COMMISSIONER OF WEALTH TAX Vs. SRIPRIYA MAHESH

JUDGEMENT

(1.) AS to whether tax liability which had been assessed under an order of assessment, but which has been set aside in appeal was not to be regarded as a liability which could be deducted for the purpose of determining the break-up value of the shares of the company in terms of Rule 1D of the Wealth-tax Rules, 1957, is the question that has been referred to us, at the instance of the Revenue.

(2.) THE assessee is a shareholder in Southern Roadways Limited and that company had been assessed to tax in a sum of Rs. 48,15,668. THE company's claim that it was not liable under sections 41(2) and 45 of the Income-tax Act, 1961, was rejected by the assessing authority. THE claim had been rejected under those provisions by the Income-tax Officer on the ground that the compensation received by the company for loss of route permits was assessable to tax. THEse route permits were lost to the company by reason of the take over by the Government of Tamil Nadu with effect from January 17, 1972, of the routes on which the company was running buses. THE take over was effected under the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971.

(3.) LEARNED counsel for the Revenue submitted that contingent liabilities cannot be deducted for the purpose of determining the break-up value of the shares under Rule 1D of the Wealth-tax Rules, that as on the valuation date there was no liability on the company for payment of the sum as the Income-tax Officer's order had been set aside by the Appellate Assistant Commissioner and though the Revenue had filed an appeal to the Tribunal the Tribunal had not decided the case as on that date. Counsel submitted that what is material is only the state of affairs that existed as on the valuation date and any subsequent event was not required to be taken note of for the purpose of deciding the question of the deductibility or otherwise of any sum for determining the break-up value of the shares. Counsel placed reliance on the decision of the Calcutta High Court in the case of CWT v. Mohan Lal Nopany [1970] 78 ITR 435, which was rendered by that court on September 22, 1969. The court therein held that the breakup value of the shares to a considerable extent was dependent upon the value which a potential buyer of the shares would place on the company's shares having regard to the financial data disclosed in the balance-sheet and such a potential buyer was not likely to value the shares at a lesser figure only because an appeal was pending before the statutory authorities under the Agricultural Income-tax Act in which the correctness or otherwise of an assessment order made against the company was in issue. This judgment does not refer to Rule 1D, as indeed it could not have as that Rule was introduced only in the year 1967. The Calcutta High Court was con- cerned with the reference arising out of assessment to wealth-tax for the assessment year 1959-60 which year was several years prior to the introduction of Rule 1D of the Wealth-tax Rules. That decision was rendered prior to the decision of the apex court in the case of Kedarnath Jute Mfg. Co, Ltd. v. CIT [1971] 82 ITR 363 and the decision of the apex court in the case of CWT v. K.S.N. Bhatt [1984] 145 ITR 1.