COMMISSIONER OF GIFT TAX Vs. ATRILAL P MEWAR

JUDGEMENT

(1.) THIS is a reference under s. 26(1) of the GT Act, 1958, hereinafter referred to as the "Act". On 5th March, 1960, the assessee made a gift of 312 shares in East Ganhodi Colliery (P) Ltd. of the face value of Rs. 100 each to his son who had attained majority. In his return the assessee valued these shares at their face value. The GTO found that the shares of the company were not quoted in the stock exchange and proceeded to value these shares on the break-up value method on the basis of the latest available balance sheet of the company as on 30th June, 1960. He found that the total value of the assets, as disclosed in the balance sheet, was Rs. 29,05,365 and, deducting therefrom the liabilities and provisions in the balance sheet amounting to Rs. 6,91,370, he arrived at the net wealth of the company at Rs. 22,13,995. Dividing this amount by 5,000, being the total number of subscribed shares, he arrived at a valuation of Rs. 443 per share and the value of the shares gifted by the assessee at Rs. 1,38,216.

(2.) THE assessee appealed against the order of assessment and contended before the AAC that the value of each of these shares would be Rs. 337 and not Rs. 443 as computed by the GTO as the GTO had failed to deduct the income-tax liabilities of the company as on 30th June, 1959, amounting to Rs. 5,28,005 from the value of the assets. THE AAC rejected this contention on the ground that the amount claimed was neither paid nor charged as a liability by creating a taxation reserve in the balance sheet. He confirmed the assessment.

(3.) STRANGELY enough, in its statement of the case dt. the 10th April, 1965, the Tribunal reiterated that the Departmental Representative did not dispute the quantum of the tax liability but only argued that, as it was not provided for in the balance sheet of the company as a liability, it could not be allowed as a deduction. The Tribunal has referred the following question to this Court: