1994 (12) TMI 43 - HC - Wealth-tax

Summary

Issues:
Valuation of unquoted equity shares under rule 1D of the Wealth-tax Rules, 1957 - Deduction of difference in depreciation from the value of assets shown in the balance-sheet.

Analysis:
The judgment pertains to a reference under section 27(1) of the Wealth-tax Act, 1957, where the question of law was whether the Tribunal was correct in allowing the deduction of the difference in depreciation from the value of unquoted equity shares of a company. The assessee claimed that the difference in depreciation should be deducted from the value of assets shown in the balance-sheet for computing the value of shares under rule 1D of the Wealth-tax Rules, 1957.

The Tribunal held that the difference in depreciation was part of the balance-sheet and thus an admissible deduction under rule 1D. However, the High Court disagreed with this interpretation. The Court analyzed rule 1D, which mandates the valuation of unquoted equity shares based on the assets and liabilities shown in the balance-sheet. The Court emphasized that the rule requires the value of assets "shown in the balance-sheet" to be considered for valuation.

Referring to a Supreme Court decision, the Court reiterated that the basis for determining the market value of shares is the balance-sheet of the company, and any deductions must be based on the assets and liabilities shown therein. The Court emphasized that the extra depreciation claimed by the assessee was not a liability shown in the balance-sheet and therefore could not be deducted from the asset value.

The Court rejected the argument that the note in the profit and loss account should be considered part of the balance-sheet, stating that such information does not impact the valuation under rule 1D. Allowing deductions for extra depreciation not provided for would distort the true value of assets as per the balance-sheet, contrary to the clear terms of the rule.

In conclusion, the Court held that the Tribunal erred in allowing the deduction of the supposed difference in depreciation from the asset value shown in the balance-sheet. The question was answered in the negative, favoring the Revenue, and no costs were awarded in the case.