COMMISSIONER OF WEALTH TAX VS MAHARANI YOGESH KUMARI
1995 P T D 1320
[211 I T R 766]
[Rajasthan High Court (India)]
Before V.K. Singhal and V.G. Palshikar; JJ
COMMISSIONER OF WEALTH TAX
versus
Maharani YOGESH KUMARI
D.B. Wealth Tax Reference No.14 of 19$4, decided on 08/04/1994.
Wealth tax---
Net wealth---Asset---Includes accrued rights---System of accounting adopted by assessee not relevant for determining assets of assessed---Assessed advancing loans to parties---Adopting cash system of accounting---Accrued interest not realised---Is liable to be included in net wealth---Indian Wealth Tax Act, 1957, Ss.2(e) & 7---Indian Wealth Tax Rules, 1957, R.2-C.
The system of accounting, mercantile;: cash or hybrid is of no relevance for the purpose of determining the assets of an assessee. All the assets of an assessee, barring those expressly exempted by the statute, are to be taken into account. What accrues as a right also falls to be included within the assets of the assessee under. the Wealth Tax Act, 1957. Therefore, even though the accounts of an assessee are maintained on the cash basis, interest due on accrual basis, though not realised, on loans advanced to parties is liable to be included in the net wealth of the assessee under section 2(e) of the Wealth Tax Act, 1957.
CWT v. Vysyaraju Badreenarayana Moorthy Raju (1985) 152 ITR 454 (SC) fol.
Mirji (A.T.) v. CWT (1980) 126 ITR 93 (Kar.) ref.
D.S. Shisodia for Commissioner.
Vineet Kothari for Assessee.
JUDGMENT
V.K. SINGHAL, J.--- The Income-tax Appellate Tribunal has referred the following question of law arising out of its order, dated June 18, 1983, in respect of the assessment years 1977-78 to 1980-81 under section 27(1) of the Wealth Tax Act, 1957 (hereinafter called "the Act"):--
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest of Rs.41,750 for each of the assessment years 1977-78 to 1979-80 and of Rs.2,06,250 for the assessment year 1980-81 was not includible in the net wealth of the assessee for these years?"
The brief facts of the case are that the assessee advanced loans to certain parties such as Princess Trivikrama Kumari and Golden Sun Cinema Theatre, etc. The interest income against these loans was not shown in the net wealth declared by the assessed for the assessment years 1977-78 to 1980-81. The Wealth Tax Officer while completing the assessments included in the net wealth interest of Rs.41,750 for each of the assessment years 1977-78 and 1978-79 and of Rs.206,250 for the assessment year 1980-81, on accrued basis. It was found that a sum of Rs.1,75,000 was given as loan to Golden Sun Cinema Theatre and Rs.2;25,000 was given to Princess Trivikrama Kumari. The interest was not received. The Wealth Tax Officer came to the conclusion that the interest due to the assessee is chargeable to wealth tax. In the books of Princess Trivikarama Kumari the interest was credited to the account of the assessed and thus the interest element was added to the net wealth of the assessee in respect of this loan as well as the loan to Golden Sun Cinema Theatre. In the second appeal before the Tribunal the amount of deemed interest was held not includible in the net wealth of the assessed. .
Learned counsel for the Revenue has submitted that the Income-tax Appellate Tribunal was not justified in deleting the addition in respect of the interest which has accrued though not received as the right to receive the interest is property and, therefore, an asset which is liable to be included in the net wealth of the assessee in terms of section 2(e) of the Act. It is further submitted that' the income derived by the assessee is not from any business but from the interest and is assessable under the head "other sources" and, therefore, the system of maintaining the books of account has no relevance which is relevant only for the purpose of income from business.
Learned counsel for the assessee has submitted that it is an admitted position that the assessed is maintaining the cash system of accounting and therefore, the income which has not been received cannot be considered to be the assets of the assessee for the purpose of computing net wealth.
We have considered the matter. Section 145 of the Income-tax Act, 1961, deals with the method of accounting and as per its subsection (1) the income from other sources has to be computed in accordance with the method of accounting regularly employed by the assessee. This section makes it clear that for the income from "other sources" the method of accounting has to be taken into consideration. It is not in dispute that the system of accounting maintained by the assessee is the cash system and not the mercantile system and, therefore, it has to be examined weather
the Wealth Tax Officer could not have added accrued interest when the system of accounting of the assessee which was regularly maintained was cash.
Section 7 of the Act provides that subject to the rules made in this behalf the value of the assets other thin cash shall be estimated 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. The provisions of section 7(2) of the Act are applicable in respect of an assessee who is leaving business and maintaining books of account regularly and not in the cases of other assessees. "Asset" has been defined to include property of every description, movable or immovable, under clause (e) of section 2 of the Act. The Karnataka High Court in the case of A.T. Mirji v. CWT (1980) 126 ITR 93 examined the matter and observed as under:-- (Headnote)
"Though there is a difference between a business and profession, the former being in the nature of trade and commerce and the latter being in the nature of rendering professional services, in so far as it relates to the requirement to accept their accounting system for taxation, there is no difference between the two."
Rule 2-C is relevant rule which provides the adjustment of the assets not disclosed in the balance-sheet. The provisions of Rule 2-C could be applicable in respect of those assets the value of which was required to be shown in the balance-sheet and. has not been shown therein. Under the Act, the system of accounting is not the determining factor for an asset and even any system of accounting is not required to be maintained under the Act. The only thing to be seen is whether the interest which has accrued and not received could be considered to be a movable asset or not? This matter was considered by the apex Court in the case of CWT v. Vysyaraju Badreenarayana Moorthy Raju (1985) 152 ITR 454, it was held that the system of accounting, mercantile, cash or hybrid, is of. no relevance for the purpose of determining the assets of the assessee. All the assets of the assessee, barring those expressly exempted by the statute, are to be taken into account. It was further observed that it is apparent that what accrues as a right also falls to be included within the assets of an assessee under the Act. That being so, the conclusion is inescapable that even though the accounts of the assessee are maintained on the cash basis, interest due on accrual basis, though not realised, on the outstanding of the money-lending business is liable to be included in the net wealth of the assessee. In view of the above decision of the apex Court, we are of the opinion that the Tribunal was not justified in holding that interest of Rs.41,750 for each of the assessment years 1977-78 to 1979-80 and of Rs.2,06,250 for the assessment year 1980-81 was not includible in the net wealth of the assessee for these years.
Consequently, the reference is answered in favour of the Revenue and against the assessee. No order as to costs.
M.BA./965/T.F.Order accordingly.