BIRLA JUTE MANUFACTURING CO. LTD. versus COMMISSIONER OF WEALTH TAX, WEST BENGAL, CALCUTTA

Citation: [1972] 1 S.C.R. 104 · Decided: 10-08-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

104 
BIRLA JUTE MANUFACTURING CO. LTD. 
v. 
COMMISSIONER OF WEALTH TAX, WEST 
BENGAL, CALCUTTA 
August 10, 1971 
[K. S. HEGDE AND A. N.' GROVER, JJ.] 
Wealth Tax-Inflated value of assets shown in balance sheet of company 
-When wealth tax officer is justified in accepting such figure. 
In the assessment year 1948-49, the assessee, a public limited com-
pany revalued its assets and enhanced the book value by Rs. 145,00,000 
arid continued to show the inflated valuation in the balance-sheets for 
subsequent years. For the assessment year 1957-58, the Department 
1ook the valuation of the assets as shown in the balance sheets. 
The 
assessee. however, claimed that the said Rs. 45,00,000 should be 
deducted in the computation of the net value. 
Before the Tribunal, 
it was 
stated that the reason for the inflation was that the assessee 
contemplated issuing bonus shares for that amount, but it did not do 
so because the necessary consent of the Central Government was not 
granted. The Tribunal decided in favour of the assessee but the High 
Court, on reference, held that there was a motive for the revaluation 
-0f the assets and therefore the valuation in the balance-sheet could 
not be accepted as a correct basis and that the net value would have to 
be ascertained by the Wealth-tax Officer under s. 7 of the Wealth-tax 
Act. Both the assessee and the Revenue appealed to this Court. 
HELD: (1) Under s. 211 of the Indian Companies Act, 1956, every 
balance sheet must give a'trµe and fair figure of the state of its affairs 
as at the end of the financial year. 
Under s. 7 of the Wealth-tax Act 
the Wealth Tax Officer may determine the net value of the assets of the 
business having regard to the balance sheet of the business .as on the 
valuation date . It is open to the Wealth-tax Officer to accept the figure 
given by the assessee or to arrive at another figure if he was satisfied 
for good reasons that the va'uation given in the balance-sheets was 
wrong. Equally it is open to the assessee to satisfy the authorities that 
tlie said figure had been enhanced, for "acceptable reasons". (107 E-H] 
(2) The main idea underlying the issue of bonus shares is to bring 
the nominal amount of the issued share capital of the company into line 
with the true excess of assets over liabilities. But the taking of this 
·step would involve a genuine and correct valuation of assets and not 
their under valuation or inflation, especially 
when the power of the 
·Company to issue bonus shares is of fiduciary nature and must be 
exercised bona fide for the general advantage of the company. 
[I08G-H., I09A] 
(3) In the present case, no evidence was placed before the Wealth 
Tax Officer for demonstrating how it became necessary to inflate the 
valua'titl~ by 
Rs. 1,45,00,000 for the purpose 
of issuing bonus 
1
A 
B 
c 
D 
E 
F 
G 
H 
B 
c 
D 
E 
F 
G 
H 
BIRLA JUTE MAND. v. C.W.T. (Grover, J.) 
105 
shares, nor was it shown that it was so done under expert acturial 
suggestion under some misapprehension or mistake. The Wealth 
Tax Officer was therefore fully justified in accepting the figure which 
the assessee had himself given in the .balance sheet as the correct figure 
and making the assessment in accordance with that figure. [!09B-E] 
Kesoram Industries and Cotton Mills Ltd., v. Commissioner of 
Wealth Tax (Central) Calcutta, 59 I.T.R. 767 referred to. 
CIVIL APPELLATE JuR1smc10N: Civil Appeals No. 1834 
and 1169 of 1968. 
Appeals from the Judgment and order dated Febru-
ary 21, 22 1967 of the Calcutta High Court in Wealth Tax 
Reference No. 138 of 1962. 
S. T. Desai, S. A. Aiyar, R.N. Sachthey and B. D. 
Sharma, for the appellant (in C.A. No. 1169/68 and the 
respondent (in C. A. No 1834 of 1968) 
A. C. Mitra, N. R. Khaitan, P. Khaitan, Krishna 
Sen and B.P. Maheswari for the respondent (in C. A. 
No. 1169. of 1968) and the appellant (in C. A. No. 1834 
of 1968.) 
The Judgment of the Court was delivered by 
Grover, J. These appeals have been brought from a 
judgment of the Calcutta High Court by certificate in a 
Wealth Tax Reference. Civil Appeal No. 1834 of 1968 
is of the assessee and the other appeal has been filed by the 
Commissioner of Wealth Tax, West Bengal. 
It is necessary to deal with the appeal of the Commis~ 
sioner of \Vealth Tax as the other appeal shall also stand 
disposed of once the question is answered in the Commission• 
er's appeal. The assessee is a public limited company. In the 
assessment year 1948-49 the ass

Excerpt shown. Read the full judgment & AI analysis in Lexace.