HIGH COURT OF MADRAS
Commissioner of Wealth Tax, Chennai
TAX CASE APPEAL NO. 1263 OF 2005†
JUNE 12, 2012
Mrs. Chitra Venkataraman, J.
The Revenue has filed the appeal against the Order of Income Tax Appellate Tribunal, ‘B’ Bench dated 29.11.2004 in ITA No.70/(Mds)/96 (Mds)/2003 for the Assessment Year 1992-93. The following substantial questions of law are raised in the Tax Case (Appeal) preferred by the revenue:
(i) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the amounts actually received as fees by the assessee from students should not be treated as its asset on the ground that he is accounting for the fees spread over the duration of the course? and
(ii) Whether the concept of accrual of income will have a bearing on wealth tax assessments, when the assessee has already received and is in possession of the amounts?
2. It is seen from the narration of facts that the assessee is running a tutorial institute. As regards the fee received from students, it is stated that the assessee charged the full fee for the entire course of study which ran to different years. Till 1992-93, the assessee was disclosing the entirety in the year of receipt, irrespective of years of study come. However, for the year ending 31.3.92, the assessee showed the prorata income relevant for the period 1.4.91 to 31.3.92 and the balance of the fee was represented as advance. Thus in response to the notice for the Assessment Year 1992-93, the Assessing Authority rejected the contention of the assessee and included it as part of the net wealth of the assessee.
3. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). Following the earlier order, the Commissioner of Income Tax rejected the appeal. Aggrieved by that, the assessee went on further appeal before the Income Tax Appellate Tribunal and the Revenue had also filed appeal in respect of the portion of the relief granted to the assessee.
4. In so far as the claim on the inclusion of the advance fee received as part of the net wealth is concerned, the question arising in the revenue appeal, the Income Tax Appellate Tribunal referred to the assesse’s own case under the Income Tax Act for the assessment years 1991-92 to 1997-98. The Income Tax Appellate Tribunal held that 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. Aggrieved by this, the Revenue has filed the appeal before us.
5. Learned Standing Counsel appearing for the 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). We agree with the submission of the learned Standing Counsel.
6. 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:
‘6. ….. 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 realised, on the outstandings of the money-lending business are liable to be included in the net wealth of the assessee’.
7. Learned Counsel for the Assessee however pointed out that the said decision has no relevance to the facts of the case herein as the right of the assessee to hold this amount is just as an advance fee received. Therefore being sums received as advance fee on the admission of the students, the holding of the same cannot be treated as asset. The amount held by the assessee is held in trust and on account of the students which were liable to be refunded on certain contingencies arising.
8. In the circumstances, referring to the order of the Income Tax Appellate Tribunal in a case arising under the Income Tax Act learned Counsel submitted that the advance fee received should not be included in the asset of the assessee since the same is not treated as income in the year of receipt. In the said case the Tribunal had agreed with the contention of the assessee that the advance amount received could not be treated as income of the year under consideration. Further more, he pointed out that the Revenue had not gone on appeal against the order of the Tribunal for the earlier years for the Assessment Years starting from 1991-92 to 1997-98.
9. We do not find any justification on the said plea that the Revenue had accepted the order by not having filed any appeal effectively and hence the same concluded the issue. 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.
10. 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.
11. Accordingly, the Tax Case Appeal is allowed and the order passed by the Income Tax Appellate Tribunal B Bench dated 29.11.2004 in ITA No.70/(Mds)/96 (Mds)/2003 for the Assessment Year 1992-93 is set aside. No costs.