9911796707
TMI Blog1984 (10) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with break-up value method, taxation liability not provided for in the accounts by the company, should also be taken into consideration and treated as debt on the valuation date. 3. The assessee held 540 shares, inter alia, of S.S. Jaiswal (P.) Ltd. The valuation date of the assessee is 31st March of every year. The company, viz., S.S. Jaiswal (P.) Ltd., in which the assessee held the aforementioned number of shares, also closes its accounts on the 31st March every year. In respect of the valuation dates 31-3-1973 and 31-3-1974, the assessee's valuer worked out the value of the aforementioned shares at Rs. 461.05 and Rs. 726.40 per share, respectively. The WTO, however, has adopted the valuation at Rs. 750 and Rs. 1,600 per share, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year, the profits of the company for the financial year under report have been overstated and to the extent of such non-provision, the general reserve and current liabilities and provisions of the company appearing in the balance sheet as at 31st March 1974, are overstated and understated, respectively." 5. According to the assessee's learned counsel, aforesaid provision for taxation, amounting to Rs. 13,20,000 for the valuation date 31-3-1973 and Rs. 45,29,000 for the valuation date 31-3-1974, should be taken into account for the purpose of valuing the shares of the company, S.S. Jaiswal (P.) Ltd. The assessee's valuer has taken the aforesaid liabilities into account and has thereby worked out the valuation for 31-3-1973 at Rs. 461. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as liability of the company and should be deducted from the aggregate value of assets to arrive at the value of the shares of the said company. The said rule, according to the learned counsel, did not say that a liability not provided for in the accounts should be ignored. What it says is that a liability provided for in the accounts should be taken into account. The aforesaid positive direction could not be read as laying down the negative of it as a rule, viz., if the liability is not provided for, it should not be deducted from the aggregate value of assets to find out the break-up value of the shares. 7. On behalf of the revenue, the order of the learned AAC is stoutly supported and it is urged that a reading of rule 1D would make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, therefore, arise for determination in the present appeals and is not necessary for the disposal of the appeals presently under consideration. We will, therefore, express no opinion on this general issue and leave it to be determined in an appropriate case as and when it arises for determination. 9. The real controversy as noted earlier is whether while working out the valuation in terms of rule 1D, the liabilities for income-tax and surtax not provided for by the company, S.S. Jaiswal (P.) Ltd., should be taken note of while working out the value of the shares of the said company on break-up value method. It is not disputed by the revenue that in principle, the said liability for taxation on the respective valuation dates is a debt ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deducted from the value of the shares only because the directors, while finalising the balance sheet of the company, did not provide for the taxation liability in the balance sheet. After carefully considering the facts of the case, we are of the opinion that if deduction for taxation liability is not made, as suggested by the revenue, a distorted value of the shares would be arrived at, which would not be in accordance with the essential principles of rule 1D. What has to be found out is the real break-up value of the shares, and in order to find out this, it is impossible to visualise the situation, where a considerable debt by way of taxation, which is incurred by the company on the last day of the accounting year, would not be deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like the one under consideration, has not been provided for in the directors' report but is highlighted by the auditors in their note, which becomes part of the balance sheet itself, because the note appears on the face of the balance sheet, the said liability should not be taken into account. In fact, rule 1D is silent about this and there is no prohibition against it in the said rule. If, at all, the principles enunciated in the said rule clearly indicate that liability for taxation on book profits should be regarded as a liability, which has to be deducted from the aggregate value of the assets for finding out the break-up value. Not doing so, would, in our opinion, be going against the principle of rule 1D and would be a misapplication ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
