Commissioner of Wealth-tax vs Smt. Suman Rathi and Others

K.C. Agrawal, C.J.—The assessee (Smt. Suman Rathi) filed a wealth-tax return declaring her net wealth at Rs. 5,76,500 on June 26, 1976. The Wealth-tax Officer found her wealth to be more than the returned wealth and issued a demand notice in the sum of Rs. 7,295.

Against the said order, the assessee went up in appeal which was dismissed on June 21, 1979. The matter was, thereafter, brought to the Income Tax Appellate Tribunal. The point raised in the appeal was that the valuation of unquoted shares of M/s. Krishna Mills Ltd., Beawar, should be valued after deducting the gratuity liability. The appeal was partly allowed and the argument with regard to the valuation of shares was accepted holding that the gratuity liability was an ascertained liability and that it was to be deducted while valuing the unquoted shares of M/s. Krishna Mills Ltd. On reference being made by the Department, the question mentioned below was referred :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that gratuity is an ascertained liability and, therefore, the same should be deducted while determining the market value of the unquoted shares of M/s. Krishna Mills Ltd. ?"

Learned counsel for the Department relied on an unreported decision given in D. B. Wealth-tax Reference No. 26 of 1980 (Seth Seth Mukund Das Rathi Vs. Commissioner of Wealth-tax, and submitted that the controversy involved in the present case is covered by the said judgment. In that judgment, a Division Bench had held that gratuity was a contingent liability and that it was not deductible.

Learned counsel for the Department has, in addition to referring to the decision of the Division Bench, mentioned above, also referred to Shree Sajjan Mills Ltd. Vs. Commissioner of Income Tax, M.P., Bhopal and Another, , in which the Supreme Court, while dealing with a case under the Income Tax Act, held that contingent liabilities did not constitute expenditure and could not be the subject-matter of deduction even under the mercantile system. The aforesaid judgment relied on by learned counsel for the Department is not applicable to the facts of the present case. However, the controversy is squarely covered by the unreported decision of the Division Bench of this court mentioned above.

Shri Ranka, counsel for the assessee, relied on Commissioner of Wealth-tax and Others Vs. S. Ram and Others, , for the submission that the liability of gratuity is an ascertained liability and, therefore, the provision made for payment of the same was deductible. He urged that Standard Mills Co. Ltd. Vs. Commissioner of Wealth-tax, Bombay City, relied on by the Division Bench in the reference made above was distinguishable. The line of distinction drawn by learned counsel was that the case of a company has to be treated differently from that of an individual assessee.

We are not impressed by the distinction made. Provision for gratuity being contingent, it could not be deducted in arriving at the net value for the purposes of the Wealth-tax Act and Rules. In ascertaining a partner''s interest in a firm under the break-up value method, the question as to whether a provision for gratuity is or is not to be allowed has to be decided on the same principle as in the case of a company. We do not find any distinction between the present case and the unreported decision of the Division Bench Seth Mukund Das Rathi Vs. Commissioner of Wealth-tax, mentioned above. We, therefore, follow that decision and answer the question in favour of the Department and against the assessee. Consequently, gratuity is not deductible.