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TMI Blog1968 (3) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... e found that the total value of the assets, as disclosed in the balance-sheet, was Rs. 29,05,365 and, deducting therefrom the liabilities and provisions in the balance-sheet amounting to Rs. 6,91,370, he arrived at the net wealth of the company at Rs. 22,13,995. Dividing this amount by 5,000, being the total number of subscribed shares, he arrived at a valuation of Rs. 443 per share and the value of the shares gifted by the assessee at Rs. 1,38,216. The assessee appealed against the order of assessment and contended before the Appellate Assistant Commissioner that the value of each of these shares would be Rs. 337 and not Rs. 443 as computed by the Gift-tax Officer as the Gift-tax Officer had failed to deduct the income-tax liabilities of the company as on June 30, 1959, amounting to Rs. 5,28,005 from the value of the assets. The Appellate Assistant Commissioner rejected this contention on the ground that the amount claimed was neither paid nor charged as a liability by creating a taxation reserve in the balance-sheet. He confirmed the assessment. On further appeal by the assessee against the order of the Appellate Assistant Commissioner, the Tribunal accepted his contention. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at time. It may also be mentioned that before the Appellate Assistant Commissioner as well, there was, apparently, no dispute that the tax liability was Rs. 5,28,005. The fact, however, remains that the dispute before the Tribunal was regarding the deduction admissible in the computation of the break up value of the shares of East Ganhodi Colliery (Pvt.) Ltd. which were gifted by the assessee. If the view taken by the Tribunal is upheld by the High Court it is only the actual amount of the tax liability which may have to be deducted, inter alia, from the assets of the company concerned. In that case, the actual amount of tax liability, to be proved by evidence, should be deducted in computing the break up value of the shares and the value of Rs. 337 per share as computed by the assessee would not be regarded as sacrosanct, subject, of course, to what might be said by the High Court, in point. " Strangely enough, in its statement of the case dated the 10th April, 1965, the Tribunal reiterated that the departmental representative did not dispute the quantum of the tax liability but only argued that as it was not provided for in the balance-sheet of the company as a liability, it co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n offer for it shares, Dr. Pal referred us to the two decisions of this court in the case of Kastur Chand Jain v. Gift-tax Officer, " K " Ward, District III(2). In that case the assessee had made gifts of certain shares in two private limited companies and claimed before the Gift-tax Officer that in determining the break-up values of the shares of these companies, the provisions made in the balance-sheet for taxation and the amount of proposed dividend should be deducted from the value of the assets. This contention was rejected by the taxing authorities and the assessee made an application under article 226 of the Constitution for quashing the order of assessment. D. Sinha J. (as he then was) at page 292 made the following observation : Under the Indian Companies Act, the balance-sheet has to be drawn up in the form prescribed in Schedule VI, part I of the Indian Companies Act, 1956. Under the heading ' Current liabilities and provisions ' must be shown the items ' proposed dividend ' as also ' provisions for taxation '. Thus, the provisions made for taxation or contingencies or payment of dividend are grouped together with ' current liabilities '. This seems to be in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent that he did not take into account this liability and proceeded to make the valuation on an entirely wrong basis." Dr. Pal argued that in order to arrive at the real value of these shares, all the liabilities of the company including its income-tax liabilities, which are easily ascertainable, at the end of the accounting year should be deducted. Dr. Pal referred to the decision of the Supreme Court in Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax, where at page 784 the following observation is made : " A liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data. There is a perfected debt at any rate on the last day of the accounting year and not a contingent liability. The rate is always easily ascertainable. If the Finance Act is passed, it is the rate fixed by that Act ; if the Finance Act has not yet been passed, it is the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favourable to the assessee. " It was further observed that looking from a practical standpoint also, there could not possibly b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities as to the reasonableness of the amount of the liabilities of the company for income-tax claimed as deduction. From the records before us, it is not possible to say that such liability was established with any degree of certainty. Dr. Pal made a reference to the decision of this court in Textile Machinery Corporatio n Ltd. v. Commissioner of Wealth-tax. In that case, the assessee claimed deduction of its liability for sales tax in its income-tax assessment. The assessee had not made any provision in respect of its liability for sales tax in the balance-sheet as on the respective valuation dates. On a reference to section 4 of the Bengal Finance (Sales Tax) Act, 1941, this court held that the liability for sales tax was on the gross turn, over during each year and such liability accrued or arose at the end of the year. Accordingly, the court held that in view of the decision of the Supreme Courtin Kesoram Industries & Cotton Mills Ltd. the liability for sales tax which did not stand on a different footing from income-tax should be allowed as a deduction in computing the break up value of the shares. It is to be pointed out that in all the above cases, save the last one, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Tribunal but which again were contested. The Tribunal itself must have subsequently realised it because its later order under section 34 of the Gift-tax Act clearly states this : " If the view taken by the Tribunal is upheld by the High Court, it is only the actual amount of the tax liability which may have to be deducted, inter alia, from the assets of the company concerned. In that case the actual amount of tax liability, to be proved by evidence, should be deducted in computing the break up value of the shares, and the value of Rs. 337 per share as computed by the assessee would not be sacrosanct, subject, of course, to what might be said by the High Court in point." As I read this order of the Tribunal under section 34 of the Gift-tax Act, it appears to me, it was really in fact and virtually in effect overruling its own finding and direction that it has already found Rs. 337 as the value, a course which obviously the Tribunal could not adopt. I, therefore, agree with my learned brother that this order taking the value at Rs. 337 per share cannot be maintained. If the amount was to be proved by evidence as the Tribunal's order under section 34 of the Gift-tax Act show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the Companies Act. It is not a matter of estimate of tax liability in the present reference, either of under estimate or over-estimate, but it is a matter of complete exclusion of the very fact of any existing or prospective tax liability in this case. It is found as fact neither the balance-sheet nor the profit and loss account provides at all for payment of any tax liability in the present case on this reference. The form set out in Part I of Schedule VI contains express provision for including tax liability. That form is also statutory. The statutory form and its express provision were clear notice to include in the balance-sheet the-tax liability, if there be any at all. The Supreme Court in Commissioner of Income-tax v. Gangadhar Banerjee Co. Private Ltd. points out at pages 183-184 and which has already been quoted by my learned brother, that the balance-sheet is not final for the purpose of section 23A of the Income-tax Act or even for the assessment under the Income-tax Act. All that the Supreme Court said there was that the balance-sheet no doubt offered a prima facie proof of the financial position of the company on the date when the dividend was declared. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer by way of gift, is subject to the provisions of sub-sections (2) and (3) to be estimated to be the price, which in the opinion of the Gift-tax Officer, it would fetch if sold in the open market on the date on which that gift was made. Sub-section (3) of section 6 provides that where the value of any property cannot be estimated under sub-section (1) because it is not saleable in the open market, the value shall be determined in the prescribed manner. The prescribed manner is to be found in rule 10 of the Gift-tax Rules, under the statute. Sub-rule (2) of rule 10 provides, inter alia, that where the articles of association of a private company contain restrictive provision as to the alienation of shares, the value of shares if not ascertainable by reference to the value of the total assets of the company, shall be estimated to be what they would fetch if on the date of the gift they could be sold in the open market, on the terms of the purchaser being entitled to be registered as a holder, subject to the articles, but the fact that a special buyer would for his special reason give a higher price than the price in the open market shall be disregarded. The statement of fact h ..... 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