Commissioner of Wealth-tax vs Nita Mahesh Bhogilal

T.D. Sugla, J.—In this departmental reference relating to the assessee''s wealth-tax assessment for the assessment years 1971-72 and 1972-73, the Tribunal has referred to this court two questions of law u/s 27(1) of the Wealth-tax Act, 1957. The question are :

"1. Whether, on the facts and in the circumstances of the case, the liabilities as shown in the balance-sheet of Batliboi and Co. P. Ltd., as on March 31, 1971/March 31, 1973, should be further reduced by sums of Rs. 29,28,504 and Rs. 35,01,123 while determining the market value of the unquoted shares of the said company in terms of rule 1D of the Wealth-tax Rules, 1957 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provision made for section 23A liability for the assessment years 1961-62 to 1963-64 and for the Income Tax liability for the assessment year 1970-71 constituted the market value of unquoted equity shares of the company in terms of rule 1D of the Wealth-tax Rules, 1957 ?"

It is common ground that the sum of Rs. 29,28,504 and Rs. 35,01,123 represent the advance tax paid by the assessee for the two assessment years under reference. On the above facts, counsel are agreed that, in view of our court''s judgment in Commissioner of Wealth-tax Vs. Pratap Bhogilal and another, , the first question requires to be answered in the negative and in favour of the assessee.

As regards the second question, it is pertinent to mention that the provision for taxation included three items of Rs. 9,25,315, Rs. 10,24,496 and Rs. 6,89,663. The above liability was determined by the Income Tax Officer for the assessment years 1961-62, 1962-63 and 1963-64 u/s 23A of the Indian Income Tax Act, 1922, corresponding to section 104 of the Income Tax Act, 1961. It is also common ground that the above said three liabilities were cancelled as a result of the Tribunal''s order in the assessee''s favour, though the reference applications filed by the Department against such order of the Tribunal were then pending. It was the assessee''s case that provisions in regard to these liabilities was, in fact, not a provision. It represented liability and, in the event of the Department succeeding before the High Court, the assessee was likely to be fastened with these liabilities. The Tribunal accepted the assessee''s contention and held that the provision for liabilities u/s 23A was not to be deducted from out of the liability. In other words, the value of the assets of the company will get reduced by such an amount for the purpose of computing the break-up value of the shares under rule 1D of the Wealth-tax Rules, 1957.

Shri Jetley, learned counsel for the Department, contended that when the liabilities were cancelled, it was not only open but open but the Wealth-tax Officer was obliged to ignore these liabilities for the purpose of valuing the shares under rule 1D. Shri Dilip Dwarkadas, learned counsel for the assessee has reiterated that the liabilities u/s 23A continued to exist during the tendency of the reference proceedings. However, we are unable to agree with Shri Dilip Dwarkadas. What we have to see is the situation as obtaining on the relevant valuation dates. If on the valuation dates, the liabilities did not exist in that the Tribunal had cancelled those liabilities, it is not possible to hold that merely because the Department had filed a reference application, the liabilities continued to exist so as to be taken into account for the purpose of valuation under rule 1D. Accordingly, we answer the second question in the negative and in favour of the Revenue.

There will be no order as to costs.