Commissioner of Wealth Tax, Chennai
N. Thanu, High Court of Madras
Narration of facts:The assessee runs a tutorial institute- fee received from students- assessee charged the full fee for the entire course of study- Till 1992-93, the assessee had disclosed the entirety in the year of receipt irrespective of years of study come- for the year ending 31.03.92, the assessee showed the prorata income relevant for the period 01.04.91 to 31.3.92 and the balance of the fee was represented as advance - the Assessing Authority rejected the contention of the assessee and included it as part of the net wealth of the assessee.
ITAT held: the advance tuition/course fees received should not be treated as income in the year of receipt without it being accrued as income of the assessee in the relevant year. The Income Tax Appellate Tribunal held that it had to be treated as income of the assessee only in the year of accrual to the assessee even though the same had been received in advance during the various assessment years. Thus, if the receipts were not income, then, the assessee had no accrued right and that could not be treated as an asset to be included in the net wealth of the assessee.
Revenue being aggrieved appealed before the High Court.
Contention of Revenue: placed reliance on the decision of the Apex Court CWT v. Vysyaraju Badreenarayana Moorthy Raju  152 ITR 454, wherein the Apex Court considered the relevance of system of accounting in the matter of wealth tax assessment and also placed reliance on the decision of the Bombay High Court CWT v. V.M. Shah  170 ITR 17/ , which in turn, followed the decision of the Apex Court in Vysyaraju Badreenarayana Moorthy Raju (supra).
H.C. Held that: A reading of the Apex Court decision in the case of Vysyaraju Badreenarayana Moorthy Raju (supra), particularly, in paragraph-6 shows that the computation of the net wealth of an assessee calls for a determination of his assets and debts as on the valuation date. Referring to the definition of 'net wealth', the Apex Court referred to the system of accounting and observed as follows:
"The system of accounting, mercantile or cash or hybrid, is of no relevance for the purpose of determining the assets of the assessee. The appears to be plain from the definition of 'net wealth' which speaks of 'the aggregate value... of all the assets' belonging to the assessee on the valuation date. All the assets of the assessee, barring those expressly excepted by the statute, are to be taken into account, and it is immaterial whether the assessee employs one system of accounting or another. There is clear indication that the assets to be considered are not circumscribed by any consideration of the particular system of accounting adopted by the assessee. The assets are not confined to cash. Where the asset is an asset other than cash, its value if determined pursuant to sub-s. (1) of s. 7 as the estimated price, which, in the opinion of the WTO, the asset would fetch if sold in the open market on the valuation date. In other words, it would be the estimated open market value of the rights in the property which constitute the asset. When we speak of the value of a property, on a legal plane, we refer to the value of the rights in, that property. It is apparent that what accrues as a right also falls to be included within the assets of an assessee under the WT Act. That being so, the conclusion is inescapable that even though the accounts of the assessee are maintained on cash basis, interest due on accrual basis, though not realized, on the outstanding of the money-lending business are liable to be included in the net wealth of the assessee"
On going through the decision of the Apex Court, we have no hesitation in holding that the method of maintaining the account in this case the assessee had maintained the account only on cash system has no bearing on the issue. The asset as on the valuation date would have to be taken into consideration in the matter of assessment under Wealth Tax Act. Thus when the fee for the course was collected from students each as on the registration date, we do not agree with the assessee that he had held the sums in trust which were actually due for the future.
In the circumstances, we have no hesitation in holding that the decision of the Apex Court reported in Vysyaraju Badreenarayana Moorthy Raju (supra), answer the question in favour of the Revenue.
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