COMMISSIONER OF WEALTH TAX VS A. M. M. A. R., LAKSHMI ACHI
2001 P T D 1909
[246 I T R 4681
[Madras High Court (India)]
Before R. Jayasimha Babu and Mrs. A. Subbulakshmy, JJ
COMMISSIONER OF WEALTH TAX
Versus
A.M.M.AR. LAKSHMI ACHI
Tax Case No.1040 of 1988 (Reference No. 802 of 1988), decided on 24/08/1998.
Wealth tax‑---
‑‑‑‑ Valuation of unquoted equity shares‑‑‑Balance‑sheet‑‑‑Sales tax penalty not shown as a liability in balance‑sheet‑‑‑Company succeeding in its challenge to imposition of penalty under Sales Tax Act‑‑‑Sales tax penalty not deductible as a liability‑‑‑Indian Wealth Tax Rules, 1957, R.1 D.
It is the liability which has crystallised that is required to be taken into account and not a liability which is uncertain regarding which finality has not been reached by the disposal of the pending appeals or by the finalisation of the assessment.
The shares that were required to be valued were the shares in a company, which were not quoted in. the stock exchange: While the assessee claimed that the proper value of those shares was Rs.15.50, the Revenue claimed that the value should be Rs.28.38 per share. The company in which the shares were held was T. The assessee claimed that a lower value should have been adopted by taking into account the amount as the liability for payment of sales tax in the notes to the balance‑sheet, although that amount had not been taken into account either in the profit and loss account or in the body of the balance‑sheet. The Tribunal upheld the assessee's claim. On a reference:
Held, (i) that the fact that the company's success in its challenge to the imposition pf penalty under the, Sales .Tax Act was subsequent to the valuation date, and prior to the date of finalisation of the assessment under the Wealth Tax Act would not have the effect of allowing the assessee to treat it as a liability, even when such liability had ceased to exist and such cessation was from the inception. When it was found in this case that the. penalty payable was nil, it could not be said that there was a liability for the .payment of penalty.
(ii) That the Tribunal was not correct in law in holding that the sales tax penalty imposed under the Tamil Nadu General Sales Tax Act was deductible as a liability under rule 1D of the Wealth Tax Rules, 1957, when the company had not shown it as a liability in the balance‑sheet drawn up.
CWT v. Bhatt (K.S.N.) (1984) 145 ITR 1 (SC) fol.
Khorshed Shapoor Chenal (Mrs.) v. Assistant CED (1980) 122 ITR 21 (SC) and CWT v. M.V. Arunachalam (2000) 241 ITR 686 (Mad.) ref.
C.V. Rajan for the Commissioner.
Philip George for the Assessee.
JUDGMENT
R. JAYASIMHA BABU, J.‑‑‑The questions referred to us at the instance of the Revenue are:
"(1)Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sales tax penalty imposed under the Tamil Nadu General Sales Tax Act is deductible as a liability under rule 1D when the company T.I. & M. Sales Ltd., has not shown" it as a liability in the balance‑sheet drawn up? and
(2)Whether, the Tribunal was correct in law in holding & it the decision of the Supreme Court in the case of CWT v. K.S.P. Bhatt (1984) 145 ITR 1. is not applicable to the facts of the case?'
It is not in dispute that the shares that were required to be valued were shares in a company, which were not quoted in the stock exchange. While the assessee's claim that the proper value of those shares was Rs.15.50, the Revenue's claim was that the value should be. Rs.28.3'8 per share. The company in which the shares were held was T.I. & M. Sales Ltd. The assessee claims that a lower value should have been adopted by taking into account the amount shown as the liability for payment of sales tax in the notes to the balance‑sheet, although that amount had not been taken into account either in the profit and loss account or in the body of the balance- sheet. The Tribunal upheld the assessee's claim. The Tribunal also declined to apply the ratio of the judgment of the Supreme Court in CWT v. K.S.N. Bhatt (1984) 145 ITR 1.
Counsel for the assessee sought to sustain the order of the Tribunal. He contended that a prospective share purchaser, will only look at the balance‑sheet of the company and he is not likely to take into account the subsequent event, by which the liability shown in the balance‑sheet may have ceased or been discharged and, therefore, the amount shown as sales tax lability in the notes to the balance‑sheet could not be taken as having ceased to be a liability by reason of the company's success in challenging the imposition of penalty and that amount should be taken as a. liability as on the valuation date. Counsel also contended that the decision of the Supreme Court in .the case of Mrs: Khorshed Shapoor Chenai v. Assistant CED (1980) 122 ITR 21 which was a case of rectification was applicable to that case. It was held by the Supreme Court in that case that re‑opening of an assessment on the ground that the assessee had received a higher compensation for the lands acquired received subsequent to the valuation date did not warrant re opening of the assessment.
These submissions on behalf of the assessee cannot save the assessee from the ratio laid down by the Supreme Court in CWT v. K.S.N. Bhatt (1984) 145 ITR 1, which was directly in point, whereunder the Supreme Court held that in computing the net wealth of the assessee for the wealth tax, the, liabilities towards income‑tax, wealth tax and gift‑tax which crystallise on the relevant valuation date as determined in the respective assessment orders as liabilities, have to be deducted, even though those assessment orders are finalised after the valuation date. It is the liability which has crystallised that is required to be taken into account and not a liability which is uncertain regarding which finality has not been reached by the disposal of the pending appeals or by the finalisation of the assessment.
The fact that the company's success in its challenge to the imposition of penalty under. the Sales Tax Act was subsequent to the valuation date, and prior to the date of finalisation of the assessment under the Wealth Tax Act would not have' the effect of allowing the assessee to treat it as a liability, even when such liability had ceased to exist and such cessation was from the inception. As observed by the Supreme Court in CWT v. K.S.N. Bhatt (1984) 145 ITR 1, once it is determined that the tax liability is "nil". it cannot be said that any amount of tax is outstanding. When it was found as here that the penalty payable is nil, it cannot be said that there was a liability for the payment of penalty.
Similar is the view taken by this Court in CWT v. M.V. Arunachalam (2000) 241 ITR 686.
Counsel for the assessee sough to distinguish the judgment of the Supreme Court in K.S.N. Bhatt's case (1984) 145 ITR 1 contending that it was a case of an individual, while here the computation required to be made is not only with reference to an individual but with reference to a company as well. That makes no difference in principle. If the liability is nil, it is only nil whether it be for a company or for the purpose of determining the valuation of the shares held by the assessee in the company.
We, therefore, answer the two questions referred to us in favour of the Revenue and against the assessee. No costs.
M. B. A./511/FCReference answered.