COMMISSIONER OF WEALTH TAX Vs. ARUN K PARIKH

JUDGEMENT

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

(2.) THE Tribunal dismissed the appeals of the Revenue holding that there was no substance in the objection raised by the Department in view of the decision of this High Court in the case of CWT vs. Ashok K. Parikh (1981) 129 ITR 46 (Guj) :TC 63R.439. In Ashok K. Parikh's case (supra), in which this Court had taken a view, while construing cls. (i)(a) and (ii)(e) of Expln. II to r. 1D of the WT Rules, 1957 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. II to r. 1D.

(3.) THE Supreme Court while construing the provisions of the said r. 1D r/w Expln. II(ii)(e) of the said Rules 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, 1956 requires it to be shown as such. If 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's case (supra).