COMMISSIONER OF WEALTH TAX VS ARUN K. PARIKH
2001 P T D 2551
[248 I T R 379]
[Gujarat High Court (India)]
Before R. K. Abichandani and A.R. Dave, JJ
COMMISSIONER OF WEALTH TAX
versus
ARUN K. PARIKH and others
Wealth Tax References Nos. 10, 10A, 10B, 10C 1and 10D of 1992, decided on 02/09/1998.
Wealth tax‑----
‑‑‑‑ Valuation of assets ‑‑‑Unquoted equity shares of private limited company‑‑ Valuation to be made as per R.1D of Wealth Tax Rules, 1957, R, 1D. I
Rule I D of the Wealth Tax R 57, has 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.
Bharat Hari Singhania v. CWT (1994) 207 ITR I (SC) Fol.
CWT v. Ashok K. Parikh (1981) 129 ITR 46 (Guj.) ref
B.B. Nark and Manish R. Bhatt for the Commissioner.
JUDGMENT
R.K. ABICHANDANI, J.‑‑‑The Income‑tax Appellate Tribunal has referred the following common question for, to opinion of this Court under section 27(T) of the Wealth Tax Act, 1957 ".
"Whether the Tribunal is right in law and on facts in directing that the value of unquoted equity shares of private limited companies be worked out as per rule 1D of the Wealth Tax Rules as interpreted by the Gujarat High Court in the case of CWT v. Ashok K. Parikb (1981) 129 ITR 46?"
The Tribunal dismissed the appeals of the Revenue holding that there was no substance in the objection raised by the Department in view of the decision of this High Court in the case of Ashok K. Parikh (1981) 129 ITR 46. In Ashok K. Parikh (1981) 129 ITR 46, this Court had taken a view, while construing clauses (i)(a) and (ii)(e) of Explanation II to rule 1D~ 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 1D of the said Rules.
The dispute centers around the treatment to be given to .the advance tax paid, shown on the assets aside of the balance‑sheet of the company while working out the value of the equity shares on break‑up value method. At the time of making of references 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 rule 1D 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 held that while valuing the unquoted equity shares under rule 1 D, no deduction 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 1D was exhaustive on the subject.
The Supreme Court while construing the provisions of the said rule 1D read with Explanation II(ii)(e) of the said Rules held that, truly speaking the advance tax paid is not really an asset, but, the pro froma 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 from the list of assets for the purpose of rule 1D. 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 different 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 Bharat Hari Singhania v. CWT (1994) 207 ITR 1, the question referred to this Court is answered in the negative in favour of the Revenue and against the assessee. The references stand disposed of accordingly with no order as to costs.
M. B. A./957/F Reference answered.