MRS. PREM SHAMSHER SINGH VS COMMISSIONER OF WEALTH TAX
1995 P T D 907
[210 ITR 233]
[Delhi High Court (India)]
Before D.P. Wadhwa and D.K. Jain, JJ
Mrs. PREM SHAMSHER SINGH and others
Versus
COMMISSIONER OF WEALTH TAX
Wealth Tax Reference Nos.87 to 96 of 1978, 101 to 106 of 1982 and 142 to 147 of 1983, decided on 22/07/1994.
Wealth tax---
Valuation---Unquoted equity shares---Break-up value based on balance- sheet---Company doing business in real estate---Land held by Company acquired compulsorily by Government---Enhanced compensation--- Government not accepting decision and filing appeal---Pending appeals company withdrawing enhanced compensation after guaranteeing restitution and keeping amount in fixed deposits---Amount taken to suspense account and shown against liabilities in balance-sheet---Tax payable thereon shown in balance-sheet---Enhanced compensation to be included in net wealth of company---Value not to be reduced by tax thereon---No adjustments other than those in rule permitted---Indian Wealth Tax Act, 1957, Ss. 2(m) & 7-- Indian Wealth Tax Rules, 1957, R.1-D.
Two companies, whose shares were not quoted on the stock exchange, did colonising business on an extensive scale by purchasing land, developing it and parcelling it into plots and selling them. Some of the lands held by the companies were compulsorily acquired by the Government and, in addition to the compensation awarded by the Collector, the District Judge, on references, awarded enhanced compensation. The Government did not accept the decision of the District Judge and preferred appeals. Pending the appeals, the companies, after providing guarantee for restitution, withdrew the enhanced compensation and kept the amounts in fixed deposits and earned interest on which they paid income-tax. The amounts representing the enhanced compensation were not brought to the profit and loss account but appeared on the liabilities side of their balance-sheets as amounts held in suspense pending adjustment. The question was whether in computing the break-up value of the shares held by the assessee in those companies the enhanced compensation should be included in the net wealth of the companies and the income-tax liability thereon could be taken into account to reduce the value of the compensation. The Appellate Tribunal held that (a) the value of the enhanced compensation had to be included in the net wealth of the companies; but (b) their value should be reduced by the amount of tax liability, before arriving at the break-up value of the shares. On a reference:
Held, (i) that Rule 1-D of the Wealth Tax Rules, 1957, was applicable to the valuation of the shares as it was mandatory in character;
(ii) That the procedure prescribed in Rule 1-D had to be adhered to strictly and there could be no modification or adjustment in the balance-sheet other than those provided in Explanation II to Rule 1-D.
(iii) That the amounts/value of the assets and liabilities shown in the balance-sheet were final and could not be adjusted even for those assets and liabilities not referred to in Explanation II.
(iv) That the value of the enhanced compensation as reflected in the balance-sheet could not be excluded while applying Rule 1-D.
(v) That the value of the enhanced compensation could not be reduced by the companies' liability towards income-tax on the compensation, because neither was the liability provided for in the balance-sheet nor provision in Explanation II to Rule 1-D for such an adjustment.
For the purpose of Rule 1-D, it is not necessary for the Wealth Tax Officer to determine the real net worth or the real net asset value of the company by taking into account the value of each of the assets and deducting therefrom the value of all the liabilities attached thereto. In other words, the determination of the net wealth of the company within the meaning of section 2(m) of the Wealth Tax Act, 1957, has no bearing on the valuation of unquoted shares of a company in terms of Rule 1-D.
Bharat Hari Singhania v. CWT (1994) 207 ITR 1 (SC) applied.
CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 5N (SC); CIT v. Jai Parkash Om Parkash Co. Ltd. (1961) 41 ITR 718 (Pun.); CWT v. Mahadeo Jalan (1972) 86 ITR 621 (SC); CWT v. Maharaja Kumar Kamal Singh (1984) 146 ITR 202 (SC); CWT v. Y.P. Punj (1983) 140 ITR 578 (Delhi); CWT v. P.N. Sikand (1977) 107 ITR 922 (SC) and Topandas Kundanmal v. CIT (1978) 114 ITR 237 (Guj.) ref.
B.B. Ahuja, Senior Advocate (R.C. Berry, Advocate with him) for the Assessees.
B. Gupta, R.C. Pandey, D.C. Taneja and R.N. Verma, Advocates for the Commissioner.
JUDGMENT
D.K. JAIN, J.--- These twenty-two references have been made by the Income-tax Appellate Tribunal (in short, "the Tribunal") under section 27(1) of the Wealth Tax Act, 1957 (in short, "the Act"), at the instance of the assessee and the Revenue. As the issues involved in all the references are, in substance, the same, these are being disposed of by this common judgment. However, the format of questions being different in the case of each of the assessees, we set out the questions referred in each of these references respectively:
Wealth Tax References Nos. 87 to 96 of 1978 (Assessment years 1966-67 to 1970-71):
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that Rule 1-D of the Wealth Tax Rules, 1957, is inapplicable to the present case as it is in conflict with the substantive provisions of the Act including the charging section 3?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that tax deduction on enhanced compensation not provided for in the balance-sheet of the company should be allowed as a deduction on equitable basis for the purpose of determination of the value of the shares on the basis of break-up value?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that while determining the market value of unquoted shares of a company, no deduction can be allowed under Rule 1-D of the Wealth Tax Rules, 1957, in respect of liability for tax relating to an amount appearing as liability in the balance-sheet which is claimed to be exempt but is held liable to tax in the hands of the company?"
Wealth Tax Reference Nos.101 to 106 of 1982: (Assessment years)
"(i) Whether, on the facts and the circumstances of the case, the Income tax Appellate Tribunal was legally justified in treating the enhanced compensation of Rs.4, 91,723 as part of the assets of the company in computing the value of unquoted shares under the provisions of Rule 1-D of the Wealth Tax Rules, 1957?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the tax liability in respect of the enhanced compensation though it was not shown in the balance-sheet of the company for any of the three assessment- years 1967-68, 1968-69 and 1969-70 should be allowed as deduction while computing the value of the shares of the company in accordance with Rule 1-D of the Wealth Tax Rules, 1957?
Wealth Tax Reference Nos.142 to 147 of 1983: (Assessment years 1964-65 to 1969-70):
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in treating the enhanced compensation received by Messrs D.L.F. Housing Construction (P.) Ltd. and Messrs Delhi Land and Finance (P.) Ltd. as part of the assets of the said companies in computing the value of the unquoted shares under the provisions of Rule 1-D of the Wealth Tax Rules, 1957, for the purposes of inclusion towards the net wealth of the assessee during the assessment years 1964-65 to 1969-70?
In so far the first question in Wealth Tax References Nos.92 to 96 of 1978 is concerned, learned counsel for the assessee rightly and fairly conceded before us that the answer to the question stands concluded in favour of the Revenue and against the assessee by a recent decision of the Supreme Court in Bharat Hari Singhania v. CWT (1994) 206 ITR 1. The question is, therefore, accordingly answered.
As regards the other questions, the issue relates to the valuation of unquoted shares of two companies, viz. Messrs D.L.F. Housing and Construction (P.) Ltd., and Messrs Delhi Land and Finance (P.) Ltd. We are thus concerned with the interpretation of Rule 1-D of the Wealth Tax Rules, 1957, which prescribes the manner in which the market value of unquoted equity shares of companies, other than investment and managing agency companies is to be determined and as held by the Supreme Court in Bharat Hari Singhania's case (1994) 207 ITR 1, there is no other' method prescribed for the valuation of such shares.
The basic facts as found by the Tribunal in three independent statements of the cases are:--
All the three assessees held certain shares in D.L.F. Housing and Construction (P.) Ltd.. Mr. Raghavendra Singh (Wealth Tax References Nos.142 to 147 of 1983) also held certain shares in Delhi Land and Finance (P.) Ltd. The shares of the said companies were not quoted at any of the stock exchanges in the country. The said companies were doing colonization business on ail extensive scale by purchasing land,
developing it, parcelling it out into plots and selling them. Thus, the companies were doing business in real estate and the lands held by them were part of their capital assets. Some of the lands held by the companies were acquired by the Government under the Land Acquisition Act, 1894. The companies deducted the cost of acquired land from the compensation granted by the Collector and the excess of compensation over the cost price was shown in the profit and loss account of the companies and income-tax was paid thereon. However, the companies did not accept the adequacy of the compensation awarded by the Collector and so they got references made to the District Judge under sections 18 and 23 of the and Acquisition Act, claiming more compensation for the acquired land. The latter enhanced the compensation. The Government, however, did not accept the decision of the District Judge and filed appeals in the High Court. During the pendency of the appeals, the companies after giving guarantees for restitution withdrew the amounts of enhanced compensation, kept these amounts in fixed deposits in their bank accounts and were paying income-tax on the interest earned thereon. However, the amounts representing the enhanced compensation were not brought to the profit and loss account but instead taken to a suspense account and appeared on the liabilities side of the balance-sheet with the narration "amount held in suspense pending adjustment including compensation received in respect of agricultural land under appeal".
During the course of assessment proceedings for the relevant assessment years, while computing the break-up value of the equity shares held by the assessees in these companies, a question arose whether the enhanced compensation should be included in the net wealth of the company and further in the event of this inclusion, should it be the whole of the enhanced compensation or the said compensation minus the income-tax payable thereon. Admittedly, the tax liability on the enhanced compensation was not provided for in the balance-sheet of the companies and, therefore, yet another question arose as to whether the estimated tax liability on the enhanced compensation should be allowed as deduction. The stand of the assessee was that the value of enhanced compensation could not be included in the net wealth of the companies because; (i) against the order of the District Judge, an appeal had been preferred to the High Court by the Government and there was a possibility that the order of the District Judge may be reversed and hence the amount of enhanced compensation should not be deemed to have been finally granted; (ii) the companies had withdrawn the amounts of enhanced compensation by giving guarantees for restitution and in the event of reversal of the District Judge's order, the enhanced compensation had to be re-deposited and, therefore, the companies should be deemed to hold the amount of enhanced compensation in trust for the rightful claimant; (iii) neither the provisions of the Wealth Tax Act nor the Rules made thereunder provided for any discretion for amending the balance-sheet of a company for the purpose of determining the value of the unquoted shares; and (iv) the companies had arrived at an agreement with the Revenue under which the amount of enhanced compensation was to be taxed only when the order of the High Court was received. In the alternative, it was contended by the assessees that the estimated tax liability on the enhanced compensation should in any case be deducted before including the amount of enhanced compensation in the net wealth of the company, while determining the break-up value of the equity shares.
The Wealth Tax Officers concerned did rot accept the contentions of the assessees. According to them as soon as the order was passed by the District Judge, awarding enhanced compensation, the companies became entitled to it. The Wealth Tax' Officers, acting under Rule 1-D of the said Rules, for computing the value of the said shares, took into account the value of the enhanced compensation. In the cases of Mrs. Indra K.P. Singh and Mrs. Prem Shamsher Singh, on the alternative plea also, they took the view that only those liabilities would be taken into account which were shown in the balance-sheet and mentioned in Explanation II of the said Rule. However, in the case of Raghvendra Singh, the Wealth Tax Officer did reduce the value of the enhanced compensation by the amount of income-tax payable thereon. Thus, the returned values of the unquoted equity shares held by the assessees in the said companies were not accepted. The assessees met with partial success in their appeals before the Appellate Assistant Commissioner who took the view that: (1) the value of the enhanced compensation was rightly included in the net wealth of the companies and (2) the said value should have been reduced by the amount of tax liability on various amounts of compensation pertaining to different years before arriving at the break-up value of the shares. Being aggrieved, the assessees as well as the Revenue came up in appeals before the Tribunal and the contentions advanced before the lower authorities were reiterated. The Tribunal, following its earlier orders, in the case of other share holders of the said companies, confirmed the view taken by the Appellate Assistant Commissioner. It is against the said conclusion of the Tribunal that the assessees and the Revenue have got the questions set out hereinabove referred to this Court.
We have heard Mr. B.B. Ahuja, for the assessees and Mr. B. Gupta and Mr. R.C. Pandey, for the Revenue. Mr. Ahuja has canvassed that: (1) the object of Rule 1-D is to find out the true market value of the unquoted equity shares and the true market value of such shares can be arrived at only if real net worth or real net asset value of the company concerned is found out by aggregating the value of all assets belonging to the company and taking out therefrom the real liabilities owed by the company as on the relevant valuation date and for that purpose the balance-sheet figures are not final and in fact have to be adjusted and modified by the Wealth Tax Officer while applying the procedure prescribed in Rule 1-D; (2) in working out the value of the unquoted equity shares under Rule 1-D, the Wealth Tax Officer can include only those assets which belong to the company on the valuation date and any amount in which the company does not have a vested right/title on the valuation date cannot be included in the assets of the company for the purpose of the said Rule; (3) the Wealth Tax Officer has also to adjudicate as to whether a particular amount ostensibly representing assets in the balance-sheet really represents the value of that asset or not and for this purpose he has to take into account the in-built liabilities, if any, attached to the asset or to any amount representing the asset. Applying these broad propositions on the facts of the instant cases, learned counsel for the assessees has strenuously urged that a person has no vested right in the enhanced compensation which he may claim in appeal or which he may be granted in appeal but challenged by the Government and it cannot belong to him till such time there is a final judicial determination of the issue. In the present cases, he submits, the enhanced compensation awarded by the District Judge to the companies being under challenge as on the relevant valuation dates its value is not an asset belonging to the company and cannot, therefore, be included as such under Rule 1-D for valuing the unquoted equity shares. In support reliance is placed on CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC); Topandas Kundanmal v. CIT (1978) 114 ITR 237 (Guj.) and CIT v. Jai Parkash Om Parkash Co. Ltd. (1961) 41 ITR 718 (Punj.). In the alternative, it is urged that the tax payable by the companies on the enhanced compensation has to be allowed as a liability for working out the net - asset value under Rule 1-D even though such a liability has not been provided for in the balance-sheet. In this behalf reliance is placed on CWT v. Y.P. Punj (1983) 140 ITR 578 (Delhi); CWT v. Maharaj Kumar Kamal Singh (1984) 146 ITR 202 (SC) and CWT v. P.N. Sikand (1977) 107 ITR 922 (SC). On behalf of the Revenue it has been contended that: (1) issues raised in these references stand resolved by the decision of the Supreme Court in Bharat Hari Singhania's case (1994) 207 ITR 1; (2) determination of net wealth of the company for the purpose of levying wealth tax in the hands of the company is not relevant for the purpose of valuation of its unquoted shares under Rule 1-D in the hands of all the share-holders; (3) for the purpose of applying Rule 1-D, the balance- sheet of the company for the relevant period is final and no adjustments, except the one provided for in the Explanation II to the said Rule, can be made therein; and (4) in the present cases, the right to receive enhanced compensation had actually fructified and its value had been shown as liquid asset in the form of deposits in the bank in the balance-sheets of the companies and there is no question of either revaluing the same or excluding these assets or reducing their value, on the ground that tax with regard thereto was yet to be paid, while applying Rule 1-D.
In order to appreciate the rival contentions, it-would be appropriate to set out Rule 1-D as it obtained at the relevant time, introduced with effect from October 6, 1967, which now stands omitted by the Wealth Tax (Second Amendment) Rules, lyts9, with effect from April 1, 1989, but materially corresponds to Rule 11 incorporated in Schedule III to the Act inserted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the date Rule 1-D was omitted:--
"1-D. The market value of an unquoted equity shares of any company, other than an investment company or a managing agency company, shall be determined as follows:--
`The value of all the liabilities as 'shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in the balance-sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent. of the break-up value so determined:
Provided that where, in respect of an equity share, no dividend has been paid by such company continuously for not less than three amounting years ending on the valuation date, or in a case where the accounting year of that company does not end on the valuation date, for no less than three continuous accounting years ending on a date immediately before the valuation date, the market value of such share shall be as indicated in the Table below.
THE TABLE
| Number of accounting years ending on the valuation date or in a case where the accounting year does not end on the valuation date, the number of accounting years ending on a date immediately preceding the valuation date, for which no dividend has been paid | Market value |
| Three years | 82-1/2 per cent of the break-up value of such share |
| Four years | 80 per cent -do- |
| Five years | 77- per cent do- |
| Six years and above | 75 per cent-do |
Explanation I-- For the purpose of this rule, "balance-sheet" in relation to any company, means the balance-sheet of such company as drawn up on the valuation date and where there is no such balance-sheet, the balance- sheet drawn up on a date immediately preceding the valuation date and in the absence of both, the balance-sheet drawn up on a, date immediately after the valuation date.
Explanation II.--- For the purpose of this rule--
(i) The following amounts shown as assets in the balance-sheet shall not be treated as assets, namely:-
(a) Any amount paid as advance tax under section 18-A of the Indian Income-tax Act, 1922 (11 of 1922), or under section 210 of the Income-tax Act, 1961 (43 of 1961);
(b) Any amount shown in the balance-sheet including the debit balance of the profit and loss account or the profit and loss appropriation account which does not represent the value of any asset;
(ii) The following amounts shown, as liabilities in the balance-sheet shalltreated as liabilities, namely:
(a) The paid-up capital in respect of equity shares;
(b) The amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the valuation date at a general body meeting of the company;
(c) Reserves by whatever name called, other than those set apart towards depreciation;
(d) Credit balance of the profit and loss account;
(e) Any amount representing provision for taxation other than the amount referred to in clause (i)(a) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
(f) May amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares."
According to this rule, the market value of an unquoted equity share of a company, other than an investment or managing agency company, has to be determined by deducting the value of all the liabilities as shown in the balance-sheet of the company from the value of all its assets shown therein and the net amount so arrived at is. to be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent. of the break-up value so determined. Explanation II to the said rules which contain two clauses, however, provides that for the purpose of Rule 1-D, two types of assets showing the balance-sheet shall not be treated as assets and similarly six types of liabilities shown as such in the balance-sheet shall not be treated as liabilities.
As noted above, after the authoritative pronouncement of the Supreme Court in Bharat Hari Singhania's case (1994) 207 ITR 1, the controversy with regard to the question as to whether rule 1-D is mandatory or not which raged for quite some time on account of divergence of opinion between various High Courts on the issue, has been laid to rest and it has been held that the said rule is mandatory in character and an unquoted equity share is to be valued in accordance with the said rule and the Wealth Tax Officer is bound to follow and apply unreservedly and without exception the mandate of the rule in each and every case. It is not a matter of choice or option. It has been further observed that if this method was not to be followed, there is no other method prescribed by the rules. At this stage, it would be advantageous to notice the following observations of the Supreme Court in the said judgment as these will have a bearing on the issue involved which we shall revert to hereafter (at page 15):--
"The next argument that Rule 1-D is not mandatory but directory proceeds upon a certain misconception. A provision is said to be directory when the absence of a strict or literal compliance with it - and in some cases even non-compliance with it -- may not vitiate the thing done. On the other hand, a mandatory provision is one, which has to be obeyed in its letter and spirit and anything done without such compliance stands vitiated. Counsel for the assessees, however, do not understand the said expressions in the above sense. What they really say is that following Rule 1-D should be optional. According to them, in all cases, except in the case of companies ripe for winding up, Rule 1-D ought not to be followed and that only the yield method should be. This is really substituting a rule of the choice of the assessees in the place of the rule made by the rule-making authority under section 46 of the Act. If the rule is good and valid as we find it to be, it has to be followed in each and every case. It is not a matter of choice or option. The rule-making authority has prescribed only one method for valuing the unquoted equity shares. If this method were not to be followed, there is no other method prescribed by the rules. The acceptance of the assessees' contention would mean that it would be open to the Wealth Tax Officer to adopt such other method of valuation as he thinks appropriate in the circumstances. This is bound to lead to vesting of uncalled for wide discretion in the hands of the Wealth Tax Officers/valuing authorities. It would lead to uncertainty and may be arbitrariness in practice. Where there is a rule prescribing the manner in which a particular property has to be valued, the authorities under the Act have to follow it. They cannot devise their own ways and means for valuing the assets. It is equally well to remember that Rule 1-D does not treat the break-up value as the market value. A deduction of 15 per cent is made in the break-up value to write at the market value. It is equally relevant to notice that Rule 1-D uses the expression "shall", which prima facie indicates its mandatory character:'
But the question which requires consideration in the first instance is whether at the time of working out the market value of an unquoted equity share in accordance with the formula devised in the said rule, any further adjustments or alterations or modifications in the relevant balance-sheet of the company other than those prescribed in Explanation II to the said Rules could be made. In other words, are the amounts/figures reflected in the balance -sheet of the company sacrosanct in so far as the said rule is concerned.
The objective of the valuation process, which by itself is a tough liability is to make a best reasonable judgment of the value of an asset-- in the present case an unquoted equity share. There may be several methods of valuing an unquoted equity share. Each of the methods will have its own merits and demerits. It may be advantageous to one and disadvantageous to another. It is practically impossible either for the Legislature or for the rule-making authority under section 46 of the Act to visualize each and every 'circumstance/factor which may be relevant, even remotely, to bring out a tailor-made formula to suit each and every situation to determine the correct market value of an asset. For example, even in respect of the two well recognised methods of valuation of shares, viz., the "yield method" and "break up method", there has been a serious debate as to which method would suit which situation best. There has been a sharp division between the various High Courts on the question which to some extent is involved in the present case also, whether Rule 1-D has to be interpreted literally or not. The break-up method as prescribed in Rule 1-D was being criticized by the assessee on the ground that it brought about a situation unrelated to realities and was unfair to them in general and as a matter of tact, some High Court did uphold the assessee's objection. Suffice it to say that no method for valuation of an asset can be fool-proof and exact As observed by the Supreme Court, it is "a very daunting task indeed even for the most efficient and expert valuer". Taking all these factors into account the rule-making authority has found the break-up method as the most appropriate method for valuing the unquoted shares and has chosen it for the purpose. The Supreme Court having expressed satisfaction with the break-up method adopted by Rule 1-D that it leads to a proper determination of the market value of the unquoted share, it seems difficult for us to say that the procedure prescribed in the said rule is not to be adhered to strictly or that the rule permits of modifications/adjustments in the balance-sheet of the company other than those provided in Explanation II to the said Rule. In our view, therefore, the balance-sheet of the company for the relevant period, as mentioned in Explanation I to Rule 1-D, is sacrosanct and provides a limited canvas to the Wealth Tax Officer to play thereon. The only adjustments/modifications which can be made in the balance-sheet are those which strictly fall within the ambit of Explanation 11 to the said rule and no other. Support to this view is lent by the Supreme Court's decision in the case of Bharat Hari Singhania (1994) 207 ITR 1 wherein, dealing with the principle laid down in its earlier decision in CWT v. Mahadeo Jalan (1972) 86 ITR 621, it observed that as compared to other methods, viz., dividend yield method, earning method or the combination of the two, the break-up method incorporated in Rule 1-D is far simpler and less time-consuming. The Court observed that the said Rule prescribes a simple uniform method to be followed in a case. What the Wealth Tax Officer has to do is to take the balance-sheet delete some items from the columns relating to assets and liabilities as directed by Explanation 11 and then apply the formula contained in the Rule. He need not look into the profitability, the earning capacity and the various other factors mentioned in propositions (2), (3) and (4) of the decision in Mahadeo Jalan's case (1972) 86 ITR 621 (SC). In the said judgment, the Court again held that "no other amounts like provision for taxation, provident fund and gratuity, etc." can be deducted while applying Rule 1-D. The rule has to be construed according to its plain language and neither should anything be added thereto nor subtracted therefrom. The meaning and the extent to which the rule applies has to be collected from the plain and unambiguous expression used therein rather than from any notions which the assessee might entertain as to what is just or equitable. We do not find any ambiguity in Rule 1-D necessitating reading into the rule something more than what is prescribed therein. We are, therefore, unable to agree with learned counsel that the amounts/value of the assets and liabilities shown in the balance-sheet are not final and can be tampered with by the Wealth Tax Officer even for those assets and liabilities not referred to in Explanation II to the said rule.
Having held so, we are also of the view that for the purpose of Rule 1-D it is not necessary for the Wealth Tax Officer to determine the real net worth or the real net asset value of the company by taking into account the value of each of the assets and deducting therefrom the value of all liabilities attached thereto. In other words, the determination of the net wealth of the company within the meaning of section 2(m) of the Act has no bearing on the valuation of unquoted equity share of that company in terms of Rule 1-D. In that view of the matter, we do not consider it necessary to go into the question as to whether the amount of enhanced compensation could be treated as an asset within the meaning of section 2(e) of the Act. We, therefore, endorse the view taken by the Tribunal that the value of the enhanced compensation, as reflected in the balance-sheet of the company, cannot be excluded while applying Rule 1-D.
The only other question which survives for consideration is as to, whether the tax liability of the company on the additional compensation received by it could be taken into account while applying Rule 1-D. As noted above, Explanation II also refers to the amounts shown as liabilities for the purpose of the Rule. The items of liabilities, which have to be disregarded are specified in clause (ii) of the said Explanation. Sub-clause (e) of clause (ii) of the Explanation prescribes that any amount representing provision for taxation (other than the amount referred to in clause (i)(a) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto shall not be treated as a liability. In other words, the said sub-clause does provide for a particular adjustment being made in the balance-sheet. Having held that the said rule as a whole is comprehensive and any adjustments/modifications, if called for, have to be within the ambit of Explanation II. We are afraid, we cannot accept the alternative contention of ID the assessees that the value of the additional compensation taken as an asset may at least be reduced by the company's liability towards the payment of income-tax on this compensation. The liability has neither been provided for in the relevant balance-sheet nor is there any provision in Explanation II for such an adjustment. We are, therefore, unable to agree with the Tribunal that the tax liability in respect of the enhanced compensation, though not shown in the balance-sheet of the company should be allowed as deduction while computing the value of an unquoted share of the company in accordance with Rule 1-D.
In view of the foregoing discussion, over answers to the questions referred in each of the references are as under:--
Wealth Tax References Nos.87 to 96 of 1978 :
Questions Nos. l and 2 are answered in the negative, that is, in favour of the Revenue and against the assessee and question No.3 is answered in the affirmative, in favour of the Revenue and against the assessee.
Wealth Tax References Nos. 101 to 106 of 1982:
Question No.1 is answered in the affirmative, in favour of the Revenue and against the assessee and question No.2 is answered in the negative in favour of the Revenue and against the assessee.
Wealth Tax References Nos.142 to 147 of 1983:
The question is answered in the affirmative, in favour of the Revenue and against the assessee.
There will be no order as to costs.
M.BA./809/F.T.Reference answered.