JUDGMENT Prakash Krishna, J.
1. The Income Tax Appellate Tribunal, Allahabad has made a joint reference and has referred the following question of law for the opinion of this Court, under the Wealth Tax Act (hereinafter referred to as the Act) :-
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in applying income capitalization method on average profit for three years in valuing the cold storage in dispute and also holding that the book value of the assets is to be taken into consideration and capital in the Firm is not to be added back separately?"
2. M/s. Vishwanath Seth Cold Storage and Industries, Chandpur, Jaunpur is a registered firm, consisting of 5 partners who are assessee each having 1/5th share. The dispute relates to the valuation of the 1/5th share in the said Firm for the assessment years 1975-76 and 1976-77 on the valuation date in respect of each partners who are assesses.
3. The values as declared and assessed will be clear from the following table:-
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4. The Valuation Officer Shri D.C. Goel valued the business of the firm as on 31.3.76 at Rs. 81,73,690/- by capitalizing one year's profit only. Another Valuation Officer, Shri A.K. Luthra valued the plant and machinery as on 31.3.75 at Rs. 16,91,000/- and as on 31.3.76 at Rs. 16,93,600/-. The assessee also filed a valuation report dated 19.3.80 from Shri R.C. Mittal at Rs. 10,60,000/- and another valuation report Dt. 18.7.76 from the approved valuer Shri Tara Chand, at Rs. 8.83,720/-. The W.T.O. took the valuation of the business for the Asstt. Year 75-76 at 10% loss of the report of the Valuation Officer as on 31.3.76 i.e. at Rs. 19,86,240/- (1/5th share being Rs. 3,91,248/- and 1/5th share in the plant and machinery at Rs. 3,36,220/- as per the Valuation Officer. He valued for the assessment year 1976-77 and 1/5th share interest in land and building at Rs. 3,04,900/- and that in the plant and machinery at Rs. 3,15,720/-.
5. The Appellate Assistant Commissioner in appeal held as follows:-
"(i) The valuation of the Cold Storage had to be done by income capitalization method (ii) the average profit for three immediately preceding years should be taken into consideration (iii) only the expenditure to the extent allowed by the Income-tax Officer in the income-tax assessment should be allowed (iv) so far as deduction for depreciation is concerned, it should be allowed as in the income-tax assessment (v) In Income capitalization method the plant and machinery could not be separately valued as the land, building and machinery are part and parcel of the plant. He found that the profits for the three immediately preceding years 1973-74, 1974-75 and 1975-76 were Rs. 2,28,013/-, Rs. 1,76,913/- and Rs. 58,098/- respectively. The figure of Rs. 58,098/- for 1975-76 was arrived at by him by taking the depreciation allowable on the generation @ 10% as against 20% which has been allowed by the Income-tax Officer. There being no generator in the earlier years, the Appellate Assistant Commissioner took the average profit for the three years at Rs. 1,68,500/- and capitalizing the same at 10 times, he arrived at the valuation of the cold storage for the assessment year 1975-76 (i.e. as on Dewali 1974) Rs. 16,23,000/-. The Appellate Assistant Commissioner observed that the profit for 1976-77 was Rs. 1,68,340/- and so the average profit for 1974-75 to 1976-77 came to Rs. 1,50,000/- and the valuation for 1976-77 (Dewali 1975) was taken at Rs. 1,50,000/-."
6. All the 5 assessees as well as the department preferred separate appeals before the Tribunal. The Department contended that the income capitalization method adopted by the Appellate Assistant Commissioner was not the correct method to arrive at the net wealth of the Firm in which the assessees were the partners. However, this plea was rejected by the Tribunal and it was held that the Income Capitalization Method based on preceding three years average profit, as adopted by the Appellate Assistant Commissioner of Income Tax was correct. But the Tribunal further held that in determining the average profit of these three years on the basis of the assessed income, admissible expenditure of the assessee, the book value of the assets should be taken into consideration and the capital in the Firm should not be added back separately.
7. Heard Shri Shambhu Chopra and Sri R.K. Upadhyay the learned counsel for the Department in support of the reference and other connected matters. The assessee did not choose to appear and contest the present reference.
8. Section 7 of the Wealth Tax as it stood at its relevant time reads as follows :-
"7.(1) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, 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.
(2) 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 in such business, 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 making such adjustments therein as may be prescribed;
(b) Where the assessee carrying on the business is a company not resident in India and a computation in accordance with clause (a) cannot be made by reason of the absence of any separate balance-sheet drawn up for the affairs of such business in India the Wealth-tax Officer may take the net value of the assets of the business in India to be that proportion of the net value of the assets of the business as a whole wherever carried on determined as aforesaid as the income arising from the business in India during the year ending with the valuation date bears to the aggregate income from the business wherever arising during that year.
(3) Notwithstanding anything contained in sub-section (I), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under Section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date. "
8. Sub Section (1) of Section 7 makes it clear that the valuation of any asset, other than the cash for the purposes of the Act shall be estimated to be price which in the opinion of the Wealth Tax Officer it would fetch if sold in the open market on the valuation date. The said section is subject to any Rules framed in this behalf. Rules 1B, 1C and 1D of the Wealth Tax Rules 1957 (hereinafter referred to as the Rules) are the relevant rules. Rule 1-B talks about valuation of the life interest, Rule 1 C talks about the market value of unquoted shares and Rule 1 D is with regard to the market value of the unquoted shares of the companies other than investment companies and managing agency companies. Thus, none of these Rules throw any light on the question of valuation of business assets. However, Sub-section (2) of section 7 is in two parts and it provides the method for determination of the net value of the assets of the business as a whole where the assessee is carrying on the same for which accounts are maintained by him regularly. Under clause (a) of Sub-section (2) of Section 7 the method of determining the net value of the assets of the business as a whole is with regard to the balance sheet of such business as on the valuation date and making such adjustments therein as may be prescribed. Sub Rule (b) of Section 7(2) is not relevant for the purposes of the controversy in hand. Rules 2-B to Rule 2-G of the Wealth Tax Rules provides for the various adjustments in the value of asset disclosed in the balance sheet, asset not disclosed in the balance sheet, value of certain assets and certain liabilities not to be taken into account, liabilities not disclosed in the balance sheet and the special provision for exclusion of certain assets and liabilities shown in the balance sheet. Rule-2 A says that the Wealth Tax Officer while determining the net value of the assets of the business, as a whole under clause (a) of Sub-section 2 of Section 7 shall have regard to the balance sheet of such business and shall make the adjustments specified in Rule 2-B to 2-G. In this connection it is also relevant to refer Rule 2 A of the Rules which enacts the method by which valuation of the partner's share in Firm or an Association of persons should be made. It states as follows:-
Determination of the net value of assets of business as a whole.
2A. Where the Wealth-tax Officer determines under clause (a) of Sub-section (2) of Section 7 the net value of the assets of the business, as a whole having regard to the balance-sheet of such business, he shall make the adjustments specified in rules 2-B, 2-C, 2-D, 2-E, 2-F and 2-G.
9. The Supreme Court in CWT v. Thunsabhadra Industries Limited has laid down that under Sub-section (1) of Section 7 of the Act, the Wealth Tax Officer is authorized to estimate for the purposes 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 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 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 adjustment therein as the circumstances of the case may require. The Apex Court has followed its earlier decision in the case of Kesoram Industries & Cotton Mills Ltd. v. C.W.T. (Central) .
10. Again a controversy arose before the Apex Court, with regard to the determination of value of assets as contemplated under Section 7(2) of the Act. It was submitted by the assessee that he is entitled to make certain adjustments in the valuation as given in the balance sheet. Rejecting the said contention it was held by the Apex Court in the case of Birla Jute Mnufacturing Company v. CWT that there can be no doubt that under Section 7(2)(a) of the Act contemplates that the book value in the balance sheet should be taken as the primary basis of valuation and if any adjustment is required, it is open to the Wealth Tax Officer to make an adjustment in the valuation as given in the balance sheet as may be necessary in the circumstances of the case. The balance gives a true and fair figure of the state of affairs as at the end of the financial year, 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. It was however, open to the assessee to satisfy the authorities that the said figure has been enhanced or increased or inflated " for acceptable reasons". Meaning thereby the Apex Court has held that the figures mentioned in the balance sheet should normally be taken on their face value and if the assessee wants to dispute the same the burden lay upon him to prove that the figures mentioned in the balance sheet are not correct on the basis of "for acceptable reasons".
11. In Sahu Dharmatma Sharan v. CWT, U.P. , (1991) 80 ITR 194. This Court while interpreting Sub-section (1) and (2) of Section 7 has held as follows:-
"Having regard to the clear and unequivocal terms of section 7 it is obvious that the provisions of Sub-section (1) and Sub-section (2) are not mutually exclusive and that where an assessee carries on a business and maintain regular accounts, it is still open to the Wealth Tax Officer to resort to the method prescribed in Sub-section (1) of section 7 for the valuation of the assets of the business. Then again, where the Wealth Tax Officer has actually proceeded under Sub-section (2) (a) and adopted the balance sheet value of the assets, it is open to him to make such adjustments in regard to the value of the different assets shown in the balance sheet as he might consider necessary in the circumstances of the case. The Wealth Tax Officer was, therefore, competent to make an adjustment for estimating the value of the investments made by the assessee in the money lending business if he considered it necessary to do so in the particular circumstances of the case. The word "adjustment" used in Sub-section (2) (a) of Section 7 may mean either reduction or enhancement of the book value of the asset. Whether the Wealth Tax Officer should increase or reduce the book value of any particular item of the assets of the business will depend on the facts and circumstances of each case. "
12. The above case has been followed by this Court in Bithal Das v. Commissioner of Wealth Tax .
13. The Supreme Court in the case of CWT Calcutta v. Hindustan Motors Ltd, , while reversing the judgment of the Calcutta High Court has held that where the assessee claims that the Wealth Tax Officer should reduce the book value of the depreciable assets by difference between the written down value and actual book figures disclosed by the balance sheet, the onus is on the assessee to disclose the circumstances which must relate to the determination of the real value of the assets irrespective of what shown in the balance sheet.
14. The upshot of the above discussion is that normally in the case of computation of the value of each asset held by the assessee in a business, the Wealth Tax Officer shall determine the net value of the assets of the business as a whole having regard to the balance sheet of such business on the valuation date, under Section 7(2)(a) of the Act. As laid down by the Supreme Court in the aforementioned cases, the figure mentioned in the balance sheet should be taken on their face value. However, it is open to the Wealth Tax Officer to make such adjustments therein "for acceptable reasons". At this juncture, it is also apt to notice the amendment made in Section 7(2)(a) of the Act by Act No. 46 of 1964. By this amendment the words " the circumstances of the case may require have been substituted by words "may be prescribed". The aforesaid amendment was not under consideration before the Supreme Court in the above cases. However, by introducing the above amendment it appears that the intention of the legislature is clear to remove the uncertainty and confusion in the matter. The words "as may be prescribed" obviously means prescribed by Rules made under the Act, vide Sub-section (n) of Section 2 of the Act. The authorities have framed the necessary Rules by incorporating Rule 2 A to 2 G in the Wealth Tax Rules. The above case law has been discussed as in the case in hand the question of valuation of cold storage is involved. We are of the opinion that unfortunately all the authorities below have failed to take into account Section 7(2)(a) of the Act. In our opinion this was the clear mistake which was committed by the authorities below. The Wealth Tax Officer has not given even a single reason for not adhering to the mode of computation of valuation of cold storage which is admittedly a business asset by invoking Section 7(2)(a).
15. The Wealth Tax Officer however, proceeded to value the cold storage on the basis of land and building method. The assessment order would reveal that the valuer has estimated the value of cold storage building at Rs. 21,73,600/- as on the valuation date vide his report dated 7.12.1978, the plant and machinery was valued by him at Rs. 16,81,100/-. The Wealth Tax Officer gave a margin of 10% on the valuation of the land and building and thereafter calculated the 1/5th value of the cold storage at the hands of each five assessees who were the partners of the firm. This method of valuation has not been approved by the Appellate Assistant Commissioner, who was of the opinion that the correct position for determining the value of cold storage or other commercial unit is the income capitalization method. This view principally has been affirmed by the Tribunal with certain modifications with regard to the calculation part. The question, thus, arises before us as to what mode of valuation should be adopted to value the cold storage. The Tribunal found that the cold storage complex occupies two acres of free hold land with a plinth area of 48813 so feet and having a storage capacity of 56 000 quintals. The capacity of ice plant is 13 tonnes. The cold storage was said to have been constructed during the period 1966 to 1969 and ice plant in 1971. The cold storage is situate at village Chandpur about five kilometers away from Jaunpur Town on Bhadohi Mirzapur Road. To arrive at the finding that the income capitalization method i.e. the average profit of business implied by certain number of years purchase is the appropriate method, we find that the Tribunal has placed reliance upon a judgment of this Court in the case of CIT v. Kanodia Cold Storage .
16. We fail to understand the applicability of the case law of Kanodia Cold Storage (supra) in the facts and circumstances of the present case. In the case of Kanodia Cold Storage, the High Court was called upon to decide as to whether certain expenditure incurred towards replacement of transformer and service line in taking greater load is of the revenue expenditure or capital expenditure. To decide the said controversy, the High Court was of the view that the replacement of worn out parts does not by itself bring in a new asset. The productive unit to the assessee remains the same and the replacement of the existing line with a new line did not result in creation of new assets of enduring nature.
17. In Smt. Pritipal Kaur v. Inspecting Asstt. C.I.T. , it has been held by this Court that the method of land and building to find out the valuation of house is well recognised one and has been accepted for the purpose of finding out the correct value of the property. It has quoted a passage from the book Principle and Practice of Valuations IV edition page 54 by Parks.
18. The Supreme Court in the case of Special Land Acquisition Officer v. P. Veerbhadrappa and Ors. , in a case under the Land Acquisition Act, has held that the following are the methods of valuation to ascertain the market value of the land at the date of notification under Section 4(1) of the Land Acquisition Act (i) Information of experts (ii) Price paid within a reasonable time for the bonafide transactions of purchase or sale of the land acquired or of the lands adjacent to those acquired and possessing the similar advantages and (iii) a number of years purchases of the actual or immediately prospective profits from the land acquired. It has been held that the normally the method of capitalizing the actual or immediately prospective profits or the rent of a number of years purchase should not be resorted to if there is evidence of comparable sales or other evidence for computation of market value. It can be resorted to only when no other method is available. This authority thus, supports the contention of the Revenue that while determining the valuation of the cold storage the Wealth Tax Officer was justified in taking the land and building method as the proper method to find out the value of the cold storage on the valuation date. Neither the Tribunal or the Appellate Asstt. Commissioner have given any reason for disagreeing with the mode of valuation as adopted by the Wealth Tax Officer. Reliance placed by the Tribunal in support of its view on the case of Kanodia Cold Storage (supra) as pointed out above is misplaced one. Various modes for valuation of an asset are recognized. In the absence of any material or finding that the mode adopted by the Wealth Tax Officer does not represent the estimated price of asset, the appellate authorities were not justified to interfere with the order of the Wealth Tax Officer.
19. Learned Standing Counsel has relied upon (i) Smt. Savita Mohan Nagpal v. CWT ; (ii) CWT v. Niranjan Kumar Hirjee ; (iii) CWT v. Smt. Tara Ben R. Patel (iv) CWT v. Pradeep D. Kothari and (v) CWT v. Ravindra Prasad Dutta for the proposition that the building has to be valued on the basis of the market value as per Section 7(1) of the Act. Where the building is under the tenancy of the tenant, the building should not be valued on the basis of the market value of the property on account of the restriction imposed by the Rent Control Laws to get the building vacated by evicting the tenant. In such cases encumbrances on the property should also be taken into account. Further in the case of Commissioner of Wealth Tax v. Smt. Tara Ben R. Patel (supra) it has been held that it is usual to value the property by more than one method so as to cross check and adopt an average. This is resorted to when there is yet disparity between the valuation arrived at by the different methods.
20. We find that the Tribunal has not adopted any recognized method of valuation. The first appellate authority has held that while valuing the cold storage the following factors should be taken into account :-
20. This order was modified by the Tribunal. The Tribunal has further granted relief to the assessee that the average profit of three years and book value of the assets should be taken into account and the capital in the firm is not to be added back separately. Since we are of the opinion that the land and building method was the appropriate method which could have been adopted to value the cold storage in question, it is not necessary for us to make any comment on the deductions granted by the Tribunal in favour of the assessee while computing the net asset value of the cold storage at the hands of the assessee. However, we may place on record that the none of the standing counsel could show us anything to take a different view than taken by the Tribunal if the valuation of the cold storage has to be done by adopting income capitalization method. We, therefore, reframe the question of law referred to us in the following manner :-
"Whether on the facts and circumstances of the case, the Tribunal was justified in adopting the income capitalization method to value the cold storage. "
21. Accordingly, we answer the reframed question in the negative i.e. in favour of the Revenue and against the assessee. No order as to costs.