Wealth-tax inclusion of regulatory reserves turns on ownership on the valuation date, not user restrictions or earmarking.

For wealth-tax purposes, ownership of the asset on the valuation date is decisive, and restrictions on user, earmarking of funds, or a possible transfer on compulsory purchase do not by themselves exclude an amount from net wealth. Applying that principle, the capital reserve arising from consumer contributions for service lines, the contingencies reserve under the Sixth Schedule to the Electricity (Supply) Act, 1948, and the development reserve under the same Schedule were all held includible in the assessee's net wealth. The reference was thus answered substantially in favour of the revenue.

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Issues: (i) Whether the capital reserve representing consumer contributions for service lines was includible in the assessee's net wealth; (ii) Whether the contingencies reserve created under the Sixth Schedule to the Electricity (Supply) Act, 1948 was includible in the assessee's net wealth; (iii) Whether the development reserve created under the Sixth Schedule to the Electricity (Supply) Act, 1948 was includible in the assessee's net wealth.

Issue (i): Whether the capital reserve representing consumer contributions for service lines was includible in the assessee's net wealth.

Analysis: The reserve represented amounts credited in the balance-sheet against service connections and the governing principle was whether the assessee owned the asset on the valuation date. The mode of acquisition, including contribution by consumers, was held irrelevant for wealth-tax purposes. The asset formed part of the undertaking and was not excluded merely because statutory provisions affected its value on compulsory sale.

Conclusion: The capital reserve was includible in the net wealth of the assessee and the answer was against the assessee.

Issue (ii): Whether the contingencies reserve created under the Sixth Schedule to the Electricity (Supply) Act, 1948 was includible in the assessee's net wealth.

Analysis: The reserve was created from existing reserves or revenue, was required to be invested in authorised securities, and remained under the assessee's control subject to regulatory restrictions. The limitations on user and the requirement of transfer on compulsory purchase did not change its character as an asset of the assessee. The principles governing income computation and diversion at source did not control the wealth-tax inquiry, which turned on ownership of the asset on the valuation date.

Conclusion: The contingencies reserve was includible in the net wealth of the assessee and the answer was against the assessee.

Issue (iii): Whether the development reserve created under the Sixth Schedule to the Electricity (Supply) Act, 1948 was includible in the assessee's net wealth.

Analysis: The reserve was created out of profits, was available only for investment in the electricity supply business, and remained an asset of the undertaking. The possibility of transfer to the purchaser on compulsory purchase did not alter its character while the undertaking continued with the assessee. The reserve therefore belonged to the assessee on the valuation date.

Conclusion: The development reserve was includible in the net wealth of the assessee and the answer was against the assessee.

Final Conclusion: The reference was answered substantially in favour of the revenue, with the disputed reserves held includible in net wealth except that the gratuity deduction and tax provision deduction question were dealt with in accordance with the Supreme Court decisions noted in the judgment.

Ratio Decidendi: For wealth-tax purposes, the decisive question is whether the assessee owns the asset on the valuation date; restrictions on user, earmarking of funds, or a possible transfer on compulsory purchase do not by themselves prevent the amount from forming part of the assessee's net wealth.

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