COMMISSIONER OF WEALTH TAX VS MASTER ROHIT BAGARIA
1999 P T D 1248
[233 I T R 220]
[Gauhati High Court (India)]
Before V. D. Gyani and P. C. Phukan, JJ
COMMISSIONER OF WEALTH TAX
Versus
MASTER ROHIT BAGARIA and others
Wealth Tax Reference No.3 of 1992, decided on 05/02/1998.
Wealth tax--
---- Valuation---Unquoted equity shares other than shares of investment company or managing agency company---Provision for taxation---Amount of advance tax already paid to be deducted from provision if shown as part of liability---Indian Wealth Tax Act, 1957, R.1-D.
Explanation II in Rule 1-D of the Wealth Tax Rules, 1957, contains two clauses. Clause (i) provides that two items shown as assets in the balance-sheet shall not be treated as assets for the purpose of Rule 1-D. Similarly, clause (ii) says that six items shown as liabilities in the balance sheet shall not be treated as liabilities for the purpose of Rule 1-D. In other words, the balance-sheet of the company with the aforesaid modifications shall be the basis for working the rule. If in the case of the balance-sheet of any company, the amount of advance tax paid is also shown as a liability, i.e., if the said amount is included in the amount set apart as provision towards taxation, it would obviously have to be deleted from the column of liabilities and this is also what the aforesaid words in clause (ii)(e) say. Clause (ii)(e) is in a sense complementary to clause (i)(a). 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. What clause (i)(a) does is to remove the said amount from the list of assets for the purpose of Rule 1-D. 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.
Bharat Hari Singhania v. C.W.T. (1994) 207 ITR 1 (SC) fol.
C.W.T. v. Ajoy Kumar Saharia W.T.R. No. l of 1996 and C.W.T. v. Ashok K. Parikh (1981) 129 ITR 46 (Guj.) ref.
G. K. Joshi and M. Bhuyan for the Commissioner.
Nemo for the Assessee.
JUDGMENT
V. D. GYANI, J.---On an application under section 27(1) of the Wealth Tax Act, 1957, made by the Commissioner of Wealth Tax, N.E. Region, Shillong, the Tribunal, vide orders, dated January 29, 1991, and January 30, 1991, passed in W.T.As. Nos.62, 63 and 65 to 67 (Gau) of 1989 has referred to the following question which is common to all the appeal numbers mentioned above.
"Whether, on the facts and in the circumstances of the case and on a proper construction of sub-clause (a) of clause (ii) of Explanation II of Rule 1-D of the Wealth Tax Rules, 1957, the Tribunal was justified in upholding the order of the Appellate Assistant Commissioner who directed the Assessing Officer to deduct only the excess of the tax payable with reference to book profit and not the entire advance tax paid appearing in the balance sheet?"
The basic facts for constituting the reference are that the assessee with their respective different status had unquoted equity shares varying in different number of Steels worth (Pvt.) Ltd. and India Udyog Ltd. The Assessing Officer while computing the assessable wealth tax computed the market value of these unquoted equity shares as per Rule 1-D of the Wealth Tax Rules, 1957. While so computing the market value, the Assessing Officer also deducted advance tax from provision made as to tax payable on book profit in order to arrive at the excess provision made for taxation. Having worked out the break-up value of these unquoted equity shares, the Assessing Officer finally determined their market value. It was contended by the assessee that the method adopted by the Assessing Officer was not the correct method. Appeals were preferred against the order and the matter was agitated before the Appellate Assistant Commissioner, Wealth Tax. The Appellate Assistant Commissioner following a judgment of the Gujarat High Court in C.W.T. v. Ashok K. Parikh (1981) 129 ITR 46 and the orders made by the Tribunal of the Gauhati Bench in the case of W.T.O. v. Kailash Bagaria set aside the assessment order and directed the Wealth Tax Officer to exclude that much of provision from the liabilities side which was in excess of the tax payable with reference to the book profit. Aggrieved by this, the Revenue preferred an appeal before the Tribunal. It was contended by the Revenue that the Appellate Assistant Commissioner was not justified in directing the Wealth Tax Officer to exclude only that much of provision of taxation from liability which was in excess from the tax payable from the book profit of the concerned assessment year. The Tribunal relying on the case of Ashok K. Parikh (1981) 129 ITR 46 (Guj.) affirmed the order as passed by the Appellate Assistant Commissioner and reiterated its view that for determining the market value of shares according to Rule 1-D of the Wealth Tax Rules, the advance tax paid under section 210 of the Act and shown on the assets side of the balance-sheet could not be deducted from the tax payable for arriving as to whether the provision of taxation was in excess over the tax payable with reference to the book profit. The appeals preferred by the Revenue were dismissed by the Tribunal. It was at the instance of the Commissioner that the above question alongwith the statement of case has been placed before this Court for its opinion. Incidentally also noting that identical questions of law in the case of some other assessee of Jalan group having unquoted equity shares of Steelsworth (Pvt.) Ltd. had already been referred to this Court. A similar question arose in Wealth Tax Reference No. l of 1996, C.W.T. v. Ajoy Kumar Saharia.
None appears for the assessee. Mr. Joshi, learned standing counsel for the Revenue, referring to Bharat Hari Singhania v. C.W.T. (1994) 207 ITR 1 (SC) submitted that the question as referred to is fully covered by this decision. The Supreme Court interpreting Rule 1-D and the advance tax as paid under section 210 of the Income-tax Act, the provision for taxation as specified in the balance-sheet and the amount represented for has explained the legal position in the following words (page 31):
"Explanation II in Rule 1-D contains two clauses. Clause (i) provides that two items shown as assets in the balance-sheet shall not be treated as assets for the purpose of Rule 1-D. Similarly, clause (ii) says that six items shown as liabilities in the balance-sheet shall not be treated as liabilities for the purpose of Rule 1-D. In other words, the balance-sheet of the company with the aforesaid modifications shall be the basis for working the rule. Schedule VI to the Companies Act, as already stated, prescribes the form in which the balance-sheet of a company has to be prepared. Of the four columns provided therein, columns (2) and (3) relate to liabilities and assets. The advance tax paid under section 210 of the Income tax Act, though already paid, is shown as an asset as required by Schedule V1. Clause (i)(a) of Explanation II, however, says that it shall not be treated as an asset. To this extent, it is in favour of the assessee because the assets as shown in the balance-sheet will stand reduced to that extent. Now, clause (ii)(e) says that in case the balance-sheet specifies any amount as 'provision for taxation' in the column of liabilities, the Wealth Tax Officer shall treat only that amount as a liability which is equal to the tax payable with reference to the book profits. Any excess over the said amount shall not be treated as a liability. Sub-clause (e) of clause (ii) white referring to the 'amount representing provision for taxation' qualifies the said words by the words following, viz., 'other than the amount referred to in clause (i)(a)' . This is as it ought to be. The amount referred to in clause (i)(a) is shown in the balance-sheet as an asset whereas clause (ii)(e) speaks of an amount shown as a liability in the balance-sheet. Now no company would show the amount of advance tax paid, which is shown as an asset in the column relating to assets, simultaneously as a liability in the column of liabilities. The same amount cannot be shown both as an asset as well as a liability. No auditor would be a party to the preparation of such a balance-sheet. Ordinarily, therefore, there will be no occasion for the Wealth Tax Officer to rely upon the said words 'other than the amount referred to in clause (i)(a). However, if in the case of the balance-sheet of any company, the said amount of advance tax paid is also shown as a liability, i.e., if the said amount is included in the amount set apart as provision towards taxation, it would obviously have to be deleted from the column of liabilities---and this is also what the aforesaid words in clause (ii)(e) say. Clause (ii)(e) is in a sense complementary to clause (i)(a). 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. What clause (i)(a) does is to remove the said amount from the list of assets for the purpose of Rule 1-D. 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."
Having noted the facts as stated by the Tribunal and the question 'as posed for our opinion, really speaking the question, in view of the aforesaid judgment of the Supreme Court, no longer survives for our opinion, and we remand the matter back to the Tribunal for disposal in accordance with law and in the light of the said judgment, i.e. Bharat Hari Singhania v. C.W.T. (1994) 207 ITR 1 (SC).
The reference stands disposed of.
A copy of this judgment be transmitted to the Tribunal.
M. B. A./1916/FC Order accordingly.