1980 (3) TMI 21 - HC - Wealth-tax

Summary

Issues: Valuation of shares for wealth-tax assessment - Deduction for additional super-tax and provision for bonus

The judgment of the High Court of Bombay involved a wealth-tax assessment reference concerning the valuation of shares owned by the assessee in a company. The controversy revolved around the valuation of 461 shares in M/s. Garlick & Co. Pvt. Ltd. The Wealth Tax Officer (WTO) determined the break-up value of these shares based on the company's balance sheet as of December 31, 1960, at Rs. 1,611 per share. The key issue was the inclusion of deductions for additional super-tax and provision for bonus in the valuation of these shares.

The assessee contended that deductions should be allowed for additional super-tax payable by the company due to non-declaration of dividends and for the provision for bonus as per an agreement with employees. The Appellate Assistant Commissioner (AAC) accepted both contentions, ruling that the additional super-tax liability and the provision for bonus should be considered in determining the break-up value of the shares. The Appellate Tribunal upheld the AAC's decision, leading to a reference to the High Court by the revenue.

The High Court analyzed the legal aspects involved, particularly focusing on the treatment of additional super-tax and provision for bonus in the valuation of shares for wealth-tax assessment. Referring to a previous decision, the Court clarified that unless an order determining the additional super-tax liability of the company is made by the Income Tax Officer (ITO) before the valuation date, such liability cannot be considered for deduction in the break-up value of shares. Therefore, the provision for additional super-tax was not allowed as a deduction in the valuation.

However, regarding the provision for bonus, the Court emphasized that since there was a clear agreement obligating the company to pay bonuses to employees, this liability should be deducted in computing the break-up value of the shares, even if not reflected in the balance sheet. The Court differentiated between the treatment of additional super-tax and provision for bonus based on the legal obligations and accrual of liabilities.

Consequently, the High Court answered the referred question by affirming that the provision for additional super-tax should not be deducted, while the liability for bonus should be deducted in computing the break-up value of the shares. The judgment concluded with no order as to costs due to the partial success and failure of both parties in the case.