1982 (3) TMI 13 - HC - Income Tax

Issues Involved:
1. Valuation of the unsecured debt of Rs. 6,84,448 due to the estate from K.C. Mullick & Sons Ltd.
2. Valuation of 500 shares in Raja D.N. Mullick & Sons Pvt. Ltd.
3. Non-allowance of the secured debt of Rs. 2,95,089 due to the United Bank of India Ltd.

Issue-wise Detailed Analysis:

1. Valuation of the Unsecured Debt of Rs. 6,84,448 Due to the Estate from K.C. Mullick & Sons Ltd.:
The accountable persons contested the valuation of Rs. 6,84,448 debt from K.C. Mullick & Sons Ltd., arguing the company's poor financial health, heavy indebtedness, and subsequent liquidation. The Board noted the Dy. Controller's valuation based on the tangible assets and liabilities from the company's balance sheet as of March 31, 1955, which showed net tangible assets of Rs. 12,61,397 against liabilities of Rs. 11,13,107. The Dy. Controller presumed full realization of the debt upon liquidation. However, the Board, considering the inflated stock values and subsequent liquidation, estimated the debt's value at Rs. 5,24,800, reducing the valuation by Rs. 1,59,648.

The High Court found that the Board did not properly account for the market value and the company's inability to meet its debts, evidenced by attachment for small sums and the valuation of shares at nil. The valuation method, relying heavily on book values without considering the market realities and the company's financial distress, was deemed improper. The Court concluded that the valuation of Rs. 5,24,800 was not in accordance with law and directed the Board to review the valuation considering the observations made.

2. Valuation of 500 Shares in Raja D.N. Mullick & Sons Pvt. Ltd.:
The accountable persons challenged the valuation of 500 shares at Rs. 3,45,500. The Board noted the valuation method used by the Dy. Controller, who valued the company's properties at Rs. 7,12,000, resulting in a net asset value of Rs. 11,65,245. The Board adopted the valuation of Rs. 691 per share, as accepted in another deceased shareholder's case, resulting in a valuation of Rs. 3,45,500 for the 500 shares.

The High Court upheld this valuation, noting that the accountable persons had notice of the evidence and chose not to rebut it. The valuation was found to be in accordance with law, and the Board's decision was affirmed.

3. Non-allowance of the Secured Debt of Rs. 2,95,089 Due to the United Bank of India Ltd.:
The Board disallowed the deduction of the secured debt of Rs. 2,95,089 owed by the deceased to the United Bank of India, secured by a mortgage on the Marquis Lane properties. The Board's rationale was based on the rental value of the properties and the company's financial position, concluding that no part of the guarantee debt was admissible as a deduction.

The High Court found this approach to be a misdirection. The debt was owed by the accountable persons and secured by the property, which should not detract from the liability. The Board's decision to disallow the deduction was deemed perverse and not in accordance with law. The Court directed that the secured debt should be allowed as a deduction.

Conclusion:
1. The valuation of the unsecured debt of Rs. 6,84,448 was not in accordance with law. The Board is to review the valuation considering the Court's observations.
2. The valuation of the 500 shares in Raja D.N. Mullick & Sons Pvt. Ltd. was in accordance with law and affirmed.
3. The non-allowance of the secured debt of Rs. 2,95,089 was perverse and not in accordance with law. The debt should be allowed as a deduction.

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