Break-up value of shares: estimated tax liability not shown in the balance-sheet was held non-deductible for gift-tax assessment.

In computing the break-up value of shares for gift-tax assessment, estimated tax liability not reflected in the balance-sheet was held not deductible where the company's existing reserve, advance tax payment and refund entitlement under section 18(5) of the Income-tax Act covered that liability. The factual finding that the liability was thus met was not shown to be vitiated, and the earlier precedent relied on by the HC was treated as inapplicable. On that basis, the deduction was disallowed and the question was answered in favour of the department.

---

---

Issues: Whether, in computing the break-up value of shares for gift-tax assessment, the estimated tax liability not shown in the balance-sheet was deductible.

Analysis: The deduction claimed for estimated tax liability was found to be covered by the company's existing reserve, advance tax paid, and refund entitlement under section 18(5) of the Income-tax Act. That finding was treated as one of fact and was not shown to be vitiated. The earlier precedent on which the High Court had relied was therefore held inapplicable.

Conclusion: The deduction was not allowable, and the question was answered in favour of the department.

---