(1.) In this reference Under Section 27(1) of the Wealth-tax Act, 1957, a short but interesting question has been raised. The assessee has movable assets including shares in joint stock companies. For the assessment year 1977-78, she submitted her wealth-tax return in which she claimed deduction of appropriate amount of capital gains tax which would have attracted in case she had sold the assets on the valuation date. The claim for deduction of notional capital gains tax was not allowed by the Wealth-tax Officer. When the matter came up before the Appellate Assistant Commissioner, he also disallowed the said claim. Before him, it was contended that if the shares and other assets were sold by the assessee on the valuation date or earlier, she would have to incur some expenses like brokerage and would have incurred liability to pay capital gains tax on the difference between the sale and the cost of acquisition, as the net worth of the assets would have been the net sale proceeds as reduced by the capital gains tax. In view of this, it was contended that, while valuing the shares, the Wealth-tax Officer should have allowed deduction for notional capital gains tax in this regard. The Appellate Assistant Commissioner rejected this contention stating that any notional capital gains tax which may be payable by an assessee in the event of the assets being sold in the open market on the valuation date is not an allowable deduction. He relied on a decision of the Madras High Court in T.S. Srinivasa Iyer v. CWT [1976] 104 ITR 625 and the decision of the Allahabad High Court in Bharat Hari Singhania v. CWT [1979] 119 ITR 258.
(2.) In the second appeal, the Tribunal was of the view that the issue under consideration was set at rest by the decision of the Allahabad High Court in Bharat Hari Singhania [1979] 119 1TR 258 and the decision of the Supreme Court in Pandit Lakshmi Kant Jha v. CWT [1973] 90 ITR 97. Accordingly, the appeal was dismissed. On these facts, the following question of law has been referred to this court:
(3.) At the hearing before us, Dr. Pal, learned counsel for the assessee, has contended that, while valuing the assets, viz., the shares, for the purposes of Section 7(1) of the Wealth-tax Act, the capital gains liability is to arise if the shares are to be sold in the open market on the basis of which the price is determined for the purposes of valuation of the shares under the Wealth-tax Act.