COMMISSIONER OF INCOME TAX Vs. UDAYAN L GAJJAR

JUDGEMENT

(1.) THE Tribunal has referred the following question for the opinion of this Court under S. 27(1) of the WT Act, 1957 :

(2.) THE relevant assessment year is 1983 84. The assessee had claimed that the unquoted shares of the private limited company be valued as per the provisions of r. 1D of the WT Rules and while doing so, advance tax paid and shown on the asset side of the balance sheet cannot be deducted from the provision made for tax payable. The WTO rejected this claim. The CWT(A) directed the WTO to value the unquoted shares of the private limited company by holding that the advance tax paid under the IT Act, 1961 and shown on the asset side of the balance sheet of the said company, cannot be deducted from the tax payable in determining whether the provision for taxation was in excess over the tax payable with reference to the book profit in accordance with the law applicable thereto within the meaning of cl. (ii)(e) of Expln. 2 to r. 1D of the WT Rules, 1957. The Tribunal relying upon the decision of this Court in Ashok K. Parikh vs. CWT (1981) 129 ITR 46 (Guj), confirmed the order of the CWT(A). In Ashok K. Parikh (supra), on the basis of which the Tribunal decided the matter, this Court had taken a view, while construing cls. (i)(a) and (ii)(e) of Expln. 2 to r. 1D, that for the purpose of computation of the market value of the equity shares of a company, the advance tax paid under S. 210 of the IT Act, 1961 and shown on the assets side of the balance sheet of the company, cannot be deducted from the tax payable, in determining whether the provision for taxation is in excess over the tax payable with reference to the book profits in accordance with the law applicable thereto within the meaning of cl. (ii)(e) of Expln. 2 to r. 1D of the said Rules.

(3.) THE Supreme Court while construing the provisions of the said r. 1D r/w Expln. 2(ii)(e) of the said Rule held that truly speaking, the advance tax paid is not really an asset, but, the proforma of balance sheet in Sch. VI to the Companies Act requires it to be shown as such. It was held that what cl. (i)(a) of the said Explanation did was to remove the said amount from the list of assets for the purpose of r. 1D. It is then that cl. (ii)(e), which speaks of liabilities, says that only that amount which is still remaining to be paid shall be treated as a liability on the valuation date. If in the provision for taxation made in the column of liabilities in the balance sheet, the amount of advance tax already paid is again shown as a liability, it will not be treated as a liability. The advance tax paid had already gone out of the profits and been debited in the account books of the company. It was held that this was the true function of both the sub clauses. The Supreme Court in the process accepted the view of Andhra Pradesh, Karnataka, Punjab & Haryana High Courts and differed from the view taken by the Gujarat High Court in CWT vs. Ashok K. Parikh (supra).