9911796707
TMI Blog1988 (2) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... 1968 Rs. Rs. Rs. Rs. Total assets 2,50,697 Less: I.T.-Advance tax 13,000 Prepaid expenses 1,431 ------------- 14,431 ---------------- Net assets 2,36,266 Total liabilities 2,50,697 Less: Paid-up capital 50,000 Less: Development rebate reserve 8,360 Credit balance in profit and loss account 7,324 Tax on Rs. 27,260 17,719 Less : Advance tax 13,000 ---------------- 4,719 Provision 14,432 ---------------- 9,713 ------------- 25,397 ------------- 24,603 ---------------- 2,26,094 ---------------- Break-up value = 2,26,094 x I 00/50,000 = Rs. 452 of which 85% = Rs. 384." The above calculation shows that the Wealth-tax Officer had excluded the amount of Rs. 13,000 paid as advance tax from the total assets of the company. The tax payable on the basis of book profits of the amount of Rs. 27,260 came to Rs. 17,719. The Wealth-tax Officer deducted the amount of advance tax of Rs. 13,000 paid from this amount and arrived at the figure of Rs. 4,719. He found that in the balance-sheet, the provision for taxation was made at Rs. 14,432. The actual tax payable, according to him, now being Rs. 4,719, he treated the balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenging the view of the Tribunal and that of learned counsel appearing on behalf of the Revenue, it is necessary to reproduce the relevant part of rule 1D which sets out the procedure for ascertaining the market value of unquoted equity shares of companies other than investment companies and managing agency companies. The substantive rule 1D reads as follows: " 1D. The market value of an unquoted equity share of any company, other than an investment company or a managing agency company, shall be determined as follows: The value of all the liabilities as shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in 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 balancesheet. 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% of the break-up value determined." The proviso is not material for our purpose and is not reproduced. Explanations I and II, in so far as they are relevant, read as follows : " Explanation I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1D. Referring to clause (e) in Explanation II, the argument of learned counsel for the assessee is that what is contemplated by that clause is that " tax payable on the basis of the book profits " has to be worked out and if the provision for taxation is in excess of the tax so computed on the basis of the book profits, then that excess provision is not to be treated as a liability. Referring to the bracketed words in clause (e), it is argued that the words "other than the amount referred to in clause (i)(a) " cannot be construed as enabling the tax authorities to take away the benefit which has been expressly conferred by the rule by clause (i)(a) of the Explanation by permitting the Revenue to deduct the amount of advance tax from the tax which is payable with reference to the book profits. In other words, the contention is that in so far as clause (e) is concerned, when it refers to the extent of excess over the tax payable with reference to the book profits, the excess has to be found out with reference to the provision of tax made in the balancesheet without deducting the amount of advance tax. Learned counsel has fairly brought to our notice the divergence of views with regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability by virtue of the provision for taxation being made at a higher figure than what would be payable on the basis of the book profits, clearly and properly did not want that excess amount to be treated as a liability, because it is not a liability at all. Some difficulty has been experienced in construing sub-clause (e) because of some inelegant drafting by an introduction of the bracketed portion. The bracketed portion " other than the amount referred to in clause (i)(a) " is preceded by the words " any amount representing provision for taxation ". There are two ways of looking at that bracketed portion. One way is the strictly grammatical way and to construe the word " other " in the context of the word preceding the words " provision for taxation ", which would mean that the words following the word " other " must refer to some provision for taxation. If we adopt strictly the grammatical rule of construction, then the bracketed portion will have to be read as "provision for taxation other than the amount which is referred to in clause (i)(a)". Though clause (i)(a) says that the amount paid as advance tax shown as assets in the balance-sheet shall not be treated as assets, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early, since for purposes of the balance-sheet, the tax has to be computed on the basis of the book profits and provision has to be made therefor, what is to be ascertained for the purpose of clause (e) is whether the provision for taxation is in excess of the tax payable. The words " tax payable " clearly refer to, in our view, the total amount of tax payable on the basis of the book profits computed in accordance with the provisions of the Income-tax Act. In our view, there is no warrant for deducting the amount of advance tax and to give an artificial meaning to the words " tax payable ". In CWT v. Ashok K. Parikh [1981] 129 ITR 46 (Guj), on a construction of sub-clause (e) of clause (ii) of Explanation II, the court took the following view (p. 51): "Really speaking, the words 'referred to in clause (i)(a)' mean the amount mentioned in clause (i)(a) and the entire sub-clause (e) of clause (ii) of Explanation II refers to the provision and not to the payment and, therefore, while considering this question of provision for taxation and to what extent the provision is in excess of the amount of tax payable as per the book profits in accordance with the law applicable thereto, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount referred to in clause (i)(a)' which is the amount paid as advance tax. The bracketed portion, thus, means other than advance tax paid. Putting it differently, the first part of the clause would read as any amount representing provision for taxation other than or except the amount paid as advance tax. Such an interpretation certainly does not support the contention of the Revenue." The learned judges thus took the view that for the purpose of determining the excess of provision for taxation over the tax payable with reference to the book profits in terms of Explanation II(ii)(e) to rule ID, the tax payable with reference to the book profits cannot be reduced by the amount of advance tax paid.. Undoubtedly, there are two decisions which support the Revenue. The first decision is of the Punjab and Haryana High Court in Ashok Kumar Oswal (Minor) v. CWT [1984] 148 ITR 620. The learned judges of the said court, while construing the words, " tax payable with reference to the book profits " in sub-clause (e), observed as follows (headnote): "These words connote the amount of -tax due from a company after deducting the advance tax and not the whole of the amount of tax worked out o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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