Tax Reference Cases Nos 3 to 5 of 1975 Tax Reference under Section 257 of the Income tax Act 1961 made by the Income tax Appellate Tribunal Cuttack Bench Cuttack PA Francis Champat Rai and Miss A Subhashini for the Appellant
CSS Rao for the Respondent
The Judgment of the Court was delivered by 308 PATHAK J
 These references under s271 of the have been made by the Income Tax Appellate tribunal Cuttack Bench at the instance of the Commissioner of Wealth Tax Orissa for the opinion of this Court on the following question of law Whether on the facts and in the circumstances of the case the Wealth Tax Officer was in law justified in including in the net wealth of the assessee interest due on accrual basis though not realised on the outstandings of the money lending business the accounts of the assessee being maintained on cash basis  The respondent assessee was assessed to wealth tax for the assessment years 1965 66 1966 67 and 1967 68 the respective valuation dates being March 31 1965 March 31 1966 and March 31 1967 in the status of a Hindu Undivided Family
In each of the assessments the Wealth Tax Officer included a sum of Rs 150000 estimated as the accrued interest on the assessee s money lending investments
The assessee appealed to the Appellate Assistant Commissioner and urged that as it maintained its books of account in accordance with the cash system of accounting the accrued interest on the money lending investments could not be included in the wealth tax assessments
The contention found favour with the Appellate Assistant Commissioner and accordingly he deleted the additions of Rs 150000 representing accrued interest
In doing so the Appellate Assistant Commissioner followed Commissioner of Wealth tax Bihar and Orissa vs Vysyaraju Badreenarayana Moorthy Raju Orissa1 The Wealth Tax Officer appealed to the Appellate Tribunal and contended that accrued interest was liable to be included in the wealth tax assessments of the assessee
The Wealth Tax Officer sought support from a judgment of the Andhra Pradesh High Court in Vedreva Venkappa Rao vs Commissioner of Wealth tax2 AP
The Appellate Tribunal observed that the judgment of the Orissa High Court was binding on it and accordingly by a consolidated order dated April 3 1972 it dismissed the appeals
The Commissioner of Wealth Tax applied under sub section
1 of section 27 of the Wealth 1 2 309 Tax Act for a reference of the cases to this Court in view of the conflict of opinion between the Orissa High Court and the Andhra Pradesh High Court and so these references have been made
The question can be disposed of shortly
Under section 3 of the Wealth Tax Act wealth tax is charged for every assessment year in respect of the net wealth of the assessee on the corresponding valuation date
The expression net wealth is defined by cl
m of s2 of the Act as the amount by which the aggregate value  
Of all the assets wherever located belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on the valuation date  According to the scheme of the Wealth Tax Act the net wealth of an assessee has to be determined as it obtains on a particular date
That is the valuation date
Clause q of s 2 defines the expression valuation date as follows  q Valuation date in relation to any year for which an assessment is to be made under this Act means the last day of the previous year as defined in Section 3 of the Income Tax Act if an assessment were to be made under that Act for that year Provided that i Where in the case of an assessee there are different previous years under the Income Tax Act for different sources of income the valuation date for the purposes of this Act shall be the last day of the last of the previous years aforesaid ii in the case of a person who is not an assessee within the meaning of the Income Tax Act the valuation date for the purposes of this Act shall be the 31st day of March immediately preceding the assessment z year iiiwhere an assessment is made in pursuance of section 19A the valuation date shall be the same valuation date as would have been adopted in respect of the net wealth of the deceased if he were alive
 310 The computation of the net wealth of an assessee calls for a determination of his assets and debts as on the valuation date
The definition embodied in the substantive part of cl
q of s2 indicates that broadly Parliament has fixed upon the last day of the previous year as defined under the Income Tax Act as the valuation date
The figure of net wealth of the assessee at the end of the previous year takes into account the financial activities of the assessee during that previous year
His financial activities during that period determine how his net wealth on a particular valuation date differs from his net wealth on the immediately preceding valuation date
There is an obvious advantage in adopting as the valuation date the last day of a period which is also the relevant period under the Income Tax Act
The reasons for defining the valuation date in terms of the last day of the income tax previous year stop there
The system of accounting mercantile or cash or hybrid is of no relevance for the purpose of determining the assets of the assessee
That appears plainly from the definition or 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 bar 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 is determined pursuant to sub section
I of s7 as the estimated price which in the opinion of the Wealth Tax Officer 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 Wealth Tax 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 realised on the outstandings of the money lending business are liable to be included in the net wealth of the assessee
In this view of the matter we approve of the opinion expressed by the Andhra Pradesh High Court in Vedrevu Venkappa Rao supra 311 and in Commissioner of Wealth Tax AP I vs Pachigolla Narasimha Rao1 and the Calcutta High Court in Dipti Kumar Basu vs Commissioner of Wealth Tax West Bengal2 and hold that the view taken by the Orissa High Court in Commissioner of Wealth tax vs Vysyaraju Badreenarayana Moorthy Raju Orissa supra and by the Karnataka High Court in A T Mirji vs Commissioner of Wealth Tax Karnataka3 cannot be accepted
In the result the question is answered in the affirmative in favour of the Revenue and against the assessee
There is no order as to costs


Summary:
The respondent assessee was assessed to wealth tax for the assessment years 1965 66 1966 67 and 1967 68 in the status of a Hindu Undivided Family 
In each of the assessment years the Wealth Tax Officer included a sum of Rs 15 lakhs estimated as the accrued interest on the assessee s money lending investments
The assessee appealed to the Appellate Assistant Commissioner con tending that as the books of account were maintained in accordance with the cash system of accounting the accrued interest on the money lending investment could not be included in the Wealth Tax assessments the Appellate Assistant Commissioner following the decision of the Orissa High Court in Commissioner of Wealth tax Bihar and Orissa vs Vysyaraju Badreenarayana Moorthy Raju Orissa 197179 ITR 330 deleted the additions representing accrued interest
The Wealth Tax Officer appealed to the Appellate Tribunal and con tended that the accrued interest was liable to be included in the Wealth Tax assessment of the assessee relying on the judgment of the Andhra Pradesh High Court in Vedrevu Venkappa Rao vs Commissioner of Wealth Tax AP
The Appellate Tribunal dismissed the appeal as it was bound by the decision of the Orissa High Court
The Commissioner of Wealth Tax applied under Section 271 of the Wealth Tax Act 1957 for a reference to the Supreme Court in view of the conflict of opinions between the Orissa High Court and the Andhra Pradesh High Court and the question Whether the Wealth Tax Officer was justified in including in the net wealth of the assessee interest due on accrual basis though not realised on the outstandings 307 of the assessee s money lending business the accounts being maintained on cash was referred to this Court
 HELD 1
Even though the accounts of the assessee are maintained on cash basis interest due on accrual basis though not realised on the out standings of the money lending business is liable to be included in the net wealth of the assessee
310G 2
The value of a property refers to the value of the rights in that property
What accrues as a right also falls to be included within the assets of an assessee under the Wealth Tax Act 1957
310F 21
The system of accounting mercantile or cash or hybrid is of no relevance for the purpose of determining the assets of the assessee
That appears plainly 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 bar 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
310 C D 3
The assets are not confined to cash
Where the asset is an asset other than cash its value is determined pursuant to sub section I of section 7 as the estimated price which in the opinion of the Wealth Tax Officer the asset would fetch if sold in the open market on the valuation date
It would be the estimated open market value of the rights in the property which constitute the asset
310E F Vedrevu Venkappa Rao vs Commissioner of Wealth tax AP  Commissioner of Wealth Tax
AP_I vs Pachigolla Narasimha Rao and Dipta Kumar Basu vs Commissioner oz Wealth Tax West Bengal  approved
Commissioner of Wealth tax Bihar and Orissa vs Vysyaraju Badreenarayana MoorthY Raju Orissa and AT Mirji vs Commissioner of Wealth Tax Karnataka Over ruled