RAMASWAMI J.

On the 18th March, 1960, an agreement was executed between the Hindu Office and the National Press Employees Union and M/s. Kasturi and Sons Ltd. (hereinafter called "the company"), the proprietors of Hindu and Sports and Pastime, for payment of gratuity. Under the scheme of this agreement, every employee who had been in service or continues in service after 1st January, 1957, would be entitled to the payment of gratuity on retirement, death or termination otherwise than as punishment on the basis and conditions referred to therein. In order to give effect to this agreement, an actuary was appointed to report on the financial arrangements needed for starting and maintaining the gratuity scheme. The two principal questions on which the actuary's advice was sought were regarding the amounts that have to be set apart for each year after the inception of the gratuity fund as and from 1st July, 1960, and regarding the liability that has already arisen in respect of the existing employees for services rendered prior to 1960 In his report, on the first question, the actuary reported that the

contribution to the fund shall be made every year at 4 per cent. of the wage bills but it is open to revision upward or downward in accordance with the results which the actuarial valuation conducted at any subsequent date may require. Regarding the second question, he said that the total amount of liability on this account was Rs. 19, 46, 192 and adding Rs. 3, 808 towards certain incidental expenses he determined the liability at Rs. 19, 50, 000. The proposed trust deed, however, contained a clause that the company may at its option pay to the fund either the entire sum so estimated in one lump sum or in such instalments and at such times as the board of directors of the company may determine. The report further stated that if the board decided to exercise this option the balance outstanding should be treated as loan and interest payment at 3 1/2 per cent.per annum with yearly vests be contributed by the company. The company in its meeting held on December 16, 1960, considered this question on constitution of the funds and the terms of the trust deed and approved the same by a resolution of the same date. A deed of trust was accordingly executed providing for vesting of the fund in the trustees and for administration of the trust fund. On December 18, 1960, the board of directors of the company passed the following resolution

"Resolved that the initial contribution of Rs. 19, 50, 000 as ascertained by the actuary in his report dated October 4, 1960, be paid in instalments to the trust without interest and the question of interest be considered after the next valuation." *

In the report to the shareholders on the account for the year ended 30th June, 1961, the directors stated

"The gratuity trust referred to in our last report has been created and the rules thereunder have been approved by the income-tax department. The company proposes to pay off the backlog of initial contribution amounting to Rs. 19, 50, 000 in convenient instalments. To start with a sum of Rs. 38, 880 was paid on this account during the year under report." *

In the balance-sheet of the company as on June 30, 1961, the following note was appended

"Actuarial liability for employees' gratuity as at 30th June, 1960.--- Balance outstanding as on 30th June, 1961, Rs. 19, 11, 620." *

The respondent in T. C. No. 263/67 held 1, 208 shares of the face value of Rs. 100 each in the company. The respondent in T. C. No. 271/67 held 3, 306 shares of the face value of Rs. 100 each in the company. For the assessment year 1962-63, these respondents submitted their wealth-tax returns, the valuation date being March 31, 1962. For the purpose of the valuation of the shares held by these respondent-assessees, the balance-sheet of the company as on 30th June, 1961, was adopted. The assessees valued the shares at Rs. 101.30 per share. The method adopted for ascertaining the valu