Actuarial gratuity provision is not a contingent liability for share valuation; rectification was unjustified.

A gratuity provision computed on actuarial valuation was treated as a known and existing liability, not a contingent liability excluded under rule 1D of the Wealth-tax Rules, 1957, so it had to be considered in valuing unquoted equity shares. The Court also held that the Income-tax Act did not control this issue. Because the original valuation had lawfully taken the gratuity provision into account, there was no mistake apparent from the record to justify rectification under section 61 of the Estate Duty Act, 1953, and the rectification order was unwarranted.

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Issues: Whether, for valuing unquoted equity shares under rule 1D of the Wealth-tax Rules, 1957, the provision for gratuity shown in the balance-sheet was a contingent liability excluded by Explanation II(ii)(f), and whether rectification under section 61 of the Estate Duty Act, 1953 was justified.

Analysis: Rule 1D requires deduction of liabilities shown in the balance-sheet, but excludes contingent liabilities. The decisive question was whether the gratuity provision, when computed on actuarial valuation, represented a contingent liability or an existing liability. The Court held that a provision made on the basis of actuarial valuation is a provision for a known and existing liability, even though payment falls due in the future, and therefore it does not fall within the expression contingent liability. The decision also held that the provisions of the Income-tax Act did not govern this question. Since the original valuation had taken the gratuity provision into account on a lawful basis, there was no mistake apparent from the record warranting rectification under section 61.

Conclusion: The gratuity provision could not be treated as a contingent liability for rule 1D purposes, and the rectification order was unjustified. The question referred was answered in the negative, against the Revenue and in favour of the accountable person.

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