1977 (12) TMI 25 - HC - Wealth-tax

Summary

Issues: Valuation of shares for wealth-tax assessment; Deductibility of provision for super-tax in computing break-up value of shares.

In this judgment by the Bombay High Court, the main issue was the valuation of shares for wealth-tax assessment, specifically regarding the deductibility of the provision for super-tax in computing the break-up value of shares. The case involved an individual's assessment under the Wealth-tax Act for the year 1962-63, concerning shares held in two companies. The Wealth-tax Officer valued the shares using the break-up method but did not allow the provision for additional super-tax as a deduction. The Appellate Assistant Commissioner upheld this decision, stating that prospective buyers would not anticipate such liabilities, as the imposition of super-tax was discretionary. The Tribunal, in a brief order, directed the inclusion of the provision in valuing the shares.

A key legal argument raised was based on a decision by the Madras High Court, distinguishing between the statutory charge under sections 3 and 4 of the Act and the liability to additional super-tax under section 23A. The Madras High Court held that the liability to pay additional super-tax arises only after an order by the Income-tax Officer, not automatically. The Bombay High Court agreed with this interpretation. The assessee argued that this principle should only apply to determining the wealth of the company, not the valuation of individual shareholders' shares. The assessee contended that prospective buyers would consider such liabilities in determining share prices, especially if companies had acknowledged these liabilities in their balance sheets or tax assessments.

However, the Bombay High Court found that the liability for super-tax was not confirmed for the relevant valuation date, and therefore, the provision for such liability was not deductible in valuing the shares for the assessee. The court emphasized that for an exception to be made, the question must have been raised before the revenue authorities with supporting facts, which was not done in this case. Consequently, the court answered the referred question in the negative, ruling against the assessee and ordering them to pay the costs of the reference.