Commissioner of Wealth Tax vs L.G. Ramamurthy

Thanikkachalam, J.—At the instance of the Department, the Tribunal referred the following common question for the asst. yrs. 1972-73 and

1973-74 under s. 27(1) of the WT Act, 1957, for the opinion of this Court :

Whether the Tribunal is correct in law in holding that in the valuation of unquoted equity shares, for the purpose of determining the break-up value,

provision for taxation should be reduced by the advance tax paid ?

The point for consideration is, in the valuation of unquoted equity shares for the purpose of determining the break-up value, whether provision

for taxation should be reduced by the advance tax paid. A similar question came up for consideration before the Supreme Court in the case of

Bharat Hari Singhania and others Vs. Commissioner of Wealth Tax (Central) and others, wherein the Supreme Court held that while valuing the

unquoted equity shares of a company under r. 1D, no deduction on account of capital gains tax which would have been payable in case the shares

were sold on the valuation date can be made. There is no sale of the asset and there is no question of capital gains tax being attracted or being

paid. Sec. 7(1) speaks of the market value of the asset and not the net income or the net price received by the assessee. This is not a case where a

fiction is created by Parliament. It is only a case of prescribing the basis of determination of market value. On the same reasoning, no other

amounts like provision for taxation, provident fund and gratuity, etc., can be deducted. Rule 1D is exhaustive on the subject. In view of the

abovesaid judgment of the Supreme Court, we answer the question referred to us in the negative and in favour of the Department. No costs.