1991 (10) TMI 8 - HC - Wealth-tax

Summary

Issues Involved:

1. Whether the Tribunal was justified in upholding the direction for deduction of liabilities towards provision for income-tax, proposed dividend, and gratuity from the value of the assets of the company for the purpose of determining the value of unquoted shares under rule 1D of the Wealth-tax Rules, 1957.

Issue-wise Detailed Analysis:

1. Deduction of Liabilities Towards Provision for Income-Tax:

The Tribunal upheld the Commissioner of Wealth-tax (Appeals)'s direction to deduct liabilities towards provision for income-tax from the value of the assets of the company. The Revenue contended that under Explanation II(ii)(e) of rule 1D, such liabilities are not deductible. The assessee argued that rule 1D mandates that the balance-sheet drawn in accordance with the Companies Act, 1956, should be treated as sacrosanct, and all liabilities shown must be deducted from the assets to determine the break-up value. The court referred to the Gujarat High Court's decision in CWT v. Ashok K. Parikh, which held that the provision for taxation should be deducted only if it is in excess of the tax payable with reference to the book profits. The court concluded that the provision for income-tax should be deducted unless it is found to be in excess, which was not the case here.

2. Deduction of Liabilities Towards Proposed Dividend:

The Tribunal also upheld the deduction of liabilities towards the proposed dividend. The Revenue argued that under Explanation II(ii)(b), such dividends are not deductible unless declared before the valuation date. The court noted that the proposed dividend was not declared before the relevant valuation dates, and hence, under sub-clause (b) of clause (ii) of Explanation II, it could not be deducted as a liability. Therefore, the Tribunal's direction to allow this deduction was not justified.

3. Deduction of Liabilities Towards Gratuity:

The Tribunal upheld the deduction of liabilities towards gratuity. The assessee contended that gratuity is a known liability and not a contingent one. The court referred to the Supreme Court's decision in Vazir Sultan Tobacco Co. Ltd. v. CIT, which held that a provision for gratuity is a liability unless found to be excessive. The court also noted that gratuity is now a statutory liability and should be treated as such. Therefore, the Tribunal was justified in allowing the deduction of liabilities towards gratuity.

Conclusion:

The court concluded that the Tribunal was justified in directing the deduction of liabilities towards provision for income-tax and gratuity but not for the proposed dividend. The question referred to the court was answered accordingly, with the Tribunal's direction being upheld for income-tax and gratuity but not for the proposed dividend.