L G BALAKRISHNAN Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) THE common question which has been referred to this court for our opinion in these several references reads as follows."Whether it has been rightly held by the Tribunal that the advance tax paid is to be deducted from the tax on the book profits to arrive at the quantum of 'tax payable with reference to book profits in accordance with law applicable thereto' referred to in sub-clause (ii)(e) of Explanation II to rule 1D of the Wealth-tax Rules, 1957 ?THE answer to the question, of course, depends on a proper construction of rule 1D, Explanation II, clause (e) of the Rules.

(2.) THE Tribunal, which delivered the main order in respect of three assessees, has given by way of illustration, figures relevant for working out of the break-up value in respect of their shares is M/s. Cyclon Products (Private) Limited, Coimbatore, as adopted by the Wealth-tax Officer as follows" *.31-3-1968Rs. Rs. Rs. RsTotal assets 2, 50, 697Less: I.T.-Advance tax 13, 000Prepaid expenses 1, 431------------- 14, 431Net assets 2, 36, 266Total liabilities 2, 50, 697Less: Paid-up capital 50, 000LessDevelopment rebatereserve 8, 360Credit balance in profitand loss account 7, 324Tax on Rs. 27, 260 17, 719LessAdvance tax 13, 0004, 719Provision 14, 432---------------- 9, 713------------- 25, 397------------- 24, 6032, 26, 094Break-up value = 2, 26, 094 x I 00/50, 000= Rs. 452of which 85% = Rs. 384. "THE above calculation shows that the Wealth-tax Officer had excluded the amount of Rs. 13, 000 paid as advance tax from the total assets of the company. THE tax payable on the basis of book profits of the amount of Rs. 27, 260 came to Rs. 17, 719.

(3.) THE market value of an unquoted equity share of any company, other than an investment company or a managing agency company, shall be determined as followsTHE value of all the liabilities as shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in that balance-sheet. THE net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balancesheet. THE resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. THE market value of each such share shall be 85% of the break-up value determined. "THE proviso is not material for our purpose and is not reproduced. Explanations I and II, in so far as they are relevant, read as follows" *Explanation I.-For the purposes of this rule, 'balance-sheet' in relation to any company, means the balance-sheet of such company as drawn up on the valuation date and where there is no such balance-sheet, the balance-sheet drawn up on a date immediately preceding the valuation date and in the absence of both, the balance-sheet drawn up on a date immediately after the valuation dateExplanation II.-For the purposes of this rule (i) the following amounts shown as assets in the balance-sheet shall not be treated as assets, namely : (a) any amount paid as advance tax under section 18A of the Indian Income-tax Act, 1922 (11 of 1922), or under section 210 of the Income-tax Act, 1961 (43 of 1961)(b) any amount shown in the balance-sheet including the debit balance of the profit and loss account or the profit and loss appropriation account which does not represent the value of any asset(ii) the following amounts shown as liabilities in the balance-sheet shall not be treated as liabilities, namely : (a) the paid-up capital in respect of equity shares(b) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the valuation date at a general body meeting of the company(c) reserves, by whatever name called, other than those set apart towards depreciation(d) credit balance of the profit and loss account(e) any amount representing provision for taxation (other than the amount referred to in clause (i)(a)) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto (f) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares. "THE contention on behalf of the assessee is that the rule expressly provides that the amount which has been paid as advance tax, which, in the balance-sheet, is shown as assets of the company, shall not be treated as assets for the purpose of determining the market value of the unquoted equity shares.