W.T.As. Nos. 316/IB to 318/IB of 2002, decided on 15th August, 2003. VS W.T.As. Nos. 316/IB to 318/IB of 2002, decided on 15th August, 2003., 2004 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1301 (2003)

(a) Wealth Tax Rules, 1963---

----R. 8(2)(c)(ii)---Valuation of shares---Break-up value ---Assessee reduced the losses of retention money and income tax refund which were not refundable from total value of equity of company while calculating break-up value of shares---Assessing Officer rejected such contention and computed the break-up value of shares as per balance-sheet---First Appellate, Authority considering the history of the case and other parallel case directed the Assessing Officer to adopt the value of shares at cost value declared by the assessee---Validity---Shares of a private company were to be valued at break-up value, as shown by the balance-sheet, or at the face value whichever was higher---Total worth of the Company should not be reduced by some amounts which had not been recovered or were not considered recoverable as the Company itself had not recognized such amount as charges in its balance-sheet---If such claim of the assessee was accepted then the balance-sheet of the company had to be rejected as false and that would attract actions under the Company law against the assessee and also "the management as well as the Auditors of the Company---Value assessed by the Assessing Officer was restored by the-Appellate Tribunal.

(b) Wealth Tax---

----Addition in liabilities---Disallowance of---Assessing Officer disallowed the addition in liabilities as there was no addition in the assets as compared to the earlier years and thus no new asset was acquired-- First Appellate Authority allowed such liabilities---Validity---Appellate Tribunal held that in such situation the liabilities were to be allowed-- Only such liabilities were to be disallowed which were secured against, or, which were incurred for the acquisition of assets which were not taxable.

2001 PTD 1496 rel.

Naushad Ali Khan, D.R. for Appellant.

Akhtar Hussain for Respondent.

Date of hearing: 13th August, 2003.

ORDER

INAM ELLAHI SHEIKH (CHAIRMAN).---These three departmental appeals are directed against the order, dated 18-7-2002 recorded by the learned CIT(A) Zone-1 Islamabad. The department has agitated the direction of the, First Appellate Authority, reducing the break-up value of the shares in a Private Limited Company, the allowances of liabilities which were not represented by any taxable assets, direction to except the declared value of agricultural land and the reduction in the value of a house located on College Road Rawalpindi.

2. The relevant facts in brief are that the assessee is a director of a Private Limited Company and also owns shares in it as well as some land said to be agricultural. The assessee filed the return for the year under consideration to declare negative wealth.

3. The main issue involved in all these appeals is the valuation of the shares held in the Private Limited Company by the assessee. The assessee declared value of such shares at Rs.225,100 which were assessed at Rs.4,216,123. The assessee owns 1,873 shares of Rs.100 each out of total capital Rs.25,00,000. The assessee had shown in the calculation of break-up value that there were losses of retention money and income tax refund which were not refundable in all the three years under consideration and thus be assessee reduced the total value of the equity of the company by such amount. The Assessing Officer however rejected such contentions and computed the break-up value of shares as per balance sheet of the Private Limited Company. The learned CIT(A) considering the history of the case and also other parallel case directed the Assessing Officer to adopt the value of shares at cost value declares by the assessee and such direction are under dispute before us.

4. We have considered the submission of both the parties and we have also examined the facts of the case. The shares of a private company are to be valued at break-up value, as shown by the balance sheet, or at the face value whichever is higher. We may sympathise with the assessee for the refunds that may or may not have been realized. However; we are not convinced by the arguments of the learned counsel that the total worth of the Company should be reduced by 'some amounts which have not been recovered or are not considered recoverable as the Company itself has not recognized such amount as charges in its balance sheet. If such a claim of the assessee was accepted than the balance-sheet of the company has to be rejected as false and this would attract actions under company law against the assessee and also the management as well as the auditors of the Company. With these observations we restore the value of the shares as assessed by the Assessing Officer as there is no other dispute on this issue.

5. The assessee declared liabilities owing to the Private Limited Company which are said to have increased over the period. The Assessing Officer has noted that there was no addition in the assets as compared to the earlier years and thus he deduced that no new asset was acquired and thus he disallowed the addition in liabilities. The learned CIT(A) however allowed such liabilities relying on a number of cases mentioned in the order. The Tribunal has held in a number of a cases that in such situation the liabilities are to be allowed. Only such liabilities are to be disallowed which are secured against or, which are incurred for the acquisition of, assets which are not taxable. A reference may be made to the order of the Tribunal reported as 2001 PTD 1496. Hence the order of the learned CIT(A) on this issue is maintained.

6. The next major issue before us is the direction of the learned CIT(A) to accept the status of land as agricultural land and to accept the declare value. The assessee owns certain land which was claimed to be agricultural laud. The Assessing Officer treated the land as non agricultural land and the value of such land at Rs`31,95,000. The total area of land was 42 Kanals and 13 Marlas and the assessee had 1/4th shares therein. The learned CIT(A) directed the Assessing Officer to value this land at Rs.12,500 per Kanals after examination of certain evidence. The main argument of the learned D.R. is that the Assessing Officer has made a proper assessment. We find that the learned CIT(A) has passed a summary order on this issue. In these circumstances we deem it appropriate to set aside the issue of the valuation of the land and remand the cases back to the Assessing Officer for de novo consideration in the light of the facts of the case and also treatment given to the other owners. The assessee may be provided a sufficient opportunity on this issue.

7. The last grievance of the department before us in the valuation of house located on College Road, Rawalpindi. The assessee again has 1/4th share in this house and has declared the value at 88.18,000. The Assessing Officer discarded the value and estimated the total value of house Rs.18,00,000 and assessee's share was adopted at Rs.4,50,000 in the assessment year 1998-99 and 1999-2000. The learned CIT(A) reduced the value of the house to Rs.16,50,000 for the assessment year 1998-99, Rs.16,75,000 for the assessment year 1999-2000 and Rs.17,00,000 for the assessment year 2000-20D1. The learned D.R. was invited to point out the basis of estimation adopted by the Assessing Officer. No such basis was available. Even otherwise we find that the relief allowed is insignificant. Hence, no interference.

8. As a result of the above discussion the departmental appeals succeed to the extent that the value of shares of the Private Company as adopted by the Assessing Officer in all the three years stands restored whereas, the issue of the valuation of land is set aside for de novo consideration.

C.M.A./937/Tax (Trib.)Order accordingly.