1986 (5) TMI 47 - AT - Wealth-tax

Summary

Issues: Valuation of shares for assessment years 1979-80 and 1980-81 under rule 1D of the Wealth-tax Rules, 1957.

In the judgment by the Appellate Tribunal ITAT BOMBAY-B, the appeals by the department were related to the assessment years 1979-80 and 1980-81, concerning the valuation of 160 equity shares of a company not quoted on the stock exchange. The valuation was to be done under rule 1D of the Wealth-tax Rules, 1957. The assessee did not treat the amount of advance tax paid by the company as an asset, as per clause (i)(a) of Explanation II of rule 1D, and did not deduct the advance tax paid from the provision for taxation to determine the excess over tax payable with reference to book profits under clause (ii)(e) of the said Explanation. The WTO, however, deducted the advance tax paid from the provision for taxation. This led to a discrepancy in valuation, with the assessee declaring nil value while the WTO estimated values per share for the assessment years. The AAC accepted the assessee's computation based on previous decisions, but the department appealed.

The Tribunal noted that the assessee's computation aligned with principles established by the Gujarat High Court in previous cases. The High Court held that advance tax paid should not be considered an asset, and gross provision for taxation, without adjusting advance tax paid, should be treated as a liability. However, other High Courts like Punjab and Haryana, Karnataka, and Madras had differing views on this matter. Considering the majority opinion of High Courts diverging from the Gujarat High Court's stance, the Tribunal adopted the approach of reducing the provision for taxation by the amount of advance tax paid to determine the excess over tax payable with reference to book profits. Consequently, the Tribunal held that the WTO's computation was correct, overturning the AAC's decision in favor of the department.

In conclusion, the appeals by the department were allowed, and the Tribunal set aside the AAC's orders, restoring those of the WTO regarding the valuation of shares for the assessment years 1979-80 and 1980-81 under rule 1D of the Wealth-tax Rules, 1957.