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TMI Blog1993 (2) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... e liabilities side of the balance-sheet should not be reduced by the advance tax paid appearing in the assets side of the balance-sheet for the purpose of valuation of shares in terms of rule ID aforesaid ? 2. Whether, on the facts and in the circumstances of the case and having regard to the provisions of Explanation II(ii)(e) read with Explanation II(i)(a) to rule ID of the Wealth-tax Rules, 1957, the Tribunal was justified in directing the provision for taxation appearing on the liabilities side, not to be reduced by the advance tax paid appearing on the assets side of the balance-sheet ?" The reference to Explanation II(i)(f) in the former question appears to be a mistake for Explanation II(i)(a). The references relate to two asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany other than an investment company or a managing agency company shall be determined by deducting the value of all the liabilities as shown in the balance-sheet from the value of all its assets shown in that balance-sheet and 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. The proviso to the rule and the Explanation I are not relevant for the purpose of this case. Explanation II to rule ID of the Rules reads thus : "Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion II(i)(a), for the purpose of the rule, any amount paid as advance tax under section 210 of the Income-tax Act, 1961, shown as an asset in the balance-sheet shall not be treated as an asset. According to Explanation II(ii)(e), any amount representing provision for taxation [other than the amount referred to in clause (i)(a)] to the extent of the excess over the tax payable with reference to the book profits according to law applicable thereto shown as liability in the balance-sheet shall not be treated as liability. The broad scheme of the provisions of Explanation II is to ensure that advance tax paid is not treated as an asset and tax liability is not inflated for the purpose of working out the value of the "equity shares" of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be treated as a liability and any excess shown is to be ignored. The bracketed words, namely, 'other than the amount referred to in clause(i)(a)" have been incorporated by way of abundant caution to ensure that neither the assessee nor the Revenue is prejudiced by ignoring the advance tax paid and shown in the balance-sheet as an asset. If the balance-sheet shows the advance tax paid as an asset, the provision for taxation must naturally be the total tax payable by the assessee and the net tax payable by the assessee would be the amount of total tax reduced by the advance tax paid. If the advance tax shown as paid in the balance-sheet is regarded as an asset, naturally the tax liability is the gross tax liability. If it is not treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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