Debt valuation for wealth-tax must reflect realisable market value on the valuation date, with bad debts taken at nil value.

For wealth-tax valuation, debts had to be assessed at their realisable market value on the valuation date, with regard to debtor solvency and the chance of recovery. Debts later written off or allowed as bad debts were treated as having no recoverable value on that date and were taken at nil value. The remaining debts were found to retain some value but not full face value, and a broad 50 per cent reduction was adopted to reflect market worth. The net wealth was therefore revised by excluding irrecoverable debts and valuing the balance at half their amount, granting partial relief to the assessee.

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Issues: Valuation of debts included in the net wealth of a firm as on the valuation date, and whether the debts written off or allowed as bad debts in later income-tax assessments were to be taken at nil value or at a reduced market value.

Analysis: The valuation had to be made with reference to the position obtaining on the valuation date. For the debts allowed as bad debts in later income-tax assessments, the relevant factual position as to recovery and debtor solvency was found to be substantially the same on the valuation date, and the right to recover those debts would have fetched no price. For the remaining debts, the Court examined the solvency of the debtors and the real chance of recovery and held that these assets still had some value, but not full value, and that a general reduction by half would reflect their market worth.

Conclusion: The debts allowed as bad debts in later income-tax assessments were to be taken at nil value, while the balance debts were to be valued at 50 per cent of their amount. The assessee succeeded in part and the wealth-tax assessment was directed to be revised accordingly.

Final Conclusion: The net wealth was reduced by allowing deduction for debts having no realizable value and by restricting the value of the remaining debts to half, resulting in partial relief to the assessee.

Ratio Decidendi: For wealth-tax valuation, debts must be valued at their realisable market value on the valuation date, having regard to the solvency of debtors and the chance of recovery.

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