COMMISSIONER OF WEALTH-TAX vs. INDUKUMAR C PATEL

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WTR/37/1990HC GujaratGJHC24013556199002 September 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE2 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the Tribunal was in error. The Court relied on the Supreme Court's decision in BHARAT HARI SINGHANIA v. C.W.T. (207 ITR 1). The Supreme Court had clarified that Rule 1-D of the Wealth Tax Rules, 1957, is exhaustive for valuing unquoted equity shares. It mandates that no deductions are admissible for provisions like gratuity, taxation, or provident fund when applying this rule. Therefore, the gratuity liability, whether provided in books or not, could not be deducted for the purpose of working out the break-up value of shares under Rule 1-D. The question referred to the High Court was answered in the negative, in favour of the Revenue and against the assessee.

What were the facts?

The Commissioner of Wealth-Tax (Revenue) appealed against an order of the Income Tax Appellate Tribunal (Tribunal). The Tribunal had held that a gratuity liability, even if not provided for in the company's books, was required to be deducted when calculating the break-up value of shares under Rule 1-D of the Wealth Tax Rules, 1957. This calculation is relevant for determining the wealth of the assessee for wealth tax purposes. The High Court of Gujarat was asked to decide on a reference made by the Tribunal.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in holding that the gratuity liability not provided in books is required to be deducted for the purpose of working out the break-up value of shares under Rule 1-D of the Wealth Tax Rules, 1957? (Question of law and fact, concerning Rule 1-D of the Wealth Tax Rules, 1957). Assessee's contention: The Tribunal held that gratuity liability, even if not booked, should be deducted for calculating the break-up value of shares under Rule 1-D. Revenue's contention: The Revenue disagreed with the Tribunal's view. The judgment does not explicitly state the Revenue's arguments beyond their disagreement with the Tribunal's finding.

Which sections of the Income-tax Act were involved?

Section 27(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

WEALTH TAX REFERENCE No 37 of 1990

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? Yes

2.

To be referred to the Reporter or not? No 3. Whether Their Lordships wish to see the fair copy of the judgement? No 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? No 5. Whether it is to be circulated to the Civil Judge? No -------------------------------------------------------------- COMMISSIONER OF WEALTH-TAX Versus INDUKUMAR C PATEL -------------------------------------------------------------- Appearance: MR BB NAIK FOR MR MANISH R BHATT for Petitioner Respondent No. 1 SERVED

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CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE Date of decision: 02/09/98

ORAL JUDGEMENT

( Per R.K.Abichandani, J.)

The Income Tax Appellate Tribunal has referred

the following question for the opinion of this Court under Section 27 (1) of the Wealth Tax Act, 1957:

"Whether the Appellate Tribunal is right in law and on facts in holding that the gratuity liability not provided in books is required to be deducted for the purpose of working out the break-up value of shares under Rule 1-D of the Wealth Tax Rules, 1957?"

2.

The Appellate Tribunal dismissed the appeal of the Revenue holding that the gratuity liability was required to be deducted for the purpose of working out the break-up value of shares under Rule 1-D of the Wealth Tax Rules, 1957. 3. We have now the benefit of the decision of the Apex Court in BHARAT HARI SINGHANIA v. C.W.T. reported in 207 ITR 1 in which the Supreme Court while construing the provisions of Rule 1-D 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 deductions 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 1-D was exhaustive on the subject.

4.

In view of the decision of the Supreme Court in BHARAT HARI SINGHANIA v. C.W.T. (supra), we hold that the Tribunal was in error in holding that the gratuity liability not provided in books was required to be deducted for the purpose of working out the break-up value of shares under Rule 1-D of the Wealth Tax Rules, 1957. The question referred to us is, accordingly, answered in the negative in favour of the Revenue and against the assessee. The Reference stands disposed of accordingly with no order as to costs. [KMG Thilake]

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