Share valuation under rule 1D requires deduction of disclosed tax liabilities not provided for in the balance sheet.

For valuation of shares under rule 1D of the Wealth-tax Rules, the company's income-tax and surtax liability on book profits, though not provided for in the accounts but disclosed in the auditors' notes, had to be treated as a deductible debt. The balance sheet was required to be read as a whole, including the auditors' notes, to reflect the true state of affairs and avoid a distorted break-up value. As rule 1D did not exclude such disclosed liability, the unprovided taxation liability had to be worked out and deducted in computing share value.

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Issues: Whether, for valuation of shares under rule 1D of the Wealth-tax Rules, 1957, the company's income-tax and surtax liability not provided for in the accounts but disclosed in the auditors' notes had to be deducted as a debt in arriving at the break-up value.

Analysis: The dispute was confined to the computation of break-up value under rule 1D. The liability for taxation on book profits was a real debt of the company on the valuation dates and, in principle, was deductible from the aggregate value of assets. Reading only the figures in the balance sheet while ignoring the auditors' notes would give a distorted picture and would defeat the object of the rule. The balance sheet had to be read in its entirety, and the auditors' notes formed part of the material to ascertain the true state of affairs. Since rule 1D did not prohibit taking into account a liability highlighted in the auditors' notes, the unprovided taxation liability had to be worked out and deducted.

Conclusion: The unprovided taxation liability was required to be deducted while valuing the shares under rule 1D, and the share values for the relevant valuation dates were to be recomputed accordingly.

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