Rule 1D valuation of unquoted shares: only liabilities subsisting on the valuation date are deductible, not paid or cancelled amounts.

For valuation of unquoted shares under rule 1D of the Wealth-tax Rules, advance tax already paid and shown as a balance-sheet liability is not to be deducted again in computing break-up value. By contrast, a liability under section 23A of the 1922 Act, corresponding to section 104 of the 1961 Act, ceased to be deductible once the Tribunal cancelled it, because only liabilities subsisting on the valuation date can be taken into account even if a reference is pending. The reference was answered partly for the assessee and partly for the Revenue.

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Issues: (i) Whether advance tax payments shown as liabilities in the company's balance-sheet were to be further reduced while valuing unquoted shares under rule 1D of the Wealth-tax Rules, 1957. (ii) Whether a provision for liability under section 23A of the Indian Income-tax Act, 1922 corresponding to section 104 of the Income-tax Act, 1961, which had been cancelled by the Tribunal but was pending in reference, continued to be deductible in computing the break-up value of the shares under rule 1D.

Issue (i): Whether advance tax payments shown as liabilities in the company's balance-sheet were to be further reduced while valuing unquoted shares under rule 1D of the Wealth-tax Rules, 1957.

Analysis: The sums represented advance tax already paid. In view of the applicable precedent, such amounts were not to be treated as liabilities requiring further reduction in the computation of market value under rule 1D.

Conclusion: The issue was answered in the negative and in favour of the assessee.

Issue (ii): Whether a provision for liability under section 23A of the Indian Income-tax Act, 1922 corresponding to section 104 of the Income-tax Act, 1961, which had been cancelled by the Tribunal but was pending in reference, continued to be deductible in computing the break-up value of the shares under rule 1D.

Analysis: The relevant point was the position on the valuation date. Since the Tribunal had cancelled those liabilities, they did not exist on the valuation dates merely because the Department had filed reference applications. A liability that had ceased to exist on the relevant date could not be taken into account for valuation under rule 1D.

Conclusion: The issue was answered in the negative and in favour of the Revenue.

Final Conclusion: The court answered the reference partly in favour of the assessee and partly in favour of the Revenue on the valuation of unquoted shares under the wealth-tax scheme.

Ratio Decidendi: For valuation under rule 1D, only liabilities subsisting on the relevant valuation date can be considered; amounts already paid or liabilities cancelled on that date are excluded from the break-up value computation.

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