2004 (7) TMI 73 - HC - Wealth-tax

Deduction of arrears of dividends on preference shares - Whether Tribunal was right in law in holding that arrears of dividends on cumulative preference shares and depreciation as allowed in the income-tax assessment was allowable as deduction in working out the break-up value of the shares? - we answer this question in the negative i.e. in favour of the Revenue and against the assessee

Summary

Issues:
1. Entitlement to file an appeal under the Wealth-tax Act despite agreeing to be assessed on the value of unquoted equity shares under rule 1D of the Wealth-tax Rules.
2. Allowability of deduction for arrears of dividends on cumulative preference shares and depreciation in working out the break-up value of shares.

Entitlement to File an Appeal under the Wealth-tax Act:
The case involved questions of law referred by the Income-tax Appellate Tribunal regarding the assessee's right to file an appeal under the Wealth-tax Act, despite agreeing to be assessed on the value of unquoted equity shares under rule 1D of the Wealth-tax Rules. The Tribunal had set aside the initial assessment directing valuation of shares by a valuer. The Wealth-tax Officer later disallowed a deduction for a loan taken from the Life Insurance Corporation (LIC) and made a revised assessment. The Appellate Assistant Commissioner held that the assessee, having agreed to the deductions, was not an aggrieved party and thus could not appeal. However, the Tribunal allowed the appeal, stating that statutory provisions cannot be estopped and directed the deduction for arrears of dividends on preference shares and depreciation as allowed in the income-tax assessment.

Allowability of Deduction for Arrears of Dividends and Depreciation:
The Tribunal's decision to allow the deduction for arrears of dividends on preference shares and depreciation was challenged. The Revenue argued that as per Explanation II to rule 1D of the Wealth-tax Rules, certain amounts cannot be treated as liabilities when determining the value of shares. These include amounts set apart for dividends and depreciation not declared or provided before the valuation date. The Court noted that unprovided depreciation cannot be deducted as a liability under rule 1D. Regarding dividends on preference shares, it was emphasized that if not declared before the valuation date, arrears cannot be allowed as a deduction. As the Tribunal did not assess whether the dividends were declared before the valuation date, it erred in allowing the deduction. Consequently, the Court answered question No. 2 in favor of the Revenue, thereby negating the allowance of deductions for arrears of dividends and unprovided depreciation.

In conclusion, the judgment clarified the entitlement to file an appeal under the Wealth-tax Act despite agreeing to certain assessments and highlighted the restrictions on deductions for arrears of dividends and unprovided depreciation when determining the value of shares under rule 1D. The decision provided a detailed analysis of the legal provisions and previous court rulings, ultimately ruling in favor of the Revenue on the deduction issue.