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Issues:
1. Valuation of unquoted shares based on Wealth-tax Rules, 1957 2. Deductibility of provision for gratuity in computing market value of unquoted shares Analysis: The judgment pertains to a reference under section 27(1) of the Wealth-tax Act, 1957, for the assessment years 1976-77 and 1977-78. The first issue raised was whether the market value of unquoted shares should be valued only in accordance with rule 1D of the Wealth-tax Rules, 1957. The court referred to a previous decision and concluded that the market value of unquoted shares should indeed be valued as per rule 1D. This decision was unfavorable to the assessee and in favor of the Revenue. The second issue revolved around the deductibility of the provision for gratuity in computing the market value of unquoted shares. The Wealth-tax Officer initially excluded the provision for gratuity from the liability of the company, considering it a contingent liability. However, the Commissioner of Wealth-tax (Appeals) directed the inclusion of the provision for gratuity as an eligible liability. The Tribunal heard arguments from both sides, with the Revenue relying on a Supreme Court decision and the assessee citing judgments from the Madras High Court. The Madras High Court had previously held that a provision for gratuity, when based on scientific and actuarial estimates, should be considered a deductible provision as it represents a present direct liability of the company. This view contrasted with the Supreme Court's stance that gratuity is a contingent liability until contributions are made to a gratuity trust. The court distinguished between cases involving a provision for gratuity and those dealing with actual contributions to a gratuity fund. The judgment highlighted the importance of determining whether the provision for gratuity falls under specific sections of the Income-tax Act, 1961, for it to be deductible from the net worth of the company. As this crucial detail was missing from the Tribunal's findings, the court declined to answer the second question and remanded the matter for further consideration. The Tribunal was instructed to allow the parties to present additional evidence as needed for a fresh decision. In conclusion, the court emphasized the prevailing principle that contributions to an approved gratuity fund should be treated as an ascertained liability, not a contingent one, when valuing the shares of a company. The judgment provided clarity on the treatment of gratuity provisions in the context of computing the market value of unquoted shares, underscoring the need for adherence to relevant tax laws and precedents in such matters.
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