Proposed dividend is not a deductible liability in share valuation until it becomes an enforceable debt after declaration.

In valuing unquoted shares under Rule 1D of the Wealth-tax Rules, a proposed dividend shown in the balance-sheet was not treatable as a liability on the valuation date because it had not been approved by shareholders and remained only a recommendation of the directors. No enforceable debt arises until declaration, so the amount cannot be excluded from assets as a deductible liability. The principle applied is that a dividend provision becomes deductible only when it has ripened into an actual legal obligation after declaration.

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Issues: Whether, in computing the break-up value of unquoted shares under Rule 1D of the Wealth-tax Rules, the amount provided for proposed dividend in the company's balance-sheet could be treated as a liability and excluded from the assets on the valuation date.

Analysis: The provision for dividend had not been approved by the general body meeting on the relevant valuation date and remained only a recommendation of the directors. Until declaration by the shareholders, no enforceable debt arose in favour of the shareholders, and the amount could not be treated as a liability on that date. The established principle applied was that a proposed dividend becomes deductible only when it ripens into an actual liability after declaration.

Conclusion: The proposed dividend was not deductible as a liability in valuing the shares, and the assessment made by the lower authorities was .

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