2013 (7) TMI 239 - HC - Wealth-tax

Valuation of shares - wealth tax assessment - deductible liability - Contingent liability towards sales tax - whether the sales tax demand could be treated as contingent liability or an accrued liability - Held that - Even after the assessee had taken the sales tax demand in appeal to higher authorities, the liability of sales tax remained intact - Following decision of Late C.S. Ramachary Vs. Commissioner of Income-tax 1991 (1) TMI 103 - MADRAS High Court and Kedarnath Jute Mfg. Co. Ltd., V. Commissioner of Income Tax 1971 (8) TMI 10 - SUPREME Court - Decided against the revenue.

Summary

Issues:
1. Whether contingent liabilities shown in the notes to accounts of the balance sheet should be deducted while valuing shares for wealth tax assessment.
2. Whether the notes annexed to the balance sheet form part of the balance sheet.
3. Whether sales tax demand can be treated as a contingent liability or an accrued liability.

Analysis:

1. The High Court dealt with the issue of whether contingent liabilities shown in the notes to accounts of the balance sheet should be deducted while valuing shares for wealth tax assessment. The Court referred to the Companies Act and emphasized that the notes annexed to the balance sheet are considered an integral part of the balance sheet. Therefore, the contingent liabilities shown in the notes are deemed to be part of the balance sheet. The Court upheld the Tribunal's decision that the contingent liability towards sales tax, as shown in the notes, should be considered in valuing the shares of the company for wealth tax assessment.

2. Another issue addressed was whether the notes annexed to the balance sheet form part of the balance sheet. The Court cited a previous decision and highlighted that the expression "annexed" in the Companies Act indicates that what is annexed is intended to be an integral part of the balance sheet. Based on this interpretation, the Court agreed with the Tribunal that the notes annexed to the balance sheet are indeed part of the balance sheet.

3. The Court also analyzed whether sales tax demand can be treated as a contingent liability or an accrued liability. Referring to a Supreme Court decision, the Court noted that even if the sales tax demand is under appeal, the liability remains intact. Therefore, the Tribunal's decision to treat the sales tax liability as an accrued liability on the valuation date for the purpose of determining share value was upheld by the Court.

In conclusion, based on the legal principles outlined in previous decisions and the interpretation of relevant provisions of the Companies Act, the High Court dismissed the tax case appeals, finding no grounds to interfere with the Tribunal's order.