9911796707
TMI Blog1996 (3) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the valuation of the shares the liability for gratuity shown in the balance-sheet which was less than the liability on actuarial valuation was not a debt owed which was deductible ? " The brief facts necessary for adjudication of the questions referred are as follows : The properties which devolved on the accountable person included certain shares in a company, namely, Chackolas Spinning and Weaving Mills. The said shares were not quoted in the market. The valuation of these unquoted shares is the subject-matter of this reference. The Assistant Controller of Estate Duty originally valued the shares held by the deceased in Chackolas Spinning and Weaving Mills by adopting the method provided under rule 1D of the Wealth-tax Rules, 1957. While doing so, he treated the provision made by the company for gratuity as a liability. He valued the shares at the rate of Rs. 43.65 per share and the value of the shares was determined accordingly. Subsequently, the Assistant Controller of Estate Duty initiated proceedings under section 61 of the Estate Duty Act and rectified the assessment, inter alia, rejecting the claim of the accountable person that the gratuity liability being an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Tribunal also considered the contentions of the accountable person that the decision of the Appellate Controller is supported by the decision of the Supreme Court in the case of Vazir Sultan [1981] 132 ITR 559 and CWT v. S. Ram [1984] 147 ITR 278 (Mad). Thereafter, the Appellate Tribunal observed that the Kerala High Court in the decision reported in CWT v. K. Gopinathan Nair [1976] 103 ITR 23 has clearly held that the provision for gratuity is a contingent liability and that the Tribunal in E. D. A. No. 15/(Coch) of 1985 dated August 29, 1989, had taken a similar view after considering the decision of the Supreme Court in the case of Vazir Sultan [1981] 132 ITR 559 and also the decision of the Madras High Court in CWT v. S. Ram [1984] 147 ITR 278 and since the order originally passed by the Assistant Controller of Estate Duty was without taking into consideration the decision of the jurisdictional High Court, there is a clear mistake apparent from the records. Accordingly, the order of the Assistant Controller of Estate Duty passed under section 61 of the Act was restored. It is against this order of the Income-tax Appellate Tribunal, Cochin Bench, that the accountable person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that balance-sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent. of the break-up value so determined : Provided that where, in respect of any equity share, no dividend has been paid by such company continuously for not less than three accounting years ending on the valuation date, or in a case where the accounting year of that company does not end on the valuation date, for not less than three continuous accounting years ending on a date immediately before the valuation date the market value of such share shall be as indicated in the Table below.... Explanation II.--For the purposes of this rule--... (ii) the following amounts shown as liabilities in the balance-sheet shall not be treated as liabilities, namely :-- ..... (f) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares. " It is evident from Explanation II(ii)(f) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning ours) and (c) for proposed dividends from out of the profits and other surpluses could be considered as other reserves within the meaning of rule 1 of the Second Schedule to the Super Profits Tax Act, 1963, for inclusion in the capital computation of the company for the purpose of levying super profits tax ? In that context, the Supreme Court considered the distinction between the two concepts "reserve" and "provision" and observed that whereas a provision is a charge against the profits to be taken into account against gross receipts in the profits and loss account, a reserve is an appropriation of profits, the asset or assets by which it is represented being retained to form part of the capital employed in the business. Dealing with such a situation, the Supreme Court considered the question regarding appropriation made for gratuity as to whether it is a provision or a reserve on the relevant date. In that context, the Supreme Court noted the contention of counsel for the assessee that no actuarial valuation had been under taken but an ad hoc amount was appropriated or transferred to gratuity reserve and as such the same should have been treated as a reserve and included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision is towards a known and existing liability, though it is payable at a future date, it can never be characterised as a contingent liability. It is only a liability, which has already been accrued for the year in question. As we have already noticed, the decision of this court in Gopinathan Nair's case [1976] 103 ITR 23 was not concerned with the situation like the present one where the question of estimation of liability for gratuity on actuarial valuation was in issue. In other words, this court was not concerned with a situation where the provision is made in respect of gratuity computed on the basis of actuarial valuation. On the other hand, the Supreme Court in Vazir Sultan's case [1981] 132 ITR 559 was directly concerned with the question for the purpose of deciding as to whether a provision for gratuity made on the basis of actuarial valuation is a provision or a reserve. The Supreme Court held that if the provision for gratuity liability is made on the basis of actuarial valuation, it is taken out of the purview of contingent liability and will be placed in the category of known and existing liability. In view of the decision of the Supreme Court in Vazir Sultan's ca ..... 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