Wealth-tax valuation and asset classification turn on balance-sheet value, non-recoverability, and the meaning of "set up".

Wealth-tax valuation under section 7(2) is ordinarily based on the balance-sheet figure, subject to adjustment only where acceptable reasons justify departure or the figure is shown to be incorrect. A factual inference of non-recoverability may be drawn from the ordinary course of conduct, even without direct evidence, so an advance paid as bonus to employees was treated as not constituting an asset. The meaning of "set up" in the exemption provision for a new industrial undertaking was applied in line with the later Supreme Court interpretation. The valuation question was left for reconsideration on the stated legal rule.

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Issues: (i) Whether the amount paid as bonus to employees and shown as an advance payment constituted an asset liable to wealth-tax; (ii) whether, in valuing fixed assets under section 7(2), the figure shown in the balance-sheet had to be accepted or normal depreciation under the Income-tax Act could be deducted in addition; (iii) whether the words "set up" in section 5(1)(xxi) were correctly interpreted so as to sustain the remand regarding exemption for a new industrial undertaking.

Issue (i): Whether the amount paid as bonus to employees and shown as an advance payment constituted an asset liable to wealth-tax.

Analysis: The payment, though initially reflected as a debt due, had to be tested on the footing that recovery from workmen would ordinarily be negligible. The Tribunal relied on the ordinary course of conduct between employer and employees and treated the amount as incapable of realisation. That conclusion was treated as a factual inference capable of being drawn even without direct evidence, with reference to the principle embodied in section 114 of the Indian Evidence Act.

Conclusion: The amount was held not to be an asset, and this issue was answered in favour of the assessee.

Issue (ii): Whether, in valuing fixed assets under section 7(2), the figure shown in the balance-sheet had to be accepted or normal depreciation under the Income-tax Act could be deducted in addition.

Analysis: The governing principle is that the net value of business assets is to be determined by having regard to the balance-sheet and making such adjustments as the circumstances require. The accepted rule stated was that the balance-sheet figure is normally to be accepted unless the assessee shows acceptable reasons for rejecting it, or the authorities find sufficient reasons to treat it as incorrect. On the facts placed before the Tribunal, the correction adopted by the Tribunal was not justified, though the Tribunal was left free to reconsider the matter in light of the stated legal principle.

Conclusion: The Tribunal's approach on valuation was held not justified on the facts, and the matter was left open for further decision by the Tribunal.

Issue (iii): Whether the words "set up" in section 5(1)(xxi) were correctly interpreted so as to sustain the remand regarding exemption for a new industrial undertaking.

Analysis: The question was governed by the later Supreme Court ruling on the meaning of "set up" in the exemption provision, and the Tribunal's view was treated as no longer open to challenge.

Conclusion: The interpretation was upheld, and the issue was answered in favour of the assessee.

Final Conclusion: The reference was disposed of by answering two questions in favour of the assessee and by holding that the valuation question required reconsideration in accordance with the stated legal rule.

Ratio Decidendi: For wealth-tax valuation under section 7(2), the balance-sheet figure is ordinarily accepted unless displaced by acceptable reasons, and a factual inference as to non-recoverability may be drawn from the ordinary course of conduct even without direct evidence.

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