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Shri S. Gurunathan Chettiar v. The Commissioner of Wealth-tax - T.C. No.54 OF 1992  RD-TN 565 (7 August 2002)
IN THE HIGH COURT OF JUDICATURE AT MADRAS
The Honourable Mr. Justice V.S. SIRPURKAR
The Honourable Mr. Justice N.V. BALASUBRAMANIAN
T.C. No.54 OF 1992
Shri S. Gurunathan Chettiar
Mayiladuthurai :: Applicant -Vs-
The Commissioner of Wealth-tax
Madras :: Respondent Tax Case Reference under Sec.27(3) of the
Wealth Tax Act, 1957, referred by the ‘D’ Bench
of the Income Tax Appellate Tribunal
For Applicant :: Mr. P.P.S. Janarthana Raja For Respondent :: Mr. T.C.A. Ramanujam Sr.Standing Counsel (IT) :ORDER
V.S. SIRPURKAR, J.
The question referred to us in pursuance of the direction of the High Court in T.C. No.41 OF 1990, at the instance of the applicant, is as follows:
“Whether on the facts and circumstances of the case, the Tribunal was right in directing the Wealth Tax Officer to adopt the value determined by the actual collection made from exploitation of the films for the purpose of inclusion in the net wealth?”
2. The assessee, in this case, is a film-distributor. In his assessment for the relevant year 1978-79 under the Wealth Tax Act (in short “the Act”), the valuation of the film called “Enga Pattan Sothu” was fixed on the basis of its original cost a he assessing authority determined the value of the films in stock at Rs.18,77,501/-.
3. An appeal, however, came to be filed wherein the appellate authority came to the conclusion that the valuation was excessive as the appellant had purchased the films long back and they were already exploited and as such there was bound to be a s ble decline in their commercial value. In this view, the appellate authority directed to value the films at the cost price and reduce that value by 50 due to depreciation of the value of the films because of their exploitation.
4. An appeal came to be filed by the Department while a cross-objection came to be filed by the assessee. According to the Department, the cost price could not be directed to be reduced by 50 while, according to the assessee, since the films had me absolutely old and were not likely to be of any value, even the valuation directed by the appellate authority was excessive.
5. The Tribunal came to the conclusion that the Department’s appeal was liable to be partly allowed while the cross-objection filed by the assessee was liable to be dismissed. While dealing with the assessee’s cross-objection, the Tribunal observe at the valuation could not be taken as “nil” merely because the films had been exploited because it was likely that on their re-run, the films could make a better business. Therefore, the mere fact that the films had run for 90 days could not by itself be sufficient to come to the conclusion that the films had become worthless and on its re-run, they may not fetch any business. The Tribunal, therefore, came to the conclusion that merely because in the income-tax proceedings hundred per cent deduction was given, it could not be held that the films could not be valued at “nil”. However, in so far as the department’s appeal is concerned, the Tribunal was of the opinion that even the fixation of the value at 50 at the original cost was not proper and the Tribunal, therefore, evolved new principle by holding that a fair market value of the films lying in stock would be represented by the actual collections at the re-run of such films and, therefore, the Tribunal directed that the actual collections ma de from these films on the next valuation date would be the potential market value of the films lying in stock and the figure of such collection should be substituted for valuation directed by the Commissioner.
6. The assessee questions this method of valuation and the findings of the Tribunal before us by way of the reference of the question of law which we have quoted above.
7. Mr. Janarthana Raja, firstly questions the judgment of the Tribunal on the ground that the Tribunal while directing to take into consideration the actual collections representing the popular demands has completely ignored the mandatory p f Sec.4 of the Act because the Tribunal had directed to arrive at the fair-market value with reference to the date of the next valuation. Learned counsel invited our attention to the following portion of the order of the Tribunal in support of his argum ent: “In the circumstances the fairmarket value of the films lying in stock could well be represented by the actual collections representing the popular demand for such films which would be synonymous with the price paid by a willing purchaser in the open mar ket. In this view of the matter, we direct that the actual collections made from these films on the next valuation date would very well represent the potential market value of the films lying in stock and that should be substituted for the valuation dir ected by the Commissioner (Appeals). Accordingly, the order of the Commissioner (Appeals) is modified and the Wealth-tax Officer is directed to adopt the actual collection for the purpose of inclusion in the net wealth.”
It will be seen that the Commissioner while fixing the valuation had directed to value the films at the cost price and reduce that value by 50 due to depreciation of value by exploitation. Learned counsel pointed out even this was not correct because t he films having been extremely old were left with no value and they could not have been exploited further which aspect had been missed by the Commissioner of Income-tax. The main argument of the learned counsel, however, was that under Sec.2(q), the “va luation date” was defined as under:
“valuation date, in relation to any year for which an assessment is to be made under this Act, means the last day of the previous year as defined in section 3 of the Income-tax Act, if an assessment were to be made under that Act for that year:”
Learned counsel points out that in this case, the assessment year was 1978-79 and, therefore, the valuation date would be the last date of the previous year of this assessment year that would be 1977-78. Learned counsel further contends that because of the order of the Tribunal now the value to be decided would be with relevance to the next valuation date meaning the subsequent date than the actual valuaton date. With reference to Sec.3, learned counsel pointed out that this is a charging section and it provides that the wealth-tax shall be charged in respect of the net-wealth on the corresponding valuation date of every individual. In short, the contention is that in directing to decide the value by taking into consideration the amount of collectio ns on the next valuation date, the Tribunal had ignored the principle which emanates from Sec.2(q) and Sec.3 of the Wealth Tax Act that for the purposes of the Act, the relevant date for the valuation shall be the last date of the previous year of the re levant assessment year.
8. As against this, learned counsel for the Department tried to support the order by suggesting that the Tribunal had correctly remanded the matter for the purposes of valuation because the actual collections made on the next date would be he only factor to correctly evaluate the film.
9. On this backdrop of the rival contentions, it must be said that the Tribunal undoubtedly taken into consideration “the next valuation date” which would be clear from the emphasised portion which we have quoted above from the Tribunal’s o e can be no doubt that for the purposes of the Act while evaluating an estate, the date to be considered is the valuation date as per the definition of the term under Sec.2(q). The Tribunal unfortunately has ignored the mandatory language of the chargin g section and, therefore, it must be said that it has erred in directing to evaluate the films with reference to the next valuation date. Again, it will have to be said that the test of actual collections on the next valuation date may not be a correct relevant factor for deciding as to what its value was on the valuation date which undoubtedly is the only relevant date for evaluating an asset. It could be that a film on the last date of the previous year was not all that popular may suddenly gain pop ularity and become a box-office hit on account of some subsequent events such as death of the actor/actress who played the lead-role in the film, nomination of the film for some international awards, the film subsequently bagging some awards in the categ ory of “Best Film”, etc. or someone related to the film, viz. Director, Editor, Music Director, Play-back Singers, etc. winning the best award, or for that matter the issue involved in the film becoming suddenly a hot-issue owing to the change in the cir cumstances. All this has been clearly missed by the Tribunal while directing the assessing officer to take into consideration the actual collections on the next date. It may be that because of the change of the circumstances the value may even diminish on the next valuation date then it’s actual value which was on the valuation date. Even that would be totally incorrect and contrary to the spirit of Sec.3. Therefore, it is not possible for us to uphold the order of the Tribunal. The test suggested by the Tribunal more particularly with reference to the date of valuation tends to be arbitrary. We, therefore, answer the question against the Revenue and in favour of the assessee. As a result of this, the natural consequence would be the revival of the appellate order but we do not approve of that order either because though the actual cost of the films is undoubtedly is a relevant factor, it is not a be all and end all of the matter in the matter of valuation of the films. In our opinion, therefo re, the matter will have to be re-heard and decided by the Tribunal and the Tribunal would then decide the question of valuation in the light of our observations in this judgment. The Tribunal would be at liberty even to remand the matter and so al so, the assessee and the Department would be at liberty to adduce fresh evidence to support their respective contentions. With these observations, we close this reference. No costs.
(V.S.S., J.)(N.V.B., J.)
1. The Assistatant Registrar
Income Tax Appellate Tribunal
Beasant Nagar, Chennai.
2. The Secretary
Central Board of Revenue, New Delhi
3. The Commissioner of Wealth Tax, Madras
4. The Commissioner of Income-tax (Appeals) I, Madras-34 5. The Income Tax Officer, Circle-I(2), Kumbakonam V.S. SIRPURKAR, J.
N.V. BALASUBRAMANIAN, J.
T.C. No.54 of 1992
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