COMMISSIONER OF INCOME TAX/WEALTH TAX COMPANIES ZONE, FAISALABAD VS AYUB RAZA, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 132 (2005)

Wealth Tax Rules, 1963---

----R.8(2)(c)(ii)---Manner to determine the break-up value of shares of non-listed company---Principles.

Rule 8(2)(c)(ii) Wealth Tax Rules, 1963 does not in any manner prohibit exclusion of provision for taxation while computing the value per share of a non-listed company. The rule only requires an Assessing Officer that a provision for liabilities in the balance sheet should carefully be scrutinized with a view to exclude therefrom items which should really form part of the reserves. In other words the reserves are to be included in the paid-up capital, while computing valuation per share. However, the provisions for liabilities are to be excluded with the only rider that the Assessing Officer will examine them on case to case basis in order to see if these provisions really form part of reserves or are required to be taken as part of liabilities.

W.T.A. No.3 of 2002 and W.T.A. No.20 of 2002 fol.

Mian Yusuf Umar for Appellant.

ORDER

The question of law claimed by the Commissioner of Income Tax/Wealth Tax to arise in the present appeal is as to whether provision for taxation and/or deferred taxation was the ascertained liability of the company in terms of rule 8(2)(c)(ii) of the Wealth Tax Rules, 1963 and was, therefore, deductible in determining the break up value of the shares.

2. The above question as raised in this appeal was considered and decided by the Honourable Division Bench of this Court in a number of judgments including judgment, dated 12-6-2003 in W.T.A. No.3 of 2002 and judgment, dated 12-6-2003 in W.T.A. No.20 of 2002. Interpreting the provisions of Rule 8(2)(c)(ii) of the Wealth Tax Rules, 1963 which prescribes the manner to determine the break up value of shares, the Honourable Division Bench held that:

"(8) That rule does not in any manner prohibit exclusion of

provision for taxation while computing the value per share of a non-listed company. The rule only requires an Assessing Officer that a provision for liabilities in the balance-sheet should carefully be scrutinized with a view to exclude therefrom items which should really form part of the reserves. In other words the reserves are to be included in the paid up capital, while computing valuation per share. However, the provisions for liabilities are to be excluded with the only rider that the Assessing Officer will examine them on case to case basis in order to see if these provisions really form part of reserves or are required to be taken as part of liabilities

(9) Since the view adopted by the Tribunal is supported by the aforesaid provisions of rule as well as the authoritative pronouncement made by this Court as well as by the Supreme Court of Pakistan, we will return an affirmative answer to the questions."

3. The question of law raised in the present appeal is the same. Being in respectful agreement with the reasons and the principle settled in the above referred judgments in WTA No.3 of 2002 and WTA No.20 of 2002, this appeal is also decided in terms thereof.

M.B.A.IC-116/LOrder accordingly.