9911796707
TMI Blog1983 (11) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The way the ground of appeal is worded, the answer appears to be obvious, that is against the assessee. In other words, the proposed dividend as per balance sheet of the company cannot be treated as a liability for the purpose of valuation of the shares of the company under rule 1D of the Wealth-tax Rules, 1957. However, on the facts of the assessee's case, we find that an interesting question arises for consideration. 3. The assessee, Smt. Kamlavati V. Mehra, had substantial shareholding (3,150 equity shares) in Subhash Silk Mills (P.) Ltd. as on 31-3-1977 which was the valuation date relevant for the assessment year 1977-78 in the assessee's case. The assessee, who did not dispute that the aforesaid unquoted shares have to be valued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whether on the date of last balance sheet, i.e., 30-6-1976 any dividend has been declared and liability has accrued to the company. Since no dividend has been declared by the date, the contention of the appellant that for determining the break up value as per rule 1D the proposed dividend should have been allowed, cannot be entertained." Hence, the present appeal to the Tribunal. 5. On behalf of the assessee, Shri S.M. Kapoor contended that in rejecting the assessee's claim for treating the dividend in question as a liability, the AAC had overlooked the relevant provisions of law. In this regard, he drew our attention to clause (ii)(b) of Explanation II to rule 1D (as it stood prior to its amendment with effect from 1-4-1982). The rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany on a particular date was adopted under Explanation I to rule 1D for the purpose evaluation of the shares of the said company under that rule, the determination of value had to be strictly on the basis of such balance sheet and the subsequent events cannot be taken into account as they could not relate back, under the law, to the date of the balance sheet. He added that if subsequent events were taken into account, there would be different valuation of the same shares for the same assessment year in the case of different assessees who were shareholders of the company but have different valuation dates. 6. These arguments were countered by Shri Kapoor in his rejoinder by pointing out that, although for the purpose of rule 1D, the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon its declaration (vide the Supreme Court decision in Purshottamdas Thakurdas v. CIT [1963] 48 ITR 206.) Thus, before dividend is declared at the annual general meeting by the shareholders, there is not even a contingent liability and there is no question of liability arising which can be antedated or related back to the last day of the closing year. The liability for payment of dividend will only arise if the shareholders at an annual general meeting pass a resolution declaring such dividend and the liability is only prospective and will not relate back to any other date. This principle has been clearly enunciated by their Lordships of the Bombay High Court in Indian Smelting Refining Co. Ltd.'s case. It is only in this context that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of wealth-tax assessment and rule 1D reckons such market value under the break up value method. It is a truism that a prospective purchaser (as on the valuation date of the assessee) would certainly take into account the fact that dividends have already been declared. In the instant case, especially, not only were the dividends declared (on 21-12-1976) but they were actually paid out to the shareholders on 11-1-1977, whereas the valuation date of the assessee is 31-3-1977. Consequently, the exclusion envisaged in clause (ii)(b) of Explanation II shall not operate in the case of the dividends of the company in question, namely, Subhash Silk Mills (P.) Ltd. and, therefore, in determining the value of the shares of the said company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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