9911796707
TMI Blog1961 (3) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... rivate) Ltd. as ₹ 84,722. After granting the statutory exemption of ₹ 10,000 the taxable amount has been ascertained as ₹ 2,68,503 and the total tax payable as ₹ 21,020.36 NP. The assessment was done under section 15(3) of the Gift-Tax Act. On the face of the assessment order, it has been stated that the calculation was made on the basis of the latest balance-sheets available for these two private limited companies, relevant to the date of the gift, namely, August 8, 1957, i.e., for the year ending July 31, 1957; copies of the balance-sheet are exhibit B to the petition. Apart from the fact that it has been stated in assessment order, which is exhibit A to the petition, that the calculation has been made on the basis of the balance-sheets, no further details have been given. On April 19, 1960, the petitioner was served with a notice of demand under section 31 of the Gift-Tax Act. Thereafter, this application has been made. It has been stated in the petition that the valuation has been made without disclosing the method of valuation, is arbitrary and should be set aside. Indeed, on the face of the assessment order, it is impossible to say what method has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, but the amount under the headings proposed dividend and provision for taxation were not deducted. It is stated that these two items are not in law deductible liabilities for the purpose of the computation of assets. In paragraph 7, it is admitted that the method of computation followed is in accordance with the wealth-tax assessment of the company for the assessment year 1958-59. In other words, it has been made in accordance with the provisions of the Wealth-Tax Act and the net wealth of the company has been computed as ₹ 8,21,801. The number of shares of the company, as on July 31, 1957, was 770 ordinary shares. Thus, the value of each share was calculated as the net wealth of the company divided by the number of shares, which works out at ₹ 847.127 per share. The valuation of the shares in Messrs. R. McDill Co. (Private) Ltd. has been computed in the manner described in paragraph 8. It his been done in the same manner, that is to say, the amounts on the liabilities side under the headings proposed dividend (₹ 3,75,000) and provision for taxation (₹ 13,85,000) were not deducted on the ground that they are in law not deductible liabilities. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the prescribed manner . That means, according to the manner prescribed by rules framed under the Act. Rules have been framed, known as the Gift-tax Rules . The relevant rule is rule 10(2) which runs as follows : Where the articles of association of a private company contain restrictive provisions as to the alienation of shares the value of the 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 gift they could be sold in the open market on the terms of the purchaser being entitled to be registered as holder subject to the articles but the fact that a special buyer would for his own special reasons give a higher price than the price than the price in the open market shall be disregarded. Both the companies being private companies contain restrictive provisions as to the alienation of shares. We therefore, arrive at the proposition that in the present case what will have to be considered is the value which the shares may fetch in the open market on the value which the share may fetch in the open market on the assumption that there are no restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is the assessment. Liability does not depend on assessment. That ex hypothesis has already been fixed. But assessment particulars the exact sum if the person taxed does not voluntarily pay...... Thus, under the scheme of the Income Tax Act, the income of an assessee attracts the quality of taxability with reference to the standing provisions of the Act but the payability and the quantification of the tax depend on the passing and the application of the annual Finance Act. Thus, income is chargeable to tax independent of the passing of the Finance Act but until the Finance Act is passed no tax can be actually levied. A comparison of sections 3 and 6 of the Act shows that the Act recognised the distinction between chargeability and the actual operation of the charge. The same principle has been expounded by the Judicial Committee in Wallace Bros. Co. Ltd. v. Commissioner of Income Tax, where it has been pointed out that the liability to tax arises by virtue of the charging section alone and it arises not later than the close of the previous year, though the quantification of the amount payable is postponed. After quantification and the service of the demand notice t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be an error to calculate or compute the value of assets under the Gift-Tax Act in the mode and manner laid down by the Wealth-Tax Act. As stated above this is precisely what has been done in this case and it has been admitted in the petition filed on behalf of the respondents that this is so. It is clear, therefore, that the calculation has been done erroneously, and cannot be supported. The assessment order is therefore bad and must be quashed and or set aside. Mr. Pal appearing on behalf of the respondents has not said very much more than taking a technical objection namely that there is no error on the face of the proceedings and as such an application under article 226 does not lie. In my opinion, this argument should not be expected in the facts and circumstances of this case. Under article 265 of the Constitution it has been laid down that no tax shall be levied or collected except by authority of law. If it is seen that an assessment has been made on a wrong basis altogether not warranted by law then an application would lie in this jurisdiction. By simply omitting to mention the method of calculation in the assessment order an illegal assessment cannot be made. Even on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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