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Issues Involved:
1. Justification of the Tribunal in not allowing deduction for gratuity liability from the total assets while valuing unquoted equity shares. Issue-wise Detailed Analysis: 1. Justification of the Tribunal in Not Allowing Deduction for Gratuity Liability: The core issue was whether the Tribunal was justified in not allowing the deduction for gratuity liability amounting to Rs. 12,79,000 from the total assets of the company as per the balance-sheet while valuing the unquoted equity shares of M/s. Krishna Mills Ltd., Beawar, in accordance with rule 1D of the Wealth-tax Rules, 1957. The assessee argued that the provision for gratuity was a definite and ascertained liability, quantified on a scientific basis by an expert valuer, and duly accounted for in the books of account. Hence, it should not be treated as a contingent liability. The Payment of Gratuity Act, 1972, provides a scheme for payment of gratuity, payable on specific events like superannuation, retirement, resignation, death, or disablement. The Wealth-tax Officer, Appellate Assistant Commissioner, and the Tribunal all treated the provision for gratuity as a contingent liability. The Wealth-tax Officer ignored the provision for gratuity based on sub-clause (f) of clause (ii) of Explanation II of the Wealth-tax Rules, which prohibits deduction representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares. The Tribunal upheld this view, relying on the Supreme Court decisions in Standard Mills Co. Ltd. v. CWT [1967] 63 ITR 470 and Bombay Dyeing and Manufacturing Co. Ltd. v. CWT [1974] 93 ITR 603, which held that the provision for gratuity was a contingent liability and not deductible while computing net wealth. The assessee contended that the liability for payment of gratuity, ascertained on actuarial calculations, was a liability in praesenti and capable of ascertainment. However, the Tribunal, supported by the Supreme Court's observations, maintained that even if the liability is contingent, it must be discounted and its present value ascertainable to be considered deductible. The Supreme Court in Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC) clarified that contingent liabilities, if sufficiently certain and capable of valuation, can be taken into account as trading expenses. Despite the assessee's argument that the Payment of Gratuity Act altered the position, the Tribunal and the High Court found no conflict between the decisions in Metal Box Co. of India Ltd. and Standard Mills Co. Ltd., affirming the latter's view that the estimated liability for gratuity is not deductible in computing net wealth. The High Court also noted that the assessee did not provide evidence to establish that the techniques of making estimates on an actuarial basis had been adopted. The balance-sheet claim was made without proving that the books of account were prepared on actuarial principles. The High Court concluded that for the purpose of sub-clause (f) of clause (ii) of Explanation II to rule 1D of the Wealth-tax Rules, the term "contingent liability" must be given a general meaning, and the decision under section 40A of the Income-tax Act was not applicable. The fiscal laws must be strictly construed, and the language used in the rules leaves no room for external aid to interpret it. The High Court distinguished the case from CWT v. Ranganayaki Gopalan [1973] 92 ITR 529, where the interposition of a trust and vesting the gratuity fund in trustees made a difference. In the present case, there was no such trust, and the provision for gratuity remained a contingent liability. Conclusion: The High Court answered the question in the affirmative, deciding in favor of the Revenue and against the assessee. The Tribunal was justified in not allowing the deduction for gratuity liability from the total assets while valuing the unquoted equity shares. The Revenue was entitled to costs assessed at Rs. 500.
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