COMMISSIONER OF WEALTH TAX VS V.M. SHAH
1993 P T D 664
[Bombay High Court (India)]
Before Mrs. Sujata V. Manohar and T.D. Sugla, JJ
COMMISSIONER OF WEALTH TAX
versus
V.M. SHAH
Wealth Tax Reference No.67 of 1976, decided on 21/06/1990.
(a) Wealth tax---
---- Valuation of assets---Accounting---Cash system of accounting---Income Tax liability on outstanding professional fees---Not an accrued liability---Wealth Tax Act, 1957.
(b) Wealth tax----
---Valuation of assets ---Assessee carrying on profession---Adjustment in terms of S.7(2)(a) can be made to the balance-sheet---Rule 2(c) or Wealth Tax Rules, 1957, applicable---Adjustment which has the effect of substituting the mercantile system of accounting for the cash system of accounting can be made---Wealth Tax Act, 1957, S.7(2)(a)---Wealth Tax Rules, 1957, R.2(c).
(c) Wealth tax-
---- Valuation of assets---Outstanding fees of firm adjusted in balance-sheet of firm---Outstanding liabilities of firm should also be adjusted on accrual basis-- Wealth Tax Act, 1957.
(d) Wealth tax-
---- Net wealth ---Assessee's share of outstanding fees of firm --- Includible in net wealth.
CWT v. V.M. Shah (1988) 170 ITR 17 (Bom); CWT v. Vasantlal D. Mehta (1990) 186 ITR 284 (Bom.) and CWT v. KT. Divecha (1990) 186 ITR 310 (Bom.) fol.
G.S. Jetley, with Miss Manjula Singh and K.C. Sidhwa for the Commissioner.
S.J. Mehta with I.M. Munim for the Assessee.
JUDGMENT
MRS. SUJATA V. MANOHAR, J: --The following five questions have been referred to us under section 27(1) of the Wealth Tax Act, 1957:
"(1) Whether the adjustments prescribed in terms of section 7(2)(a) of the Wealth Tax Act can be made to the balance-sheet in the case of an assessee who is carrying on a profession?
(2) Whether, on the facts, rule 2-C of the Wealth Tax Rules is applicable in this case?
(3) If the answer to question No.(2) is in the affirmative, whether it is permissible to make an adjustment which has the effect of substituting the mercantile system of accounting for the cash system of accounting?
(4) If the outstanding fees of the firm are to be adjusted in the balance sheet of the firm, whether outstanding liabilities of the firm should also be adjusted in the balance-sheet on accrual basis?
(5) Whether, on the facts and the circumstances of the case, the Tribunal rightly excluded from the net wealth of the assessee, the assessee's share of the outstanding fees of the firm of M/s. C.M. Shah & Co., Chartered Accountants, estimated at Rs.75,000?"
It is accepted by both the sides that the decision in the case of CWT v. V.M. Shah (1988) 170 ITR 17 (Bom) governs this case as also our decisions in Wealth Tax Reference No.168 of 1976 (CWT v. Vasantlal D. Mehta (1990) 186 ITR 284) alongwith Wealth Tax Reference No.92 of 1975 (CWT v. KT. Divecha (1990) 186 ITR 310 delivered by us on June 11, 1990. We would like to clarify that income tax liability on outstanding fees cannot be considered as an accrued liability in a case where the professional has kept his accounts on cash basis for the purpose of income-tax as set out in our above judgment. The questions are, accordingly, answered as follows:
Questions Nos. 1, 2 and 3 in the affirmative and in favour of the Revenue. Question No.4 in the affirmative and in favour of the assessee. Question No.5 in the negative and in favour of the Revenue.
No order as to costs.
M.BA./2103/T Question answered.