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Issues: Valuation of shares based on gratuity liability, applicability of break-up value method, interpretation of liabilities for valuation purposes
1. The appeals concerned the valuation of shares of a company owned by the assessee, focusing on the deduction of the company's liability towards gratuity when determining the share value using the break-up value method. The Wealth-tax authorities initially disallowed the deduction, considering gratuity liability as a contingent liability not reducing the company's wealth. The matter was brought before the Tribunal after conflicting decisions from different benches, leading to a fresh examination of the issue. The AAC of Income-tax held that gratuity liability was present and not contingent, directing its inclusion in the share valuation based on actuarial valuation. 2. The Departmental Representative relied on a Supreme Court decision stating that gratuity provision is not deductible from net wealth, arguing against its inclusion in share valuation. However, the assessee's counsel cited Tribunal orders favoring inclusion of gratuity liability. The Tribunal ultimately ruled in favor of the assessee, considering gratuity as an accrued liability based on the Bombay High Court decision, emphasizing that a purchaser would factor in all company liabilities when determining share market value. 3. In another case, the assessee contested the rectification of the AAC's order directing the deduction of gratuity liability based on actuarial valuation, exceeding the balance-sheet provision. The AAC rectified the order, limiting the deduction to the balance-sheet amount in accordance with Rule 1-D. The assessee argued for the actual liability deduction, while the Departmental Representative stressed strict adherence to Rule 1-D for share valuation. 4. The Tribunal noted that a willing buyer would rely on the balance-sheet for share valuation, unable to verify the adequacy of liabilities. Considering Rule 1-D permits deduction based on balance-sheet liabilities, the AAC's correction aligning with this rule was upheld. Consequently, the assessee's appeal was dismissed, affirming the correction in the valuation method to adhere to Rule 1-D standards.
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