2004 (8) TMI 89 - HC - Wealth-tax

Valuation of shares deduction in respect of accumulated dividend on cumulative preference shares and depreciation as worked out in the income-tax assessment - 1. Whether Tribunal was legally correct in holding that in determining the value of the shares of J.K. Jute Mills Ltd., under rule 1D of the Wealth-tax Rules, 1957, deduction was to be allowed in respect of accumulated dividend on cumulative preference shares? 2. Whether, Tribunal was legally correct in holding that in determining the value of the shares of J.K. Jute Mills Ltd., under rule 1D of the Wealth-tax Rules, deduction should be allowed of depreciation as worked out in the income-tax assessment of the company? - We answer both the questions of law in the negative, i.e., in favour of the Revenue and against the assessee.

Summary

Issues:
1. Deduction for accumulated dividend on cumulative preference shares in valuation of shares.
2. Deduction for depreciation in valuation of shares.

Issue 1: Deduction for accumulated dividend on cumulative preference shares in valuation of shares

The Income-tax Appellate Tribunal referred the question of whether deduction for accumulated dividend on cumulative preference shares should be allowed in determining the value of shares of a company under rule 1D of the Wealth-tax Rules, 1957. The Valuation Officer valued the shares at a specific rate per share, which was challenged by the assessee. The Commissioner of Wealth-tax (Appeals) directed the Wealth-tax Officer to rework the valuation after deducting the accumulated outstanding dividend as per the income-tax assessments of the company. The Tribunal dismissed the Revenue's appeal. The court analyzed rule 1D and Explanation II(ii) of the Wealth-tax Rules, which specified that certain liabilities, including dividends on preference shares, should not be treated as liabilities if not declared before the valuation date at a general body meeting. Since depreciation was not provided for in the income-tax proceedings and there was no record of dividend declaration, the court relied on a previous decision in a similar case to rule in favor of the Revenue, denying the deduction for accumulated dividend on preference shares in the valuation of shares.

Issue 2: Deduction for depreciation in valuation of shares

The second question raised was whether deduction for depreciation, as calculated in the income-tax assessment of the company, should be allowed in determining the value of shares under rule 1D of the Wealth-tax Rules. The court noted that depreciation had not been factored into the income-tax proceedings. The assessee argued for the deduction of depreciation in the valuation of shares, but the court, following a previous decision in a related case, ruled against allowing the deduction. The court's decision was based on the interpretation of rule 1D and Explanation II(ii) of the Wealth-tax Rules, emphasizing the non-inclusion of depreciation as a liability unless specifically set apart for, leading to the denial of the deduction for depreciation in the valuation of shares.

In conclusion, the High Court of ALLAHABAD decided in favor of the Revenue and against the assessee on both issues regarding the deduction for accumulated dividend on cumulative preference shares and depreciation in the valuation of shares. The judgment relied on the interpretation of relevant provisions of the Wealth-tax Act and Rules, as well as a previous decision in a similar case, to determine the legal correctness of the Income-tax Appellate Tribunal's decisions.