1986 (8) TMI 101 - AT - Wealth-tax

Supreme Court remands wealth tax case, emphasizes valuation of distributorship rights.

Wealth-Tax Officer. Versus Gulshan Rai Sachdev.

The Supreme Court set aside the Commissioner (Appeals)'s order and remanded the case for reassessment of the valuation of distributorship rights in films ... Valuation Of Assets, Global Valuation Issues:Valuation of distributorship rights in films for wealth-tax assessment.Analysis:The judgment involves the valuation of distributorship rights in films for wealth-tax assessment for two consecutive assessment years. The controversy revolves around the application of rule 2B(2) of the Wealth-tax Rules, 1957, which allows the Wealth Tax Officer (WTO) to make additions where the market value of an asset exceeds its written down value by more than 20%. In this case, the WTO made significant additions to the assessee's wealth for both years based on the valuation of distributorship rights in various films held by the assessee. The valuation was contentious as it involved assessing the value of films based on different categories and methods, including films taken on guarantee basis, commission basis, and purchased by the assessee. The WTO's valuation methodology and additions made were challenged by the assessee, leading to an appeal before the Commissioner (Appeals).The Commissioner (Appeals) relied on a Special Bench decision in WTO v. Narendra Kumar Gupta, which emphasized that the entire cost of acquisition of a film was treated as revenue expenditure under rule 9B of the Income-tax Rules, thereby not reflecting in the balance sheet. Consequently, the Commissioner (Appeals) held that rule 2C(d) of the Wealth-tax Rules would not apply to such assets not appearing in the balance sheet due to the treatment under rule 9B. However, the Supreme Court's subsequent overruling of a related case led to a reevaluation of the legal position. The judgment highlighted the importance of including valuable rights of the assessee on the valuation date in the net wealth calculation, irrespective of certain deductions allowed under income-tax rules. The court emphasized that the value of distributorship rights and film exploitation rights should be considered while computing the assessee's net wealth, contrary to the previous decision by the Commissioner (Appeals).Ultimately, the court set aside the Commissioner (Appeals)'s order deleting the additions made by the WTO for both assessment years. The matter was remanded back to the Commissioner (Appeals) for a reassessment of the valuation of films to ensure accuracy and completeness in determining the assessee's net wealth. The judgment deemed the revenue's appeals for the assessment years 1977-78 and 1978-79 to be allowed, emphasizing the inclusion of all valuable rights of the assessee in the wealth-tax assessment.