1991 (7) TMI 13 - HC - Wealth-tax

Summary

Issues Involved:
1. Valuation of unquoted shares of an investment company.
2. Deduction of provisions for pension and gratuity liabilities in determining net maintainable profit.
3. Application of Central Board of Direct Taxes Circular No. 332A dated March 31, 1982.

Detailed Analysis:

1. Valuation of Unquoted Shares of an Investment Company:
The primary issue is whether the Tribunal was justified in its method for valuing unquoted shares of Messrs. Karam Chand Thapar and Bros. Ltd., an investment company, by considering the net maintainable profit after deducting provisions for pension and gratuity liabilities. The Tribunal's decision was based on the Central Board of Direct Taxes (CBDT) Circular No. 332A, dated March 31, 1982, which outlines the method for valuing shares of investment companies that are not quoted on the stock exchange.

2. Deduction of Provisions for Pension and Gratuity Liabilities:
The assessee argued that the liabilities for pension and gratuity, as shown in the balance sheet and considered by the registered valuer, should also be accounted for by the Wealth-tax Officer in determining the maintainable profit. The Commissioner of Income-tax (Appeals) accepted this contention and directed the Wealth-tax Officer to verify whether these liabilities were ascertained and should be adjusted in the maintainable profit. The Tribunal upheld this view, citing the Madras High Court decision in CWT v. S. Ram [1984] 147 ITR 278, which recognized actuarially valued liabilities as present, direct, and minimum liabilities.

3. Application of CBDT Circular No. 332A:
The Revenue argued that the valuation should strictly follow Circular No. 332A, which does not explicitly provide for adjusting gratuity and pension liabilities. However, the Tribunal and the court interpreted the circular to mean that current liabilities, even if not provided for in the accounts, should be considered in determining the net maintainable profit. The circular, influenced by the Supreme Court's decisions in Kusumben D. Mahadevia [1980] 122 ITR 38 and Mahadeo Jalan [1972] 86 ITR 621, emphasizes the profit-earning capacity of the company as the primary determinant for share valuation.

Court's Conclusion:
The court concluded that the Tribunal was correct in allowing the deduction of actuarially valued pension and gratuity liabilities when determining the net maintainable profit for valuing unquoted shares. This approach aligns with the principles outlined in the CBDT Circular No. 332A and the relevant case law. The court found no infirmity in the Tribunal's order and answered the question in favor of the assessee, affirming that the valuation method adopted was justified.

Final Judgment:
The court ruled in favor of the assessee, confirming that the Tribunal's method of valuing the shares, which included deductions for pension and gratuity liabilities, was correct. There were no orders as to costs.

Separate Judgment:
Ajit Kumar Sengupta J. concurred with the judgment.

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