1985 (10) TMI 47 - HC - Wealth-tax

Interpretation of Wealth-tax Rules: Advance tax deducted from provision for taxation in valuing shares.

Commissioner Of Wealth-Tax Versus N. Krishnan

Commissioner Of Wealth-Tax Versus N. Krishnan - [1986] 162 ITR 309, 50 CTR 75, 24 TAXMANN 269 Issues:Interpretation of rule ID of the Wealth-tax Rules, 1957 regarding deduction of advance tax paid from excess provision for taxation in valuing shares of a company.Analysis:The judgment pertains to the interpretation of rule ID of the Wealth-tax Rules, 1957, specifically focusing on whether the advance tax paid by a company should be deducted from the excess provision for taxation in valuing the shares of the company. The case involved an individual holding equity shares in a company and declaring the value of the shares for wealth tax assessment. The Wealth-tax Officer determined a higher share value, subjecting it to tax. The Appellate Assistant Commissioner allowed the appeal, stating that advance tax paid should not be disallowed from the provision for taxation. The Tribunal upheld this decision, leading to the reference before the High Court.The main contention revolved around the interpretation of rule ID of the Rules. The Revenue argued that advance tax should be deducted from the provision for taxation in valuing shares, relying on a Punjab and Haryana High Court ruling. On the other hand, the assessee contended that advance tax should not be considered for deduction, citing a Gujarat High Court ruling. The Court analyzed the language of the rule, emphasizing that advance tax is an asset and should be excluded from the assets side of the balance-sheet. It further explained that the provision for tax payable should be reduced by the amount of advance tax paid to avoid overloading the liabilities side of the balance-sheet.The Court rejected the assessee's argument, deeming it too artificial and not aligned with the purpose of the Act and Rules. It also dismissed the application of dictionary meanings to interpret the rule. Referring to the Punjab and Haryana High Court ruling, the Court emphasized that the tax payable should be calculated after deducting advance tax, not based on the total tax on book profits. Disagreeing with the Gujarat High Court's view, the Court held that the provision for taxation should reflect the actual amount payable after deducting advance tax.In conclusion, the Court answered the question in the negative, favoring the Revenue. Despite the decision against the assessee, each party was directed to bear their own costs in the proceedings.