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TMI Blog1996 (2) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of ascertaining the break-up value of the unquoted shares, the provision for gratuity should be treated as a 'liability' and should accordingly be allowed as a deduction ? 2. Whether the Appellate Tribunal was justified in holding that a discount of 30 per cent. should be allowed from the break-up value as against 15 per cent. stimulated in rule 1D of the Wealth-tax Rules, 1957 ? " The assessees held certain shares in the following companies and gifted them away as detailed below : Name of the assessee Shares held in No. of shares gifted and date of gift 1. K. Mahesh T. V. S. and Sons (P.) Ltd. 3,000 28-3-1972 2. K. Ramesh (1) Sundaram Industries 800 do. (2) T. V. S. and Sons (P.) Ltd. 3,000 do. 3. Suresh (1) Sundaram Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p value instead of 15 per cent. allowed by the Gift-tax Officer. Aggrieved by the orders of the Commissioner of Income-tax (Appeals), the Department took up the matter in appeals to the Appellate Tribunal. The Tribunal held that the issues under appeal have already been considered by it in the case of T. S. Srinivasan in G. T. A. No. 6/(Mds) of 1977-78 dated March 4, 1978, and as the orders of the Commissioner of Income-tax (Appeals) are germane to its earlier order cited, there was no force in the appeals filed by the Department. The Tribunal has accordingly dismissed all the appeals filed by the Department. Question No. 1 relates to the value of unquoted equity shares according to rule 1D of the Wealth-tax Rules. While valuing the unquot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unquoted equity shares in the break-up method, the provision made in the balance-sheet for payment of gratuity liability should be deducted for arriving at the net value of the company's assets. " The special leave petition filed against the decision of this court in S. Ram's case [1984] 147 ITR 278 was rejected by the Supreme Court by the decision reported in [1990] 181 ITR (St.) 227. However, learned standing counsel for the Department while making the submissions drew our attention to the decision of the Supreme Court in Bharat Hari Singhania v. CWT [1994] 207 ITR 1, wherein while summarising the conclusions arrived at therein, their Lordships of the Supreme Court pointed out that while valuing the unquoted equity shares under rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a contingent liability ; but if the sum so appropriated is shown to be in excess of the sum required to meet the estimated liability (discounted present value on a scientific basis) it is only the excess that will have to be regarded as a reserve under clause 7(2) of Part III of Schedule VI to the Companies Act, 1956. " Similarly, the Supreme Court in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585, while considering the provisions of sections 28, 37, 40A(7) of the Income-tax Act, 1961, held that the provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deducted either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Supreme Court in Vazir Sultan Tobacco Co. Ltd.'s case [1981] 132 ITR 559 and Shree Sajjan Mills' case [1985] 156 ITR 585, we consider that there is no infirmity in the order passed by the Tribunal in holding that while valuing the unquoted equity shares under rule 1D, of the Wealth-tax Rules read with Explanation II(ii)(f) to rule 1D, the provision of gratuity is deductible while ascertaining the value on the basis of the break-up method. So far as the second question is concerned, it relates to discount of 30 per cent. allowed by the Tribunal while valuing the unquoted equity shares under the break-up method, as per the provisions contained in rule 1D of the Wealth-tax Rules. A similar question came up for consideration before ..... X X X X Extracts X X X X X X X X Extracts X X X X
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