Advance Tax Not Deductible for Book Profit Calculation of Unquoted Shares Market Value

The High Court of GAUHATI held that advance tax paid cannot be deducted from the provision made for tax payable on book profit for computing the market value of unquoted equity shares. Following the Supreme Court's interpretation in Bharat Hari Singhania v. CWT [1994] 207 ITR 1 (SC), the High Court ruled that advance tax should not be treated as an asset for the purpose of rule 1D. Consequently, the matter was remanded back to the Tribunal for disposal in line with the law and the Supreme Court's judgment. The Revenue's appeals were dismissed.

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Issues:
Interpretation of rule 1D of the Wealth-tax Rules, 1957 regarding deduction of advance tax from provision made for tax payable on book profit for computing market value of unquoted equity shares.

Detailed Analysis:
The judgment by the High Court of GAUHATI involved an application under section 27(1) of the Wealth-tax Act, 1957, where the Tribunal had referred a common question regarding the deduction of advance tax from the provision made for tax payable on book profit for computing the market value of unquoted equity shares. The Assessing Officer had deducted advance tax from the provision made for tax payable on book profit to determine the excess provision for taxation. The Appellate Assistant Commissioner directed the Wealth-tax Officer to exclude only the excess provision from the liabilities side, following a judgment of the Gujarat High Court. The Tribunal upheld this decision, stating that advance tax paid could not be deducted from the tax payable for determining the excess provision for taxation. The Revenue's appeals were dismissed by the Tribunal, leading to the reference before the High Court.

The High Court noted that the Supreme Court's decision in Bharat Hari Singhania v. CWT [1994] 207 ITR 1 (SC) had already interpreted rule 1D and advance tax under the Income-tax Act. The Supreme Court clarified that advance tax paid, though shown as an asset in the balance-sheet, should not be treated as an asset for the purpose of rule 1D. The Court further explained that the provision for taxation specified in the balance-sheet should only include the amount equal to the tax payable with reference to book profits, excluding any excess amount. The judgment emphasized that advance tax paid should not be shown as both an asset and a liability in the balance-sheet.

Based on the Supreme Court's interpretation, the High Court concluded that the question referred to them was no longer relevant and remanded the matter back to the Tribunal for disposal in accordance with the law and the Supreme Court's judgment in Bharat Hari Singhania v. CWT [1994] 207 ITR 1 (SC). The reference was disposed of, and a copy of the judgment was to be transmitted to the Tribunal for further action.

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