TaxTMI 
TaxTMI 
1968 (3) TMI 2
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.... being the total number of subscribed shares, he arrived at a valuation of Rs. 443 per share and the value of the shares gifted by the assessee at Rs. 1,38,216. The assessee appealed against the order of assessment and contended before the Appellate Assistant Commissioner that the value of each of these shares would be Rs. 337 and not Rs. 443 as computed by the Gift-tax Officer as the Gift-tax Officer had failed to deduct the income-tax liabilities of the company as on June 30, 1959, amounting to Rs. 5,28,005 from the value of the assets. The Appellate Assistant Commissioner rejected this contention on the ground that the amount claimed was neither paid nor charged as a liability by creating a taxation reserve in the balance-sheet. He confirmed the assessment. On further appeal by the assessee against the order of the Appellate Assistant Commissioner, the Tribunal accepted his contention. The Tribunal observed as follows : " The appellant contends that Rs. 5,28,005, being the amount of the tax liability of the said company, should also be allowed as a deduction in computing the break up value of its shares. The departmental representative has not disputed the quantum of th....
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....omputation of the break up value of the shares of East Ganhodi Colliery (Pvt.) Ltd. which were gifted by the assessee. If the view taken by the Tribunal is upheld by the High Court it is only the actual amount of the tax liability which may have to be deducted, inter alia, from the assets of the company concerned. In that case, the actual amount of tax liability, to be proved by evidence, should be deducted in computing the break up value of the shares and the value of Rs. 337 per share as computed by the assessee would not be regarded as sacrosanct, subject, of course, to what might be said by the High Court, in point. " Strangely enough, in its statement of the case dated the 10th April, 1965, the Tribunal reiterated that the departmental representative did not dispute the quantum of the tax liability but only argued that as it was not provided for in the balance-sheet of the company as a liability, it could not be allowed as a deduction. The Tribunal has referred the following question to this court : " Whether, on the facts and in the circumstances of the case, in determining the market value of the shares of the East Ganhodi Colliery (Pvt.) Ltd. gifted by the assessee....
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....fore the Gift-tax Officer that in determining the break-up values of the shares of these companies, the provisions made in the balance-sheet for taxation and the amount of proposed dividend should be deducted from the value of the assets. This contention was rejected by the taxing authorities and the assessee made an application under article 226 of the Constitution for quashing the order of assessment. D. Sinha J. (as he then was) at page 292 made the following observation : Under the Indian Companies Act, the balance-sheet has to be drawn up in the form prescribed in Schedule VI, part I of the Indian Companies Act, 1956. Under the heading ' Current liabilities and provisions ' must be shown the items ' proposed dividend ' as also ' provisions for taxation '. Thus, the provisions made for taxation or contingencies or payment of dividend are grouped together with ' current liabilities '. This seems to be in accordance with common sense .... Similarly, in the case of provisions for taxation ' a buyer in the open market will deduct it from the assets, because this is a liability and he will doubtlessly consider that the amount of taxation will have to be paid, and will eventually ....
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.... liabilities, which are easily ascertainable, at the end of the accounting year should be deducted. Dr. Pal referred to the decision of the Supreme Court in Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax, where at page 784 the following observation is made : " A liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data. There is a perfected debt at any rate on the last day of the accounting year and not a contingent liability. The rate is always easily ascertainable. If the Finance Act is passed, it is the rate fixed by that Act ; if the Finance Act has not yet been passed, it is the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favourable to the assessee. " It was further observed that looking from a practical standpoint also, there could not possibly be any difficulty in ascertaining the liability. As the actual assessment would invariably be made after the close of the accounting year, the rate would certainly be available to the authorities concerned for the purpose of quantification. The diffi....
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.... Dr. Pal made a reference to the decision of this court in Textile Machinery Corporatio n Ltd. v. Commissioner of Wealth-tax. In that case, the assessee claimed deduction of its liability for sales tax in its income-tax assessment. The assessee had not made any provision in respect of its liability for sales tax in the balance-sheet as on the respective valuation dates. On a reference to section 4 of the Bengal Finance (Sales Tax) Act, 1941, this court held that the liability for sales tax was on the gross turn, over during each year and such liability accrued or arose at the end of the year. Accordingly, the court held that in view of the decision of the Supreme Courtin Kesoram Industries & Cotton Mills Ltd. the liability for sales tax which did not stand on a different footing from income-tax should be allowed as a deduction in computing the break up value of the shares. It is to be pointed out that in all the above cases, save the last one, provision for taxation was made in the respective balance-sheets of the companies. It would also follow from the two decisions of this court under the Gift-tax Act and he decision of the Supreme Court in Kesoram's case that the taxation li....
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.... upheld by the High Court, it is only the actual amount of the tax liability which may have to be deducted, inter alia, from the assets of the company concerned. In that case the actual amount of tax liability, to be proved by evidence, should be deducted in computing the break up value of the shares, and the value of Rs. 337 per share as computed by the assessee would not be sacrosanct, subject, of course, to what might be said by the High Court in point." As I read this order of the Tribunal under section 34 of the Gift-tax Act, it appears to me, it was really in fact and virtually in effect overruling its own finding and direction that it has already found Rs. 337 as the value, a course which obviously the Tribunal could not adopt. I, therefore, agree with my learned brother that this order taking the value at Rs. 337 per share cannot be maintained. If the amount was to be proved by evidence as the Tribunal's order under section 34 of the Gift-tax Act shows, then the whole question as referred to this court is entirely academic. Unless the tax liability for a particular amount is proved by legal evidence or legal material, the question whether there should be a deduction or n....
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....sting or prospective tax liability in this case. It is found as fact neither the balance-sheet nor the profit and loss account provides at all for payment of any tax liability in the present case on this reference. The form set out in Part I of Schedule VI contains express provision for including tax liability. That form is also statutory. The statutory form and its express provision were clear notice to include in the balance-sheet the-tax liability, if there be any at all. The Supreme Court in Commissioner of Income-tax v. Gangadhar Banerjee Co. Private Ltd. points out at pages 183-184 and which has already been quoted by my learned brother, that the balance-sheet is not final for the purpose of section 23A of the Income-tax Act or even for the assessment under the Income-tax Act. All that the Supreme Court said there was that the balance-sheet no doubt offered a prima facie proof of the financial position of the company on the date when the dividend was declared. There the question was one of dividend under section 23A of the Income-tax Act. It is in that connection that the Supreme Court had observed at page 184 of the report : " But nothing prevents the parties in a suit....
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.... the date on which that gift was made. Sub-section (3) of section 6 provides that where the value of any property cannot be estimated under sub-section (1) because it is not saleable in the open market, the value shall be determined in the prescribed manner. The prescribed manner is to be found in rule 10 of the Gift-tax Rules, under the statute. Sub-rule (2) of rule 10 provides, inter alia, that where the articles of association of a private company contain restrictive provision as to the alienation of shares, the value of shares if not ascertainable by reference to the value of the total assets of the company, shall be estimated to be what they would fetch if on the date of the gift they could be sold in the open market, on the terms of the purchaser being entitled to be registered as a holder, subject to the articles, but the fact that a special buyer would for his special reason give a higher price than the price in the open market shall be disregarded. The statement of fact has been rather perfunctory in this finding that the shares in this case are not saleable in the open market. There appeared to be almost tacit assumption to proceed on the break-up value of the shares i....