Actuarial gratuity provision is deductible liability in break-up value computation under Rule 1D, not a contingent liability.

A gratuity provision made on actuarial valuation is treated as a present and direct liability, not a mere contingent liability, for computing the break-up value of unquoted shares under Rule 1D of the Wealth-tax Rules, 1957. On that basis, Explanation II(ii)(f) did not exclude deduction of the gratuity provision, and the amount was rightly deducted in arriving at share value. The referred question was answered in the affirmative, against the Revenue.

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Issues: Whether, for determining the break-up value of unquoted shares under Rule 1D of the Wealth-tax Rules, 1957, the provision for gratuity made on actuarial valuation is to be treated as a deductible liability.

Analysis: A provision for gratuity based on scientific and actuarial valuation is not a mere contingent liability. It represents the present discounted value of the employer's obligation to pay gratuity as and when it becomes due, and therefore constitutes a present, direct and minimum liability of the company. In such circumstances, Explanation II(ii)(f) to Rule 1D of the Wealth-tax Rules, 1957 does not exclude the deduction of the gratuity provision while arriving at the break-up value of shares.

Conclusion: The provision for gratuity was rightly treated as a liability and deducted in computing the break-up value of the shares. The answer to the referred question was in the affirmative and against the Revenue.

Ratio Decidendi: A gratuity provision made on actuarial valuation is a present deductible liability for break-up value computation under Rule 1D, and not a mere contingent liability excluded by the rule.

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