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1997 Supreme(Mad) 1560
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE N.V. BALASUBRAMANIAN AND THE HONOURABLE MR. JUSTICE P. THANGAVEL
Commissioner of Wealth Tax - Appellant
Versus
T.R. Kannan - Respondents
T.C. Nos. 54 to 56 of 1984, 1094, 1480, 1481, 1486, 1383, 1506 of 1985, 326 to 330, 395 and 396 of 1986
Decided On : 24 December 1997
The provisions of rule 1D of the Wealth-tax Rules, 1957 are mandatory in nature and should be complied with strictly.
Headnote:
WEALTH TAX - Valuation of unquoted equity shares - Balance sheet to be considered - Provisions of rule 1D of the Wealth-tax Rules, 1957 - Mandatory or directory - Deduction of tax liabilities - Advance tax paid - Whether an asset - Award amount against the company - Whether a contingent liability - Notes forming part of the accounts and report of the directors - Whether a part of the balance sheet.
Fact of the Case:
The assessee is the holder of certain unquoted equity shares in some of the private limited companies. The dispute is with reference to the valuation of the shares held by the assessee in Aruppukottai Sri Jayavilas (P.) Ltd. and Shri Ramalinga Mills (P.) Ltd.
Finding of the Court:
1. The provisions of rule 1D of the Wealth-tax Rules, 1957 are mandatory in nature and should be complied with strictly. 2. The balance sheet drawn up on the valuation date should be taken into account for the purpose of rule 1D. In the absence of such balance sheet, the balance sheet drawn up on a date immediately preceding the valuation date should be taken into account. 3. The entire provision for taxation cannot be allowed as deduction. Only the amount of provision for taxation to the extent of the excess of the tax payable with reference to the book profits will be treated as liability. 4. The advance tax paid cannot be regarded as an asset. 5. The award amount against the company cannot be regarded as a contingent liability. 6. The notes forming part of the accounts and the report of the directors cannot be regarded as a part of the balance sheet unless they are annexed to the balance sheet.
Issues: 1. Whether the provisions of rule 1D of the Wealth-tax Rules, 1957 are mandatory or directory? 2. Whether the balance sheet drawn up on the valuation date or the balance sheet drawn up on a date immediately preceding the valuation date should be taken into account for the purpose of rule 1D? 3. Whether the entire provision for taxation can be allowed as deduction? 4. Whether the advance tax paid can be regarded as an asset? 5. Whether the award amount against the company can be regarded as a contingent liability? 6. Whether the notes forming part of the accounts and the report of the directors can be regarded as a part of the balance sheet?
Ratio Decidendi: 1. The provisions of rule 1D of the Wealth-tax Rules, 1957 are mandatory in nature and should be complied with strictly. 2. The balance sheet drawn up on the valuation date should be taken into account for the purpose of rule 1D. In the absence of such balance sheet, the balance sheet drawn up on a date immediately preceding the valuation date should be taken into account. 3. The entire provision for taxation cannot be allowed as deduction. Only the amount of provision for taxation to the extent of the excess of the tax payable with reference to the book profits will be treated as liability. 4. The advance tax paid cannot be regarded as an asset. 5. The award amount against the company cannot be regarded as a contingent liability. 6. The notes forming part of the accounts and the report of the directors cannot be regarded as a part of the balance sheet unless they are annexed to the balance sheet.
Final Decision: The Tribunal is directed to consider all the Tax cases in the light of the observations made by the Court.
Balasubramanian, J. -
The following questions of law have been referred in the batch of tax cases for our consideration :-
T.C. Nos. 54 to 56 of 1984 (Assessment years 1977-78 to 1979-80)
"1. Whether for the purpose of arriving at the value of the unquoted equity shares the Tribunal was right in holding that only the latest published balance-sheet of the respective companies, signed by the auditors and passed, by the Annual General Meeting, available as on the valuation dates, should be taken into account and not the balance-sheets drawn up on a date immediately' preceding the valuation dates but published after the valuation dates ?
2 Whether the Tribunal was right in law in holding that the provisions of Rule ID of the Wealth-tax Rules were not mandatory but were merely directory and, therefore, the said rule cannot be rigidly applied ?
T.C. No. 1094 of 1985 : (Assessment year 1977-78)
Whether for the purpose of arriving at the value of the unquoted equity shares the Tribunal was right in holding that only the latest published balance-sheet of the respective companies should be taken into account and not the balance-sheets drawn up on a date immediately preceding the valuation dates, but finalised and published after the valuation dates ?
T.C. No. 1383 of 1985 : (Assessment year 1978-79)
Whether for the purpose of arriving at the value of the unquoted equity shares;the Appellate Tribunal was right in holding that only the latest published balance-sheet of the respective companies available on the valuation date should be taken into account and not the balance-sheets drawn up on a date immediately preceding the valuation dates, but published after the Valuation dates ?
T.C. Nos. 1480 and 1481 of 1985 : (Assessment year 1978-79)I. Whether for the purpose of arriving at the value of the unquoted equity shares, the Appellate Tribunal was right in holding that only the latest published balance-sheet of the respective companies should be taken into account and not the balance-sheets drawn up a date immediately preceding the valuation dates, but finalised and published after the valuation dates ?
2 Whether the Appellate Tribunal was right in law in holding that in applying the provisions of rule 1D of the Wealth-tax Rules, the liabilities not shown in the balance-sheet form but mentioned in the annexures to the balance-sheet and the director's report should also be taken into account ?
T.C. No. 1486 of 1985 (Assessment year 1977-78)
1. Whether for the purposes of arriving at the value of the unquoted equity shares the Appellate Tribunal was right in holding that only the latest published balance-sheet of the respective companies available on the valuation date should be taken into account and not the balance-sheets drawn up on a date immediately preceding the valuation dates but finalised and published after the valuation dates ?
2. Whether the Tribunal was right in law in holding that the provisions of Rule 1-D of the Wealth-tax Rules were not mandatory but were merely directory and, therefore, the said rule cannot be applied ?
T.C. No. 1506 of 1985 : (Assessment year 1977-78)
Whether for the purpose of arriving at the value of the unquoted, equity shares, the Tribunal was right in holding that only the latest published balance-sheet of the respective companies should be taken into account and not the balance-sheet drawn up on a date immediately preceding the valuation dates, but finalised and published after the valuation dates ?
T.C. Nos. 326 to 330 of 1986 (Assessment year 1980-81)1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that for the purpose of valuing the shares held by the assessee in Shri Ramalinga Mills (P.) Ltd., the balance-sheet of the company for the year ended on 30-9-1978 and not 30-9-1979 should be taken ?
2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the advance tax paid should not be deducted
