio Decidendi: 1. The applicability of Section 7(2)(a) of the Wealth-tax Act, 1957, and Rule 2B(2) of the Wealth-tax Rules, 1957, is subject to the conditions that the assessee carries on a business and maintains regular accounts, including a balance-sheet as on the valuation date. 2. In the absence of findings that the assessee maintained regular accounts and prepared a balance-sheet, the Wealth-tax Officer could not resort to Section 7(2)(a) and Rule 2B(2). 3. The Revenue did not raise an alternative plea that the Wealth-tax Officer should have valued the assets under Section 7(1) of the Act. 4. The findings on the question of whether the firm was an industrial undertaking were based on earlier decisions and did not raise any question of law.
Final Decision: The court dismissed all three reference applications, holding that no question of law arose from the order of the Income-tax Appellate Tribunal.
JUDGMENT
1. - This order will decide three reference applications bearing Nos. 2 of 1989, 43 of 1989 and 44 of 1989 filed by the Commissioner of Wealth-tax, Jaipur, under Section 27(3) of the Wealth-tax Act, 1957, for directing the Income-tax Appellate Tribunal to refer certain questions of law arising out of the order of the said Tribunal.
2. The Reference Application No. 2 of 1989 relates to the assessee, Shri Gopi Chand Kawat, who as specified, Hindu undivided family, is a partner of Messrs. Maliram Pooranmal, a partnership firm dealing in the business of precious and semi-precious stones, ornaments and jewellery. This assessee filed a second revised return on August 27, 1982, for the assessment year 1980-81 declaring his total wealth as Rs. 3,57,500. The Wealth-tax Officer, Jaipur (CC-I), Jaipur, passed the assessment order on March 26, 1985. In the revised return filed by the firm, Messrs. Maliram Pooranmal showed the value of the closing stock in Jawaharat Account and the Gold Ornaments and Articles Account at Rs. 34,85,256 and Rs. 8,71,770, respectively. While computing his interest in the firm, the assessee considered the above book value of the closing stock declared by the firm in Jawaharat Account and the Gold Ornaments and Articles Account. The audited trading account of the firm in the above accounts showed that the value of the closing stock had been taken at cost as certified by the management of the firm. The gross profit declared in Jawaharat Account and Gold Ornaments and Articles Account was 21.05% and 41.38%, respectively. Therefore, according to the Wealth-tax Officer, this factually meant that the market value of closing stock in Jawaharat Account and Gold Ornaments and Articles Account was in excess of the book value by 27.39% and 70.59%, respectively. He also found that the value of closing stock in these items had been arrived at by the assessee after reducing the total credit side from that of debit side. The mode adopted was that the firm first worked out its gross profit and then whatever remained of the difference between both the sides of the trading account, the same was used to present the value of the closing stock of the firm in a particular item of jewellery. The Wealth-tax Officer was of the opinion that the provision of Rule 2B(2) of the Wealth-tax Rules, 1957, was attracted and accordingly the assessee was required to explain as to why the provisions of Rule 2B(2) be not applied and proportionate addition may not be made to his total wealth. He, therefore, sought information on various points from the assessee by his office letter dated March 5, 1985. It was urged on behalf of the assessee that although the margin of gross profit earned by the firm was more than 20% on the sales of the year, it did not mean that the fair market value of the closing stock on the valuation date was more than 20% of the book value. It was argued before the Wealth-tax Officer that precious stones had no ready market and the prices differ with different buyers. It was further contended that the closing stock also contained old, rejected and unsaleable precious stones. Some goods became obsolete with changes in fashion and the same are re-cut, re-polished and different ornaments are prepared to make them saleable. The contentions advanced on behalf of the assessee were not accepted by the Wealth-tax Officer. According to him, the position which emerged was that the market value of the closing stock was in excess of the book value by more than 20%. The firm, Messrs. Maliram Pooranmal, had not maintained any quantitative tally or stock register for the Jawaharat Account and Gold Ornaments and Articles Account. There were no details of the available stock in the firm for closing stock inventory. The value of closing stock had only been estimated on the basis of difference between both the sides of the debits and credits of the trading account. The firm was not able to give even the bifurcation between the local stoc
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