1991 (7) TMI 165 - AT - Wealth-tax

Certain Assets, Deduction In Respect, Estate Duty Act, His Net Wealth, Valuation Date, Wealth Tax

Summary

Issues:
1. Valuation of unquoted shares of two companies using different methods.
2. Deduction towards Estate Duty liability.

Issue 1:
The appeal concerned the valuation of unquoted shares of two companies, Tirupur Textiles (P.) Ltd. and Sovereign Engineers Pvt. Ltd. The assessing officer valued the shares using the break-up method under Rule 1-D of the Wealth-tax Rules, 1957. However, the CWT(A) directed the valuation to be done on a yield basis. The jurisdictional High Court had previously held in the case of K.M. Mammen v. CWT that Rule 1-D is directory, not mandatory. Therefore, the Tribunal rejected the Department's appeal on this issue.

Issue 2:
The second issue revolved around the deduction claimed by the assessee towards Estate Duty liability. The assessee claimed a deduction for the estate duty liability related to assets inherited from his deceased father. The Wealth-tax Officer initially denied the claim, stating that the estate duty demand was pending for over a year. However, the first appellate authority noted that under section 74(1) of the Estate Duty Act, the liability to pay Estate Duty arises on the property passing on death and is a first charge on the property. The authority directed the assessing officer to allow the deduction of Rs. 16 lakhs in the computation of the assessee's net wealth. The Department argued, citing the case of K.R. Ramachandra Rao v. CWT, that an unquantified liability on the valuation date cannot be considered a debt under the Wealth-tax Act. The Tribunal, however, referred to various Supreme Court judgments establishing that the liability to pay a statutory impost crystallizes upon the taxable event, regardless of quantification. As the liability arose upon the death of the assessee's father, the Tribunal held that the assessee was entitled to the deduction. The Tribunal clarified that section 2(m)(iii) of the Act, which deals with tax, penalty, or interest payable as a result of an order, was not applicable in this case as no such order had been passed under the Estate Duty Act before the valuation date. The Tribunal emphasized that section 2(m)(iii) could be relevant for future assessment years once an order is passed under the Estate Duty Act. Ultimately, the Tribunal dismissed the Department's appeal, upholding the deduction towards Estate Duty liability claimed by the assessee.