Advance tax in unquoted share valuation need not reduce tax provision on the liability side under rule 1D.

While valuing unquoted equity shares under rule 1D of the Wealth-tax Rules, advance tax paid by the company was to be excluded from the asset side without making a corresponding reduction from the provision for taxation shown as a liability. The Tribunal accepted that tax payable with reference to book profits could not be reduced by the amount of advance tax already paid and left out of consideration in the valuation exercise, and treated that approach as consistent with its earlier view and supported by Bombay High Court authority. On that basis, the valuation adopted by the lower authority was upheld.

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Issues: Whether, while valuing unquoted equity shares under rule 1D of the Wealth-tax Rules, 1957, the amount of advance tax paid by the company should be excluded from assets without making a corresponding reduction from the provision for taxation shown as a liability.

Analysis: The Revenue sought recomputation on the basis that advance tax was not an asset but that the liability for provision for tax should be reduced by the advance tax amount excluded from the asset side. The Tribunal preferred the view that the tax payable with reference to book profits cannot be reduced by the amount of advance tax paid and left out of consideration in computing value under rule 1D, and noted that this approach was consistent with its earlier view and supported by the Bombay High Court's decision.

Conclusion: The exclusion of advance tax from the asset side did not require a corresponding reduction of the provision for taxation on the liability side, and the valuation made by the lower authority was upheld.

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