1982 PLP 157 (PTD)

CHANDURKAR, J.‑This reference under section 27 (1) of the W. T. Act arises out of wealth‑tax assessment proceedings of Shri A. E. Maskati, Bombay, who is now no more and whose interests are now represented by two executors of his estate for whom Shri Pandit appears. The assessee owned 461 shares in Messrs Garlick & Co. Pvt. Ltd. and the controversy, in the reference relates to the valuation of these shares. The W.T.O. determined the break‑up value of these shares at Rs. 1,611 per share n the basis of the balance‑sheet of the Company as at 31st December, 1960. The material valuation date was 8th November, 1961, the relevant assessment year in question being 1962‑

63. The break‑up value was arrived at by taking the total of the paid‑up capital, reserves and surplus and dividing it by 3,471 which was the number of the equity shares of the company. In appeal before the A. A. C. two contentions were raised on behalf of the assessee. It was contended that while determining the break‑up value of the shares of the Company, a deduction should have been given on account of additional super‑tax which would be payable by the Company as a result of non‑declaration of dividend and a further deduction should have been made on account of provision for bonus which the Company was liable to pay for the year 1960, according to the agreement between the Company and its employees dated 29th April, 1957. Both these contentions were accepted by the A. A, C. who took the view that the directors had not proposed any dividends and the provisions of section 104 of the I.‑T. Act, 1961, were, therefore, clearly attracted and, consequently, while determining the tax liability of the Company, the additional super‑tax liability should also be taken into consideration in determining the break‑up value. With regard to the claim for the provision for bonus, he held that the auditors had made a clear note in the balance‑sheet pointing out that the provision for bonus payable for 1960 had not been made in the accounts for the year in question. Thus, he took the view that provision for bonus should also be allowed as a liability in determining the break‑up value. The Department's appeal before the Appellate Tribunal came to be dismissed as the Tribunal upheld the view taken by the A.A.C. On these facts, the following question has been referred to this Court at the instance of the revenue "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provision in respect of additional super‑tax under section 104 of the Income‑tax Act, 1961, made in the balance‑sheet of Messrs Garlick & Co. (Pvt.) Ltd., and the liability for bonus not provided for in the accounts should be deducted in com puting the break‑up value of the shares of the Company for the purposes of the wealth tax assessment of the assessee for the assessment year 1962‑63 ?" Mr. Pandit, appearing on behalf of the assessee, has fairly drawn our attention to the decision of this Court in C. W. T. v. S. K. Varma ((1978) 113 I T R 882) in which this Court has taken the view that the wealth tax assessment of an assessee who holds shares in a Company, the W. T. O. adopting the break‑up method would be 'Justified in considering that the provision for additional super‑tax under section 104 of the I. T. Act, 1961 made by the Company was not allowable as a deduction where the order determining the liability of the Company to super‑tax had not been made before the material valuation date. In that decision, this Court has taken the view on a construction of the provisions of section 23‑A of the Indian I. T. Act, 1922, the corresponding provision in the 1961 Act being section 104, that the structure of section 23‑A and the manner in which the liability to additional super‑tax arises there under leave no‑.room for doubt that the liability is not charged automatically by statutory force but arises only from an order of the I.T. O. which he will make only after a consideration of and decision on various factual factors to be found by him. Therefore, as far as this Court is concerned, it trust be taken to be settled law that for the purposes of computation of net wealth under the W. T. Act, where the assessee owns shares, the break‑up value of which has to be determined, unless an order determining the additional super‑tax liability of the Company is made by the I: T. O. such liability cannot be taken into consideration and the amount shown as provi sion for additional super‑tax cannot be allowed as a deduction unless the order of the I.‑T. O. is passed before the material valuation date. The view taken by the Tribunal and the A. A. C. that the provision in respect of the additional super‑tax should be deducted in computing the break‑up value of the shares of the Company in question cannot,. therefore, be sustained. However, so far as the provision for bonus is concerned, admittedly, there was an agreement which governed the payment of bonus by the Company to its employees. The agreement was dated 29th April, 1957. There was, therefore, no dispute that bonus was payable to the employees in accordance with this agreement. The amount which was required to be paid as bonus in accordance with this agreement was, therefore, clearly a liability in respect of which deduction should have been made for the purposes of determination of the break‑up value notwithstanding the fact that such a provision was not made in the balance‑sheet. The auditors had made a note with regard to this omission and, in any case, the liability having accrued to the Company, the said amount was clearly liable to be excluded. In this view of the matter, the question referred to us is answered as follows : (a) The provision in respect of additional super‑tax was not Cable to be deducted in computing the break‑up value of the shares. (b) The liability for bonus was liable to bb deducted in computing the break‑up value. Having regard to the partial success and failure of both the parties, there will be no order as to costs of this reference. Order accordingly