COMMISSIONER OF WEALTH TAX Vs. M V ARUNACHALAM

JUDGEMENT

(1.) THE Tribunal, at the instance of the Revenue, has referred the following common question of law with reference to the two assessees, for our opinion under s. 27(1) of the WT Act, 1957 (hereinafter referred to as the 'Act') :

(2.) THE assessment year involved in respect of both the assessees is 1980-81. THE assessees hold certain shares in several companies which are not quoted in the regular stock exchange. THE assessees claimed before the WTO that the shares held by them should be valued on yield basis. THE WTO, in completing the assessment, rejected the claim of the assessees and held that the valuation of the shares held by the assessees should be done under r. 1D of the WT Rules (hereinafter referred to as the 'Rules'). THE WTO while valuing the shares excluded the liability towards the sales-tax penalty not shown in the balance sheet amounting to Rs. 22,83,000 and after excluding other items, he enhanced the value of the shares of the companies as disclosed in the orders of assessment.

(3.) APPLYING the principles of law laid down by the Supreme Court, we are of the opinion that the final determination of the tax liability, whether by way of appeal or revision cannot be ignored as the final order determining the ultimate tax liability would directly relate to the question whether on the valuation date, there was any liability at all owed by the company towards the sales-tax. It is seen that the Tamil Nadu Sales-tax Appellate Tribunal has cancelled the penalty and though the order of the said Tribunal was passed subsequent to the valuation date, that order would be a relevant piece of evidence to determine the value of liabilities as provided in r. 1D of the Rules. Therefore, the view of the Tribunal that the liability as on the valuation date should be taken into account though is correct, but the events that happened subsequent to the valuation date should be ignored, is not correct in law. There may be cases of enhancement of tax liability or enhancement of penalty and if this view of the Tribunal is accepted, then valuation of the shares under r. 1D of the Rules will be done in a distored manner. Therefore, we are of the view that the view of the Tribunal that the events that happened subsequent to the valuation date regarding the determination of the value of the liability should be completely eschewed for the determination of the shares in terms of r. 1D of the Rules is not correct in law, though the Tribunal was correct in holding the liability towards the sales-tax cannot be regarded as a contingent liability. However, if they are wiped out, they cannot be regarded as liabilities at all.