1984 (6) TMI 74 - AT - Income Tax

Summary

Issues Involved:
1. Determination of break-up value of shares in accordance with Rule 1D of the Wealth-tax Rules, 1957.
2. Classification of customs duty provision as a contingent liability.
3. Adjustments to the balance sheet for the purpose of calculating the break-up value of shares.

Detailed Analysis:

1. Determination of break-up value of shares in accordance with Rule 1D of the Wealth-tax Rules, 1957.
The primary issue was the correct determination of the break-up value of shares owned by the assessee in a private limited company. The Wealth-tax Officer (WTO) computed the value of each share at Rs. 397, and due to the company's lack of dividend declarations over the past five years, 75% of this value was taken as the market value, resulting in Rs. 298 per share. The Commissioner (Appeals) upheld the market value returned by the assessee, which was calculated by deducting a customs duty provision from the value of the company's assets.

2. Classification of customs duty provision as a contingent liability.
The WTO had declined to consider the customs duty provision of Rs. 86,04,384 as a deductible liability, arguing it was contingent because the levy of customs duty was under dispute and had not been finalized by the customs authorities. The Judicial Commissioner of Goa had decided in favor of the assessees, indicating no customs duty was payable. The Commissioner (Appeals) held that the liability was determined and known, not contingent, and thus deductible under Rule 1D.

3. Adjustments to the balance sheet for the purpose of calculating the break-up value of shares.
The Tribunal examined whether the customs duty provision was a contingent liability, concluding that a liability arises as per the statute and is not dependent on the completion of assessment or notice of assessment. The Tribunal referenced the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT to support this view. The Tribunal noted that if there was no liability under the Customs Act, the provision should not be considered a liability. Consequently, the Tribunal held that the customs duty provision should not be deducted, but if it was disallowed, the corresponding value of the ship should also be adjusted downward by the same amount.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s order, agreeing that the customs duty provision was not a contingent liability and should be deducted in arriving at the net wealth of the company. However, since the liability was ultimately found to be non-existent, the value of the ship should be reduced accordingly. The break-up value of the shares, after making these adjustments, aligned with the value returned by the assessees. Therefore, the appeals filed by the revenue were dismissed.