1999 PLP 3765 (PTD)

R. K. ABICHANDANI, J.

The Income-tax Appellate Tribunal has referred the following question for the opinion. of this Court under section 27(1) of the Wealth Tax .Act, 1957: "Whether the Appellate Tribunal is right in law and on facts in directing the Wealth Tax Officer to value the unquoted shares of the private limited companies by holding that the advance tax paid under the , Income Tax Act, 1961, and shown on the assets side of the balance-sheet of the said companies cannot be deducted from the tax payable, in determining whether the provision for taxation is in excess over the tax payable with reference to the book profit in accordance with the law applicable hereto, within the meaning of clause (ii)(e) of Explanation II to rule ID of the Wealth Tax Rules, 1957?" The relevant assessment year is 1983-84. The assessee had claimed .that the unquoted shares of the private limited company be valued as per the provisions of rule ID of the Wealth Tax Rules and while doing so, advance tax paid and shown on the assets side of the balance-sheet cannot be deducted from the provision made for tax payable. The Wealth Tax Officer rejected this claim. The Commissioner of Wealth Tax (Appeals) directed the Wealth Tax Officer to value the unquoted shares of the private limited company by holding that the advance tax paid under the Income Tax Act, 1961, and shown on the assets side of the balance-sheet of the said company, cannot be detected from the tax payable in determining whether the provision for taxation was in excess over the tax payable with reference to the book profit in accordance with the law applicable thereto- within the meaning of clause (ii)(e) of Explanation II to rule ID of the Wealth Tax Rules, 1957. The Tribunal relying upon the decision of this Court in CWT v. Ashok K. Parikh (1981) 129 ITR 46, confirmed the order of the Commissioner of Wealth Tax (Appeals). In Ashok K. Parikh' s case (1981) 129 ITR 46 (Guj.), on the basis of which the Tribunal decided the matter, this Court had taken a view, while construing clauses (i)(a) and (ii)(e) of Explanation II to rule ID, that for the purpose of computation of the market value of the equity shares of a company, the advance tax paid under section 210 of the Income Tax Act, 1961, and shown on the assets side of the balance-sheet of the company 'cannot be deducted from the tax payable, in determining whether the provision for taxation is in excess over the tax payable with reference to the book profits in accordance with the law applicable thereto within the meaning of clause (ii)(e) of Explanation II to rule ID of the said Rules. The dispute centers around the treatment to be given to the advance tax paid shown on the assets side of the balance-sheet of the company while working out the value of the equity shares on the break-up value method. At the time of making of the reference this question was pending before the apex Court. Now, we have the benefit of the decision of the Apex Court in Bharat Hari Singhania v. CWT (1994) 207 ITR

1. The Supreme Court while construing the provisions of ID of the Wealth Tax Rules, 1957, held that the said rule was required to be followed in every case where unquoted equity shares of a company (other than an investment company or a managing agency company) have to be valued and that all the authorities under the Act including the Valuation Officer. were bound by the said rule. It was further field that while valuing the unquoted equity shares under rule ID, no deductions on account of capital gains tax which would have been payable in case the shares were sold on the valuation, date can be made. Similarly, no other deductions including provision for taxation, provident fund and gratuity are admissible. It was held that rule ID was exhaustive on the subject. The Supreme Court while construing the provisions of the said rule ID read with Explanation II(ii)(e) of the said rule held that truly speaking, the advance tax paid is not really an asset, but the pro forma of balance-sheet in Schedule VI to the Companies Act requires it to be shown as such. It was held that what clause (i)(a) of the said Explanation did was to remove the said amount froth the list of arrest for the purpose of rule ID. It is then that clause (ii)(e), which speaks of liabilities, says that only that amount which is still remaining to be paid shall be treated as a liability on the valuation date. If in the provision for taxation made in the column of liabilities in the balance-sheet; the amount of advance tax already paid is again shown as a liability; it will not be treated as a liability. The advance tax paid had already gone out of the profits and been debited in the account books of the company. It was held that this was the true function of both the sub-clauses. The Supreme Court in the process accepted the view of the Andhra Pradesh, Karnataka, Punjab and Haryana High Courts and differed from the view taken by the Gujarat High Court in CWT v. Ashok K. Parikh (1981) 129 ITR

46. In view of the decision of the Supreme, Court in the case of Bharat Hari Singhania v. CWT (1994) 207 ITR 1, we hold that the7ribunal was in error in directing the Wealth Tax Officer to value the unquoted shares of the private companies by holding that the advance tax paid under the Income Tax Act; 1961, and shown on the assets side of the balance-sheet of the 'said company cannot be deducted from the tax payable in determining whether the provision for taxation is in excess over the tax payable with reference to the book profit. The question referred to-this Court is, therefore, answered in the negative, in favour of the Revenue and against the assessee. The reference stands disposed of accordingly with no order as to costs. M.B.A./4197/FC Order accordingly