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TMI Blog1980 (9) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the wealth-tax assessment of the assessee before us and the assessment years under consideration are assessment years 1965-66 to 1971-72. The point which arises in this reference is regarding the working out of the market value of equity shares of M/s. Mehta Parikh & Co. Pvt. Ltd. The assessee held shares of that company and for wealth-tax purposes the market value of these shares had to be included in his wealth as of the valuation date. The shares were not quoted in the market and the WTO was required to determine the market value of these shares of M/s. Mehta Parikh & Co. Pvt. Ltd. on the basis of the break-up value as provided for in r. 1D of the W.T. Rules, 1957. The WTO determined the break-up value as per r. 1D as interpreted by him. While determining this value the WTO added back advance tax paid but allowed as a deduction advance tax payable as per returns of income of earlier years not disposed of. Against the decision of the WTO the matter was carried in appeal by the assessee and the AAC passed one common order for all the seven years. Valuation of the shares of M/s. Mehta Parikh & Co. Pvt. Ltd. was one of the points urged before the AAC by the assessee. In app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 r. 1D is not material for the purposes of this judgment, Expln. I to r. 1D provides : "For the purposes of this rule, ' balance-sheet ' in relation to any company, means the balance-sheet of such company as drawn up on the valuation date and where there is no such balance-sheet, the balance-sheet drawn up on a date immediately preceding the valuation date and in the absence of both, the balance-sheet drawn up on a date immediately after the valuation date." Explanation II is in these words: "For the purposes of this rule (i)the following amounts shown as assets in the balance-sheet shall not be treated as assets, namely: (a) any amount paid as advance tax under section 18A of the Indian Income-tax Act, 1922 (11 of 1922), or under section 210 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means provision for taxation which would, under the ordinary rules of accountancy, be shown on the liabilities side of the balance-sheet. What cl. (e) provides is that only the provision for taxation which is justifiable in view of the book profits of the company in accordance with the law applicable thereto should be deducted as liabilities. If there is any excess over the amount shown by way of provision over what would be payable with reference to the book profits, that excess provision is not to be treated as liabilities. It must be borne in mind that sub-cl. (e) of cl. (ii) of Expln. II deals with a provision, that is, it does not deal with the actual payment made by the company concerned but it deals only with the provision for liability for taxation and it is, therefore, clear that the words " other than the amount referred to in cl. (i)(a) " refer to the provision for taxation other than the provision for advance tax. The words " the amount referred to in cl. (i)(a) " do not mean the amount paid as advance tax under s. 18A of the Indian I.T. Act, 1922, or s. 210 of the I.T. Act, 1961. Really speaking, the words " referred to in cl. (i)(a) " mean the amount mentioned in cl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that benefit to such companies, the rule-making power wants to indicate in sub-cl. (e) of cl. (ii) of Expln. II that excess provision to the extent of the excess, when making the provision for liabilities for taxation, other than the provision for advance tax, is to be disregarded and only the provision on the liabilities side by way of provision for taxation to the extent of the tax payable with reference to the book profits in accordance with the law applicable thereto is to be treated as part of the liabilities of the company. It is obvious that under the operative part of r. ID, the main provision, the balance-sheet of the company is ordinarily to be taken on its face value for the purpose of arriving at the break-up value of shares on the basis of net worth. If there is any undue provision for taxation made and thus there is an inflated figure of liabilities shown by making an excess provision for taxation on the liabilities side, to the extent of the excess that provision is to be disregarded by the operation of sub-cl. (e) of cl. (ii) of Expln. II and that is sound commonsense. But because of the words "other than the amount referred to in cl. (i)(a) " occurring in paren ..... X X X X Extracts X X X X X X X X Extracts X X X X
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