Chandurkar, J.
1. The assessee, in this case is a license who holds a licence granted under the Indian Electricity Act, 1910, for the distribution of electricity. So far as the financial working of the assessee-company is concerned, there is no dispute that it is regulated by the provisions of sections 57 and 57A of the Electricity (Supply) Act, 1948, and the Sixth Schedule therein. The questions which have been referred at the instant of the assessed and the revenue arise out of assessment under the Wealth-tax Act in respect of the assessment years 1957-58, 1958-59 and 1959-60.
2. In the assessment year 1957-58, the Wealth-tax Officer restored to global valuation and took into account the value of the fixed assets as per the balance-sheet of the company which, according to the wealth-tax Officer, was more than the written down value computed for the purposes of income-tax and was more approximate to the market value. In respect of the assessment years 1958-59, apart from the valuation of the assets of the assessee-company, another question which was to be considered by the Wealth-tax Officer was whether the amount of contingencies reserve, tariff and dividend control reserve and development reserve was liable to be excluded from the computation of the total net wealth of the assessee. The wealth-tax Officer rejected the plea of the assessee that the amount set apart in the form of these three reserves was liable to be excluded. An additional question which arose before the Wealth-tax officer in respect of the assessment years 1959-60 was whether the amount of Rs. 13,38,188 on account of charges for service line connections were also liable to be excluded for the purposes of computation of the net wealth of the assessee. The wealth-tax Officer rejected the contention of the assessee and treated the aforesaid amount as a part of the net wealth in addition to the amount of contingencies reserve, tariff and dividend control reserve and development reserve. When the net wealth of the assessee was assessed in respect of the assessment year 1957-58, an appeal was filed by the company and in respect of further assessments for the assessment years 1958-59 and 1959-60. Two separate appeals also come to the filed by the company. The appeal for the assessment years 1957-58 and the appeals for the subsequent two years came to be decided by two different authorities. In respect of the assessment years 1957-58 the Appellate Assistant Commissioner took the view that the assets in the balance-sheets appeared at inflated figures and that in view of the company's inability to provide full depreciation in that year, it would be reasonable to take the depreciated or the written down value of the assets adopted for income-tax purposes to be operative and effective for wealth-tax computation. Thus, in respect of the year 1957-58, the Appellate Assistant Commissioner gave a direction that the written down value as per income-tax working should be treated as the value of fixed assets for wealth-tax purposes also. This order came to be made on 11th September, 1958. In the appeals relating to the assessment year 1958-59 by an order dated 7th December, 1962, the Appellate Assistant Commissioner rejected the contention of the assessee that the written down value arrived at for the purposes of income-tax should be taken as the value of the net wealth of the capital assets for the purposes of wealth-tax and he took the view that since the assessee could not prove that the value shown in the balance-sheets ought to have been adjusted by the amount of depreciation provided in the books of account, the Wealth-tax Officer was justified in proceeding on the basis of the value shown in the balance-sheet. With regard to the reserves, namely, contingencies reserve, tariff and dividend control reserve, and development reserve, the Appellate Assistant Commissioner held that there was no justification to treat that the said reserves as debts owed within the meaning of section 2(m) of the Wealth-tax Act. It may be mentioned that in respect of the assessment years 1958-59 and 1959-60, the several amounts in respect of these three reserves were as follows :
A.Y. 1958-59 A.Y. 1959-60Rs. Rs.Contingency reserve 2,31,019 2,81,320Tariff and dividend control reserve 9,882 12,812Development reserve 40,388 66,839
3. In respect of the assessment year 1959-60 an amount of Rs. 13,38,188 was shown in the balance-sheet as being balance in service lime contribution account and it was contended on behalf of the assessee before the Appellate Assistant Commissioner that this amount should also be excluded for the purposes of computation of net wealth on the ground that the said amount was excluded from the capital base of the company and that it had to be handed over to the State Government or to the State Electricity Board in the event of the undertaking being taken over at some future time. This contention was also rejected by the Appellate Assistant Commissioner.
4. As a result of these passed by Two Appellate Assistant Commissioner in two sets of appeals, appeals came to be filed both by the assessed-company and the wealth-tax Officer before the Appellate Tribunal. The Assistant Commissioner in respect of the assessment year 1957-58 by which the Appellate Assistant Commissioner had directed that the written down value of the fixed assets arrived at for the purposes of the Income-tax Act should be treated as value of the assets for the purposes of the Wealth-tax Act. The other three appeals were filed by the asessee in respect of the contingency reserve, tariff and dividend control reserve and development reserve for the years 1958-59 and 1959-60 and the appeal in respect of the amount lying to the credit of service line contribution account for the year 1959-60.
5. With regard to the value of the fixed assets it was contended on behalf of the assessee before the Tribunal that for the purposes of wealth-tax assessments, the value of the assets must be taken at the written down value computed for the purposes of income-tax. According to the balance-sheets of the company, its fixed assets were valued at Rs. 1,46,96,434 as on 31st March. 1957, and Rs. 1,53,72,950 as on 31st March, 1958. These values were arrived at by deducting from the original cost depreciation as provided by the Sixth Schedule to the Electricity (Supply) Act (hereinafter referred to as the 'supply Act'). It was contended before the Tribunal that the company has been in existence for more than 30 years and its machinery could not be as valuable as was shown in the balance-sheet and that the depreciation provided for by the Supply Act was not adequate. The Tribunal, firstly, took the view that the rates of depreciation fixed in the Supply Act were more appropriate to the requirements of the electricity industry and the value of the fixed assets based on these rates if depreciation was more likely to represent the correct market value of the assets than the written down value of these assets according to the income-tax records. The Tribunal recorded a further finding that even assuming that the balance-sheet figures were not correct, the assessee has not advanced any argument or led any evidence to show that the values were inflated except by reference to income-tax records and that it has not chosen to get the valuation decided by the valuers. The Tribunal, therefore, took the view that the wealth-tax authorities were entitled to adopt the valuation of the fixed assets as reflected in the balance-sheet subject to the deduction of arrears of depreciation which the company could not charge due to some special reasons. With regard to the reserves the tribunal found that according to the balance-sheet as at 31st March, 1958, and 31st March, 1959, the contingencies reserve stood at Rs. 2,31,019, and Rs. 2,81,320 and the investments earmarked against these reserves were shown at Rs,. 1,69,669 on 31st March, 1958, and Rs. 2,16,411 on 31st March, 1959. After referring to the relevant provisions of the Electricity Act, 1910, and the Supply Act, 1948, the Tribunal took the view that though the assets earmarked against the contingencies reserves were the property of the assessee, 'their value for the purposes of wealth-tax had to be taken at nil or, in the alternative if the net value of the assets of all the business as a whole were to be taken, suitable adjustment had to be made for deduction of the contingencies reserve in the special circumstances of the case, since the latter amount was larger than the former reduction would be due of the larger amount (sic).' In arriving at the conclusion that the amount of contingencies reserve had to be excluded for the computation of net wealth, the Tribunal found that under the provisions of the Sixth Schedule the company was bound to make over the amount of contingencies reserve to the purchaser and that while the company was running, the contingencies reserve could be used only for three specified purposes subject to the approval of the Government having regard to clause 5 of the Sixth Schedule. With regard to the tariff and dividend control reserve, the Tribunal found that this was not represented by any earmarked assists and was reflected by the increase in the assists of the company in general. The test which the Tribunal adopted in order to find out whether this reserve could be treated as a part of the net wealth of the company was whether in settling the price of the assists, the purchaser would add something in favour of the assessee on account of these reserves, that is, whether the purchase price would be loaded to make allowance for this aspect. The Tribunal, however, found that this question did not arise in the case of the three statutory purchasers, namely, the Electricity Board, the State Government or the local authority and in a rare contingency of any of these statutory purchasers not exercising their option, any other purchaser having regard to the handicaps under which he would be working at the time of re-sale was not expected to add anything to the purchase price on this account. Conseqnently, even in regard to the tariff and dividend control reserve, the assessee-company was held entitled to adjustment by way of deduction 'in the special circumstances of the case' as the Tribunal put it. With regard to the development reserve also, the Tribunal on a parity of reasoning, held that the company would be entitled to adjustment in respect of this reserve. With regard to the service line contribution amounting to Rs. 13,38,188, the contention in respect of which was confined only to the assessment year 1959-60, the Tribunal rejected the contention of the assessee that the service line contributions were not the property of the company having regard to the provisions in clause 12 of the Sixth Schedule to the Supply Act. However, having regard to the provision of section 7A(2) of the Electricity Act, 1910, the Tribunal took the view that the market value of the undertaking did not include the value of the service lines and the Tribunal, therefore, held that, 'the assessee was, therefore, not likely to recover anything in respect of these assists in the event of sale of the undertaking to an outside party in the rare contingency of the first three option-holders failing to exercise the option to purchase the undertaking.' Thus, though, the Tribunal took the view that the service lines formed a part of the company's property, it held that the company was entitled to a deduction of the value of the service lines contributed by the consumers, again 'in the special circumstances of the case.'
6. Both the revenue and the assessee were aggrieved by the findings recorded against each of them. Thus, the following three questions have been referred to this court under section 27(1) of the Wealth-tax Act;
(1) Whether, on the facts and in the circumstances of the case, for the purposes of including in the net wealth of the company for the assessment years 1957-58 and 1958-59 the value of the fixed assists of the company should be taken at the written down value thereof as determined under the Income-tax or at the written down value as shown in the balance-sheet on the relevant valuation dates
(2) Whether, on the facts and in the circumstances of the case, in determining the net wealth of the company for the assessment years 1958-59 and 1959-60, the amounts lying to the credit of contingency reserve, tariff and dividend control reserve and development reserve should be excluded
(3) Whether, on the facts and in the circumstances of the case, in determining the net wealth of the company for the assessment year 1959-60, the amounting lying to the credit of service line contribution account should be excluded ?'
7. Before we notice the contentions raised both on behalf of the assessee and the revenue, it is necessary to refer in detail to certain statutory provisions relying on which the Tribunal has recorded its findigns.
8. A licensee under the Electricity Act, 1910, has to function within the framework of the provisions of the Electricity Act, and the Supply Act, 1948. Under section 6 of the Electricity Act, 1910, an option has been given to the State Electricity Board to purchase the undertaking of a licensee on the expiration of the period specified in the license in the case of a licence granted before the commencement of the Indian Electricity (Amendment) Act, 1959. That is the only material provision in the instant case because the company has been functioning under the licence under the said Act for the last more than 30 years. If the State Electricity Board does not elect to purchase the undertaking, there is option to the State Government to purchase the undertaking, in the like manner. Under section 6(3) of the said Act, where neither the State Electricity Board not the State Government elects to purchase the undertaking, any local authority constituted for an area within which the whole of the area of supply is included shall have the like option to be exercised in the like manner of purchasing the undertaking. Sub-sections (4) and (5) of section 6 provide for the procedure in the matter of service of an intimation and under sub-section (6) there is an obligation on the license to deliver the undertaking to the State Electricity Board, the State Government or the local authority, as the case may ne, on the expiration of the period of the licence pending the determinations and payment of the purchase price. Section 7A of the Electricity Act, 1910, deals with the determination of the purchase price. The purchase price of the undertaking is determind at the market value of the undertaking at the time of the purchase. Section 8 then provides that where, on the experation of any of the periods referred to in section 6(1), the undertaking is not purchases by the State Electricity Board, the State Government or the local authority, and the licence is, on the application or with the consent of the licensee, revoked, the licensee shall have the option of disposing of all lands, buildings, works, materials and plant belonging to the undertaking in such manner as he may think fit, provided that, if the licensee does not exercise such option within a period of six months, the State Government may proceed to take action as provided under section 5, sub-sections (4), proviso, with which we are not concerned.
9. Turning to the provisions in the Sixth Schedule to the Supple Act, 1948, it is sufficient to refer to the relevant clauses which provide for the creation of the different kinds of reserves in question. Clause III of the Sixth Schedule provides for creation either from existing reserves or from the revenues of the undertaking a reserve to be called 'contingencies reserve.' The extent of the contribution to the contingencies reserve is provided is clause IV and clause V(i) provides for restrictions in the manner of use of those reserves. Clause V(2) provides that on the purchase of the undertaking, the contingencies reserve, after deduction of the amounts drawn under sub-paragraph (1) shall be handed over to the purchaser and maintained as such contingencies reserve. There is a proviso which provides that where the undertaking is purchased by the Board or the State Government, the amount of the reserve computed as above shall, after further deduction of the amount of compensation, if any,. payable to the employees of the outgoing licensee under any law for the time being in force, be handed over to the Board or the State Government as the case may be. Clause V-A provides for creation of a development reserve and sub-clause (4) thereof further provides that on the purchase of the undertaking the development reserve shall be handed over to the purchaser and maintained as such development reserve provided that where the undertaking is purchased by the Board or the State Government, the amount of the reserve may be deducted from the price payable to the licensee. Clause XII deals with the contribution made by the consumers towards the cose of construction of service lines and it provides that where contributions are made by consumers towards the cost of construction of service lines constructed after the date on which this Act comes into force, only the net cost of such service lines after deducting such contributions shall be in included in the cost of fixed assists for the purposes of arriving at the capital base, provided that for the purposes of depreciation under paragraph VI, the total original cost of construction of the service lines shall be taken into account.
10. Now it is contended on behalf of the assessee, by Mr. Dwarkadas in support of the first question referred that, for the purposes of computing the net wealth, the Wealth-tax Officer should have accepted the written down value in accordance with the provisions of the Income-tax Act, and he has referred us to a comparative statement shoeing the depreciation as per the Electricity (Supplu) Act, 1948, and as allowed by the Income-tax Officer under the Income-tax Act particularly in respect of the assessment years 1957-58 and 1958-59, which is filed as annexure 'D' to the statement of the case. It is pointed out that the depreciation as per the provisions of the Supply Act, 1948, that is to say, clause VI of the Sixth Schedule, which provides for the rate of depreciation comes to Rs. 6,11,844 so far as the Income-tax Act is concerned, the amount of depreciation permissible to the assessee was Rs. 15,75,588. Similarly, in respect of the assessment years 1958-59, the statement shows that while depreciation permissible under the Supply Act came to Rs. 6,55,767, under the Income-tax Act, the permissible depreciation came to Rs. 15,78, 957.
11. Thus, according to the learned counsel, the value of the fixed assists shown in the balance-sheet prepared in the accordance with the provisions of the supply act must be taken to be inflated and the written down value in accordance with the provisions of the Income-tax Act, should be taken as the value of the net wealth for the purposes of the assessment to wealth-tax. Reliance was placed by Mr. Dwarkadas on two decisions of this court in Commissioner of Wealth-tax v. Raghuvanshi Mills Ltd. : [1976]104ITR544(Bom) and an unreported decision in Commissioner of Wealth-tax v. Vishnu Cotton Mills Ltd, Wealth-tax Reference No. 11 of 1967, decided on 13th July, 1977, by Kantawala C.J. and Tulzapurkar J. (since reported in : [1978]112ITR546(Bom) in support of the proposition that it is proper to take written down value determined for the purposes of income-tax as the value of the assists for the purposes of assessments to wealth-tax.
12. Now, so far as the chargeability of wealth-tax is concerned, under section 3 of the Wealth-tax Act, the tax is charged in respect of the net wealth on the corresponding valuation date of the assessee. The value of the assists which has to be taken into account for the purposes of computing the net wealth of the assessee has to be determind in accordance with the manner prescribed in section 7 of the Wealth-tax Act. Under section 7(1) of the Wealth-tax Act, the value of any asset, other than cash, is for the purposes of the wealth-tax Act, required to be the price which, in the opinion of the wealth-tax Officer, it would fetch if sold in the open market on the valuation date. Sub-section (2)(a) as in force at the material time, which is material for our purpose reads as follows :
'Notwithstanding anything contained in sub-section (1) - (a) where the assessee is carrying on a business for which accounts are maintained by him regularly, the wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee is such business, determine the net value of the assists of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as the circumstances of the case may require.'
13. We are not concerned with clause (b) of sub-section (2) of section 7 which provides for the method to be adopted in the case of a company which is not resident in India. Two modes of valuation are thus open to be adopted by the Wealth-tax Officer. The Wealth-tax Officer may estimate the market value of each asssests separately as provided in sub-section (1) of section 7 or he may adopt the global valuation and it is open to the wealth-tax Officer under clause (a) os sub-section (2) to adopt the figures of the value of the assists as reflected in the balance-sheet subject to his power to make such adjustments as the circumstances of the case may require. Clause (a) clearly indicates that it is within the power of the Wealth-tax Officer to go into the question as to whether and when a particular value of an assest is entered in the balance-sheet, that value is the true market value of that assest. In a given case, it is open to the assessee to show that the valuation in the balance-sheet is either inflated or that it does not represent the correct value of the assists. Similarly, it will also be open to the Wealth-tax Officer to find out whether the value of the asset as reflected in the balance-sheet is the proper market value or not. In other words, section 7 of the Wealth-tax Act is intended to enable the Wealth-tax Officer to arrive at the true market value of the assists on the valuation date. Where it is the case of assessee that the valuation as shown in the balance-sheet does not represent the true value of assists, the burden is on the the assessee to shoe that the value is inflated. It is important to remember that the wealth-tax Act and the Income-tax have different fields to operate in. While the provisions of the Income-tax Act are intended to levy a tax on the real income, the provisions of the wealth-tax act are intended to levy a tax on the net wealth with reference to the true market value on the valuation date. The real income under the Income-tax Act is to be computed having regard to the provisions made in the Income-tax Act and the Rules thereunder. The rules for computation of profits or real income would, therefore, have to operate within the limited filed for which they have been made and their operation cannot be extended any further than the purpose for which they have been intended and framed. Thus, though for the purposes od determining the real income of the assessee, the Income-tax Officer has to give effect to the provisions under the Income-tax Act, those provisions cannot be projected into the proceedings for the computation of the net wealth for the purposes of the wealth-tax Act, and the computation of the net wealth of the assesee for the purposes of the wealth-tax act will have to be made strictly according to the provisions and in exercise of the powers to be found under the provisions of the Wealth-tax act itself. In Commissioner of Wealth-tax v. Indian Standard Metal co. Ltd. : [1963]49ITR832(Bom) , it was pointed out by a Division bench of this court that it cannot be an invariable rule that simply because depreciation has been allowed under the Indian Income-tax Act, the same has got to be allowed in determining the net value of the assists on the date of valuation and that it must depend upon the facts and circumstance of each case as to whether it should properly be allowed or not in arriving at the net value of the assists. In that case, the Division Bench observed (page 841) :
Normally, of course, if an asset is used in businenss for length of time, it is bound to suffer from wear and tear and cosequently depreciations in value. It may, however, be that reason of the increasing price of the asest, the increase in price in the subsequent years of the said asset may more than off-set the depreciation caused by the wear and tear of the assest and it may as well as that the market value of the assest in spite of its wear and tear at a given date may be more than price for which it was brought initially. There must, however, be circumstances to show that......These observations eminently highlight the position that, in a given case, in spite of the fact that technically for the purposes of taxation an asset may have depreciated, yet its market price may be much more than its written down value. A similar view has been taken by the Gujrat High Court in Commissioner of Wealth-tax v. New Rajpur Mills Ltd. [1965] 56 ITR 544, in which the Division Bench of that court has taken the view following the earlier decision in Commissioner of Wealth-tax v. Raipur . : [1964]52ITR482(Guj) , that the value of fixed assets as shown in the balance-sheet of the assessee was not necessarily liable to be adjusted with reference to the written down value of those assets as per the income-tax records, but the Wealth-tax Officer has power to make such adjustment if it was shown by the assessee that circumstances existed which required the making of such adjustment.
14. The difference between the nature of the assessments made under the Wealth-tax Act and the Income-tax Act was dealt with by a Division Bench of this court in Commissioner of Wealth-tax v. Bombay Suburban Electric Supply Ltd. : [1976]103ITR384(Bom) , where the Division Bench observed as follows (page 391) :
'At the outset it may be stated that every principle which may or may not be relevant for determining the income of an assessee which can be brought to tax, is not necessarily attracted for determining the net wealth of an assessee which can be subjected to wealth-tax. Income-tax is a tax on the real income, i.e., profits arrived at on commercial principles subject to the provisions of the Income-tax Act. The real profits can be ascertained only by making the permissible deductions.'
15. Then after referring to the provisions of section 3 of the Wealth-tax Act, it was further observed :
'Such net wealth is to be computed in the manner indicated in section 4 and the assets which are to be exempted from the computation of the net wealth are enumerated in section 5. 'Net wealth' is defined in section 2(m). In the Act, unless the context otherwise requires, 'net wealth' means 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 the items which are specifically enumerated.'
16. Thus, having regard to the inherent difference between what is taxable under the Income-tax Act and the Wealth-tax Act and having regard to the fact that independent provisions have been made in both the statutes in accordance with which the taxable liability is to be determined, it is difficult to accept the argument that the written down value as per income-tax assessment records should be accepted for the purposes of the assessment to wealth-tax.
17. Now, the Tribunal in the instant case, has held that the assessee has not given any evidence to show that the value of the fixed assets in the balance-sheet was inflated. As already pointed out, so far as section 7(2)(a) is concerned, it now appears to be beyond dispute that it is open to the Wealth-tax Officer to proceed on the footing that the value of the assets reflected in the balance-sheet was the true market value of the assets. The provisions of section 7(2)(a) have been considered by the Supreme Court on more than one occasion. In Commissioner of Wealth-tax v. Tungabhadra Industries Ltd. : [1970]75ITR196(SC) , while dealing with section 7, the Supreme Court has observed as follows (page 199) :
'Under sub-section (1) of section 7 of the Act, the Wealth-tax Officer is authorised to estimate for the purpose of determining the value of any assets, the price which it would fetch, if sold in the open market on the valuation date. But this rule in the case of a running business may often be inconvenient and may not yield a true estimate of the net value of the total assets of the business. The legislature has, therefore, provided in sub-section (2)(a) that where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may determine the net value of the assets of the business as a whole, having regard to the balance-sheet of such business as on the valuation date and make such adjustments therein as the circumstances of the case may require. The power conferred upon the tax officer to make adjustments as the circumstances of the case may require is also for the purpose of arriving at the true value of the assets of the business. It is of course open to the assessee in any particular case to establish after producing relevant materials that the value given of the fixed assets in the balance-sheet is artificially inflated. It is also open to the assessee to establish by acceptable reasons that the written down value of any particular asset represents the proper value of the asset on the relevant valuation date. In the absence of any material produced by the assessee to demonstrate that the written down value is the real value, the Wealth-tax Officer would be justified in a normal case in taking the value given by the assessee itself to its fixed assets in its balance-sheet for the relevant year as the real value of the assets for the purposes of the wealth-tax. It is a question of fact in each case as to whether the depreciation has to be taken into account in ascertaining the true value of the assets. The onus of proof is on the assessee who must produce reliable material to show that the written down value of the assets and not the balance-sheet value is the true value. If, therefore, the assessee merely claims that the written down value of the assets should be adopted but fails to produce any material to show that the written down value is the true value, the Wealth-tax Officer is justified in rejecting the claim and adopting the values shown by the assessee himself in his balance-sheet as the true value of his assets.'
18. Thus, the Supreme Court has clearly laid down in this decision that the onus of proof is on the assessee who must produce reliable material acceptable to the Wealth-tax Officer if he wants to show that the written down value of the assets is the true market value of the assets and that the value as shown in the balance-sheet is an inflated one. To the same effect is the decision in Birla Jute . v. Commissioner of Wealth-tax : [1971]82ITR142(SC) , where it was pointed out by the Supreme Court that if the assessee has shown the net value of the assets at a certain figure in the balance-sheet, the Wealth-tax Officer would be entitled to accept it on the footing that the assessee knew best what the valuation of the assets was. In a case dealing with a licensee under the Electricity Act, the same ratio has been accepted by the Supreme Court in Calcutta Electric Supply Corporation v. Commissioner of Wealth-tax : [1971]82ITR154(SC) , where, dealing with section 7(2), the Supreme Court pointed out that there is nothing in section 7(2) which requires the Wealth-tax Officer while proceeding under section 7(2) to accept every entry in the balance-sheet and that what the section permits the Wealth-tax Officer is that instead of separately valuing each asset forming part of the business, he may determine the net value of the business as a whole having regard to the balance-sheet of such business as on the valuation date.
19. Now, in the face of these decisions, it is difficult to accept the argument based on the decision of this court in Commissioner of Wealth-tax v. Raghuvanshi Mills Ltd. : [1976]104ITR544(Bom) , that the written down value for the purposes of income-tax must be accepted as the true value of the assets.
20. A careful perusal of the decision of this court in Raghuvanshi Mills Ltd. : [1976]104ITR544(Bom) shows that the decision turned mainly on two circumstances, namely, that the textile mill in question was a fairly of mill with old machinery and that for want profits, full depreciation could not be given effect to in the balance-sheet. The facts as they appear from the judgment indicate that before the Wealth-tax Officer the contention of the assessee was that the value of the assets as worked out after allowing for depreciation in accordance with rule 8 under the Income-tax Rules, 1922, should be accepted for the years 1957-58 and 1958-59. This was, however, rejected and the Wealth-tax Officer adopted balance-sheet values of the assets. In appeal, the Appellate Assistant Commissioner accepted the contention of the assessee for the year 1957-58 but rejected the same contention for the assessment year 1958-59 as a result of which both the assessee and the Wealth-tax Officer filed appeals before the Tribunal. The Tribunal allowed the appeal of the assessee and rejected the appeal of the Tribunal allowed the appeal of the assessee and rejected the appeal of the Wealth-tax Officer, following an earlier decision of this court in Commissioner of Wealth-tax v. Indian Standard Meal Co. Ltd. : [1963]49ITR832(Bom) . In the reference it was contended on behalf of the department that, apart from he figures given in income-tax records, the assessee had produced no other evidence to establish that the market value of the fixed assets would be more correctly represented by the Income-tax depreciation record than the balance-sheet figures. We are not concerned in this case with the other arguments advanced on behalf of the revenue in that case on the basis of the value which was shown for the purposes of insurance. The Division Bench referred to the finding recorded by the Tribunal which was in these words :
'We are undoable to hold in this particular assessee's case that machinery did not depreciation according to the rates which have been accepted in the generality of cases of textile mills.'
21. The finding, therefore, was recorded obviously having regard to the peculiar facts of the case of the assessee. Even this court, while coming to the conclusion that the written down value worked according to the provisions of the Income-tax Rules would represent the value of net wealth for the purposes of the wealth-tax Act, referred to the fact that the assessee-company was a texable mill and the machinery employed in the mill was nearly more than 15 to 20 years old and its condition was such that in recent years large additions had to be made to make the mill workable. It is no doubt true that when reliance was placed on behalf of the assessee on the decision of the Supreme Court in Commissioner of Wealth-tax v. Aluminium Corporation of India Ltd. : [1972]85ITR167(SC) , it was observed that the ratio of that decision was not attracted to the facts of the case before the Division Bench because, according to the Division Bench, the case was not concerned with an assessee who had revalued his assists. The Division Bench then further recorded a finding that (page 548) :
'It is undoubtedly true that for lack of adequate profits in one of the years proper depreciation had not been provided. On the contrary, even in the earlier years for want of sufficient profits full depreciation could not be provided and it had to be carried forward from year to year. Thus, for an old textile mills like the assessee it will not be unreasonable to hold that the fixed block of assists will depreciate in value at least in accordance with the scale provided under the Income-tax Act'.
22. Later in the judgment, while again pointing out that the ratio of the decision of the supreme court in the case of Aluminium Corporation of India Ltd : [1972]85ITR167(SC) was not attracted, the Division Bench further observed (page 549) :
'On the contrary, in a textile mill having old machinery if the global method of valuation was adopted, then the depreciation as permissible under the Income-tax Act had to be adjusted in order to determine the market value at the relevant at the relevant valuation date and this is what the Tribunal has done in the present case and we find no reason why the method adopted by the Tribunal cannot be regarded as a correct one.'
23. It will thus appear that view taken by the Division Bench was taken specifically on the ground that the assessee owned a textile mill which had old machinery and that in that case the market value would properly be determined by taking the depreciation as permissible under the Income-tax Act. The decision must, therefore, be restricted to the facts of the case before the Division Bench and we are unable to read this decision as lying down an absolute proposition of law that in all cases where the net value of the assists is to be determined under section 7(2)(a), depreciation permissible under the provisions of the Income-tax Act must given effect to and such written down value should always be taken as the market value of assists for the purposes of section 7(2)(a) in preference to the value shown in the balance-sheet.
24. Mr. Joshi for the revenue has, however, brought to out notice a later decision of the Supreme Court, where the Supreme Court has once again reiterated the earlier propositions that in the case where the Wealth-tax Officer takes recourse to the global method of valuation under section 7(2)(a), it is not that, as a matter of rule, the written down value computed for the purposes of income-tax should be accepted in preference to the value of the assists as reflected in the balance-sheet. This decision is in Commissioner of Wealth-tax v. Hindustan Motors Ltd. : [1976]104ITR430(SC) . It is important to point out that while the decision of this court in Raghuvanshi Mills Ltd. : [1976]104ITR544(Bom) was given on July 14,1975, the decision in the case of Hindustan Mills Ltd : [1976]104ITR430(SC) is dated 10th March, 1976. In that case, owing to paucity of profits, the assessee-company had not provided for full depreciation allowable under the provisions of the Income-tax Act in its balance-sheet in the balance-sheet under section 7(2)(a) of the Wealth-tax Act. The contention of the assessee was that the written down value as computed for the purpose of income-tax should be taken into account for the purposes of computing the net wealth in view of the fact that full depreciation could not be given effect to because of the paucity of profits. Rejecting this contention of the assessee, the Supreme Court has made the following pertinent observations (page 434) :
'It is true, as described in the statement of the case, that it was not disputed that adequate depreciation could not be provided for in the balance-sheet on account of paucity of profits. But we are unable to hold that merely a statement to that effect is sufficient to discharge the onus which rests upon the assessee to establish that the value of the assists as on the valuation date. If the contention of the learned counsel is accepted, it will be tantamount to laying down a rule that in the determination of the value of assists the written down value allowable under the Income-tax Act shall always be the value of the assists. In that event, there would no necessirly for any exercise by the Wealth-tax Officer. That is, however, not the intention of section 7 which clearly shows that the wealth-tax Officer may make such adjustments in the value of the assists shown in the balance-sheet in accordance with the requirements of the circumstances disclosed by the assessee. Those circumstances which will be disclosed by the assessee must relate to the determination of the real value of the assists irrespective of appearing in the same. Thus, onus is not discharged by merely stating that since profits in a given year are less or nil little or no provisions was must also show further to what extent the depreciation has resulted in lowering the value of the assists compared to that mentioned in the balance-sheet and whether the written down value computed under the Indian Income-tax Act in fact represents the lower value.' It was then observed by the Supreme Court later in the same judgment as follows (page 435);
'If an assessee chooses to carry forward the depreciation allowance and shows the value of the assists at a particular figure in the balance-sheet, he cannot be merely asserting that there was no profit or very little profit compel the tax authorities to discard the value mentioned in the balance-sheet and to accept the written down value. The depreciation must have nexus with the real value of the assists itself and the burden is upon the assessee to satisfy the Wealth-tax Officer by producing relevant reliable materials for determination of the actual true value of the assists. It may be that in a given year the written down value may be the real value of the assists but that cannot be inexorable rule in determining the value of the assists under section 7 of the Act.'
25. The observations quoted above, in our view, clearly reiterate the position that it cannot be put down as a matter of rule that in each case the written that it cannot be put down value worked out according to the provisions of the assists in preference to the value shown in the balance-sheet and that the burden is on the assessee to show that the written down value is the real value of the assists. What is, therefore, important for the purposes of section 7(2)(a) is the real value of the assists and unless in a given case it is possible for the assessee to establish that the written down value worked out according to the provisions of the Income-tax Act is the real value of the assists, it will be open to the Wealth-tax Officer to accept the value as shown in the balance-sheet.
26. The second decision relied upon by Mr. Dwarkadas is an unreported decision in Vishnu Cotton Mills Ltd's case - [since reported in : [1978]112ITR546(Bom) ] which was rendered following the decision in Raghuvanshi Mills Ltd's case : [1976]104ITR544(Bom) , was also a case of a textile mills and for reasons which we have already given earlier, it is not possible for us to see how this decision would in any way assist the assessee.
27. Now, so for as the onus is concerned, the finding recorded by the Tribunal is that, apart from contending that depreciated value, according to the Income-tax Rules, should be taken as the market value, there is no other evidence given by the assessee. As the Tribunal has observed, the assessee has not chosen to get a fresh valuation made by the valuers. In view of the serious of decision of the Supreme Court referred to above, it is difficult to hold that there was any error in the order of the tribunal when it came to the conclusion that the value of the assists as reflected in the balance-sheet was rightly taken for the purposes of computing the net wealth of the assessee. Consequently, the answer to the first question will be that the written down value of the assists as determined under the Income-tax Act could not be taken as the value of the assists of the company but that the written down shown in the balance-sheet on the relevant valuation dates should be taken as the value of the fixed assists of the company.
28. It will be convenient not to deal first with the third question because the decision of the profit as to whether the amount lying to the credit in the service line contribution account should be excluded for computation of the net wealth of the assessee is concluded by the decision of the Supreme Court in Calcutta Electric Supply Corporation v. Commissioner of Wealth-tax : [1971]82ITR154(SC) . The Supreme Court in that case was dealing with a similar question as to whether the amount standing in the service line accounts should not be taken into account for the purposes of computation of the net wealth and the Supreme Court has held that such amount was not deductible in determining the net wealth of the assest under section 7(2)(a) of the Wealth-tax Act. At this stage through the issue raised in the third question is concluded against the assessee, it would be relevant to refer to the test which was adopted by the Supreme Court in order to decide whether the amounts which are set apart in accordance with certain provisions of the Sixth Schedule were liable to be included as a part of the net wealth of the Electric Supply Co. While describing the test which had to be adopted, he supreme court has observed as follows (page 158-160).
'The only thing relevant for the purpose of the Act is the assessee should be the owner of the assists in question on the relevant valuation date. The Act does not concern itself with the mode in which those assists were required. It is immaterial for the purpose of the Act whether the assessee acquired those assists from his money on with the assistance of others. The balance-sheets shows those service connections as the assists of the assessee... The fact that the value of one or more of the assists of an undertaking will not be taken into consideration in computing the value an undertaking when sold under compulsion of law because of some statutory provisions does not be itself show that it is not a value assists. Section 7 of the Act abd does not tale note of hypothetical possibilities in the matter of valuation of the assists. It merely concerns itself as to what is the true market value of the assists in question on the valuation date.' In view of the decision of the Supreme Court in Calcutta Electric Supply Corporation's case : [1971]82ITR154(SC) , question No. 3 which relates to the assists year 1959-60, must be answered in the negative and against the assessee.
Question No. 2 is also partly concluded by a decision of this court in Commissioner of Wealth-tax v. Bombay Suburban Electric Supply Ltd. : [1976]103ITR384(Bom) . Question No. 2 relates to three kinds of reserves, namely, the ocntingency reserve, the tariff and dividend control reserve and development reserve and the question referred is whether these reserves which are created in accordance with the provisions of the Sixth Schedule of the Supply Act, 1948, were liable to be excluded for the purposes of computation of the net wealth. So far as the contingency reserve and the development reserve are concerned, this court has expressly dealt with their includeability as part of the net wealth of the assesse in the Bombay Suburban Electric Supply Ltd. case : [1976]103ITR384(Bom) . and it was held that the amount standing to the credit of development reserve and the contingencies reserve was liable to be included in the net wealth of the assessee. Now, so far as the tariff and dividend control reserve is concerned, in our view, the ratio of the decision in the Bombay Suburban Electric Supply Ltd. case : [1976]103ITR384(Bom) , will also be attracted in that case. The tariff and dividend control reserve in also created out of the profits of the licensee under clause II of the Sixth Schedule. A part of it is made available to the license and just as in the case of the contingencies reserve and the development reserve, even the tariff and dividend control reserve has to be handed over to the purchaser under sub-clause (3) of clause II in the Sixth Schedule. But having regard t the test which laid down by the Supreme Court in Calcutta Electric supply Corporation's case : [1971]82ITR154(SC) and which is adopted by this order in the Bombay Suburban Electric Supply Ltd's. case : [1976]103ITR384(Bom) , the amount standing to the credit of the tariff and dividend control reserve must also be treated as an assest of the assessee-company. Consequently, question No. 2 will have to be answered in the negative and against the assessee.
29. It was then sought to be contended by Mr. Dwarkadas on behalf of the assessee that in paragraph 11 of the order, the Tribunal has taken the view that the value for the purposes of wealth-tax in respect of the contingencies reserve had to be taken at nil. We have already reproduced earlier these observations in extenso. It is argued by Mr. Dwarkadas that even though the contingencies reserve was liable to be included as a part of the net wealth of the assessee, so far as the present case is concerned, in view of the findings recorded by the tribunal that the value of the contingencies reserve was nil, the effect virtually would be that the contingencies reserve would be excluded form the computation of net wealth. We are unable to read the order of the Tribunal in the manner in which the learned counsel wants us to read, What was in issue before the Tribunal was not what was the value of the contingencies reserve for the purposes of the wealth-tax. What is in issue was whether the amount standing to the credit of the contingencies reserve should or not be taken as a part of the net wealth of the assessee. It was nobody's case at any stage of the proceedings that, in spite of the fact that a certain amount did stand to the credit of the contingencies reserve, its real value was nil. When the Tribunal had observed that the value of the contingencies reserve had to be taken at nil, it was only a stage in the process of reasoning which the Tribunal wanted to advance for finding out whether the contingencies reserve was liable to be excluded for the purposes of computation of the net wealth of the assessee. The Tribunal has referred in extenso to the statutory purchasers under section 6 of the Electricity Act, namely, the State Electricity Board, the State Government or the local authority. But the Tribunal has further gone on to observe that only if these parties refuse to exercise the option, an outside purchaser would be in the filed and even that outside pruchaser has necessarily to take into that that resale by him will be subject to restriction and the options in the Sixth Schedule. We wish to point out here that so far as provisions of section 6 are concerned, if neither the State Electricity Board nor the State Government not the local authority purchase the undertaking under section 6 of the Electricity Act, 1910, there is no provisions in the Act which would enable the license to transfer the undertaking as such to any third party who is referred to as an outside purchaser. The business of supply of electricity has to be done in accordance with a license granted under the Electricity Act and that is why even the transfer of such an undertaking has been regulated by the provisions of section 6. If none of these three statutory purchasers exercise their option, the consequence is laid down in section 8 of the Electricity Act which provides :
'Where, on the expiration of any of the periods referred to in section 6, sub-section (1), the undertaking is not purchased by the State Electricity Board, the State Government or the local authority, and the license, is on the application or with the consent of the license, revoked the license shall the option of disposing of all lands, buildings, works, materials and plant belonging to the undertaking in such manner as he may think fit.'
30. There is, therefore, no question of the license having any option to transfer his undertaking as such to purchasers outside the categories referred to in section 6. The whole basis of the reasoning of the Tribunal was, therefore, erroneous when it came to the conclusion that so far as an outside purchaser is concerned, the contingencies reserve would be valuers because even he would hold it for the purposes of being dealt with in accordance with the options in section 6 read with the Sixth Schedule to the Supply Act. It is not possible for us, therefore, to read the observations of the Tribunal that the value for the purposes of the wealth-tax had to be taken at nil while determining the value for the purposes of computing the net wealth in the manner contended by the counsel apart from the fact that such an issue never arose before the Tribunal.
31. In this view of the matter, as already pointed out above, questions No. 1 is answered as follows : The written down value of the assists as determined under the Income-tax Act, would not be taken as the value of the fixed assists of the company but that the written down value as shown in the balance-sheet on the relevant valuation dates should be taken as the value of the fixed assists of the company.
Question No. 2 is answered in the negative and against the assessee.
Question No. 3 is answered in the negative and against the assessee.
32. The revenue to get the costs from the assessee.