Net wealth and share valuation: CDS credit balance is includible, while contingent gratuity liability is not deductible under rule 1D.

Credit balance in a CDS account was treated as includible in net wealth for the relevant assessment years, following the special bench view. In valuing unquoted equity shares under rule 1D of the Wealth-tax Rules, 1957, actuarially valued gratuity liability was held not deductible because gratuity payable on retirement, resignation, death, or disablement was treated as a contingent liability, and contingent liabilities are excluded from the liability side under Explanation II(ii)(f). The note states that the Wealth-tax Officer's valuation was restored and the Revenue succeeded on both issues.

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Issues: (i) Whether the assessee's credit balance in the CDS account was includible in net wealth for the relevant assessment years. (ii) Whether actuarially valued gratuity liability was deductible while valuing unquoted equity shares under rule 1D of the Wealth-tax Rules, 1957.

Issue (i): Whether the assessee's credit balance in the CDS account was includible in net wealth for the relevant assessment years.

Analysis: The credit balance in the CDS account was treated as part of the assessee's net wealth. The earlier deletion by the Commissioner (Appeals) was not sustained, as the Tribunal followed the special bench view that such credit balance is includible in net wealth.

Conclusion: The credit balance in the CDS account was includible in net wealth, and the Revenue succeeded on this issue.

Issue (ii): Whether actuarially valued gratuity liability was deductible while valuing unquoted equity shares under rule 1D of the Wealth-tax Rules, 1957.

Analysis: Rule 1D, read with Explanation II(ii)(f), excludes any amount representing contingent liabilities from the liability side in the break-up valuation of unquoted shares. Gratuity payable on retirement, resignation, death, or disablement was treated as a contingent liability, and its actuarial present value could not be introduced as a deductible liability. The provision in the Payment of Gratuity Act, 1972 also showed that gratuity becomes payable only on the specified contingencies. Accordingly, actuarially valued gratuity liability was not an allowable deduction under rule 1D.

Conclusion: Actuarially valued gratuity liability was not deductible while valuing unquoted shares under rule 1D, and the Revenue succeeded on this issue.

Final Conclusion: The valuation adopted by the Wealth-tax Officer was restored, and the Revenue's appeals were allowed.

Ratio Decidendi: Under rule 1D of the Wealth-tax Rules, 1957, contingent liabilities are excluded from share valuation, and actuarially computed gratuity liability, being contingent in nature, is not deductible in computing the value of unquoted shares.

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