Tax payable under rule 1D is the gross tax on book profits; advance tax is not deducted in valuation.

For valuing unquoted equity shares under rule 1D of the Wealth-tax Rules, 1957, Explanation II(ii)(e) requires the tax payable with reference to book profits to be taken as the gross tax on those profits, without deducting advance tax already paid. Advance tax is separately excluded from assets under Explanation II(i)(a), and reading a further deduction into clause (ii)(e) would add words not found in the rule and disturb the balance-sheet adjustment scheme. The provision for taxation is therefore compared against the full tax payable on book profits when testing whether it is excessive.

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Issues: Whether, for the purpose of Explanation II(ii)(e) to rule 1D of the Wealth-tax Rules, 1957, the tax payable with reference to book profits is to be computed after deducting advance tax already paid.

Analysis: Rule 1D requires the break-up value of unquoted equity shares to be computed from the balance-sheet, subject to specific exclusions from assets and liabilities under Explanation II. Advance tax is expressly excluded from assets under clause (i)(a), while clause (ii)(e) excludes from liabilities only the excess of provision for taxation over the tax payable with reference to book profits. The decisive question was whether the words "tax payable" mean the gross tax on book profits or the net tax after deducting advance tax. The construction adopted by the Court treated clause (ii)(e) as referring to the total tax payable on the basis of book profits, without reducing it by advance tax, because reading such a deduction into the clause would add words not found in the rule and would unsettle the scheme of the balance-sheet adjustments.

Conclusion: The tax payable under Explanation II(ii)(e) is the gross tax on book profits, and advance tax already paid is not to be deducted while testing whether the provision for taxation is excessive. The question was answered in favour of the assessee and against the Revenue.

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