Wealth-tax valuation treats actual tax liability as a deductible debt, not merely the amount shown in accounts.

For wealth-tax valuation of unquoted shares on the break-up value method, the company's actual income-tax liability on the valuation date was a present and ascertainable debt owed, so any shortfall between that liability and the amount provided in the balance-sheet was deductible in computing net wealth. The assessee's own income-tax and wealth-tax liability, including advance tax already paid, was likewise a deductible debt because it had accrued as a present obligation by the valuation date. The Delhi HC therefore held that the actual tax liabilities, not merely the book provisions, had to be taken into account, and answered both references in favour of the assessee.

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Issues: (i) Whether, for valuing unquoted shares on the break-up value method, the actual tax liability of the company in excess of the amount provided in its balance-sheet was deductible as a debt owed under the Wealth-tax Act, 1957. (ii) Whether the assessee's own income-tax and wealth-tax liability, including advance tax paid, was deductible as a debt owed under the Wealth-tax Act, 1957.

Issue (i): Whether, for valuing unquoted shares on the break-up value method, the actual tax liability of the company in excess of the amount provided in its balance-sheet was deductible as a debt owed under the Wealth-tax Act, 1957.

Analysis: The value of unquoted shares was required to be determined on the basis of the company's assets and liabilities as on the valuation date. The governing principle applied from the Supreme Court decisions was that income-tax liability is a present and ascertainable liability, and the deductible amount is the actual tax liability for the relevant accounting year, not merely the amount entered in the balance-sheet. Where the provision made in the accounts fell short of the true liability, the shortfall remained a debt owed and had to be taken into account in valuing the shares.

Conclusion: The additional amount of tax payable by the company was deductible, and the answer was in favour of the assessee and against the Revenue.

Issue (ii): Whether the assessee's own income-tax and wealth-tax liability, including advance tax paid, was deductible as a debt owed under the Wealth-tax Act, 1957.

Analysis: The assessee's tax liability for the assessment year had become a present obligation on the valuation date and therefore constituted a debt owed. The advance tax already paid formed part of that liability and did not alter its character. The mistaken higher figure mentioned in the reference did not affect the substantive entitlement to deduction of the actual liability.

Conclusion: The entire tax liability was deductible, and the answer was in favour of the assessee and against the Revenue.

Final Conclusion: Both referred questions were answered in favour of the assessee, and the tax liabilities in question were held deductible in computing net wealth.

Ratio Decidendi: For wealth-tax valuation, a present and ascertainable tax liability on the valuation date is a debt owed, and the deductible amount is the actual liability, not merely the amount provided in the accounts.

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