Accrued liabilities in break-up valuation: super-tax provision disallowed, but contractual bonus liability remained deductible.

For wealth-tax valuation of unquoted shares under the break-up method, only liabilities that have accrued or crystallised by the valuation date are deductible. A provision for additional super-tax under section 104 was not deductible because the liability arose only on a prior determination order and had not crystallised before valuation. By contrast, an accrued bonus liability under an existing employee agreement remained deductible even though no separate provision appeared in the balance-sheet, because the omission in accounts did not affect the underlying obligation.

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Issues: (i) whether provision for additional super-tax under section 104 of the Income-tax Act, 1961, could be deducted while computing the break-up value of the shares for wealth-tax purposes; and (ii) whether liability for bonus payable under the employee agreement, though not provided in the balance-sheet, was deductible in computing the break-up value.

Issue (i): whether provision for additional super-tax under section 104 of the Income-tax Act, 1961, could be deducted while computing the break-up value of the shares for wealth-tax purposes.

Analysis: Liability for additional super-tax under section 104 does not arise automatically by operation of law. It arises only when an order determining the company's liability is made by the Income-tax Officer. Therefore, unless such an order exists before the material valuation date, the provision shown in the balance-sheet cannot be treated as a deductible liability in valuing the shares under the break-up method.

Conclusion: The provision for additional super-tax was not deductible in computing the break-up value of the shares, in favour of the Revenue.

Issue (ii): whether liability for bonus payable under the employee agreement, though not provided in the balance-sheet, was deductible in computing the break-up value.

Analysis: The bonus liability arose under an existing agreement governing payment to employees, and the obligation had accrued to the company. The omission to make a book provision in the balance-sheet did not alter the existence of the liability. Such accrued liability had to be taken into account in determining the break-up value.

Conclusion: The liability for bonus was deductible in computing the break-up value, in favour of the assessee.

Final Conclusion: The reference was answered partly for the Revenue and partly for the assessee, with deduction denied for the super-tax provision but allowed for the bonus liability.

Ratio Decidendi: For wealth-tax valuation of unquoted shares under the break-up method, only liabilities that have accrued or crystallised by the valuation date are deductible; a provision for additional super-tax under section 104 is not deductible unless the liability has been determined by a prior order, while an accrued contractual bonus liability remains deductible even if not separately provided in the accounts.

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