TaxTMI 
TaxTMI 
1979 (1) TMI 119
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....nt not considered as assets. . . 1) Advance Tax 35,00,000 . 2) Prepaid Expenses 28,490 35,28,490 . . 3,17,31,143 TOTAL LIABILITIES . 3,52,59,633 Less: Equity Share Capital . 47,24,800 Less: Reserves . 1,01,01,238 Less: Provision for Dividends . 9,72,478 . . 1,94,61,117 . . 1,94,61,117 Add: Arrears of cumulative preference Shares Dividend . 27,518 . . 1,94,88,635 Total Assets Total Liabilities Net 3,17,31,143 1,94,88,635 1,22,42,508 1,22,42,508/47,248 . = 259.11 Fair Market Value 85 per cent of 259.11 . = 220.24" The WTO valued the shares in the following fashion: . . "Total assets as per B/s . 3,52,59,633 Less Advance Tax . 35,00,000 . . 3,17,59,633 Total Liability . 3,52,59,633 . Less: Equity Share Capital 47,24,800 . . " Reserves 1,01,01,238 . . " Provision for Dividend 9,72,478 . . " for gratuity Excess provision for . . . tax 12,39,643 . . 47,52,717 . . . 42,66,853 . . . 4,85,864 . . . + 35,00,0....
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....) of the above Explanation consists in the interpretation of the words "other than the amount referred to in cl. (i)(a)" and also the words "the tax payable". According to the Department the words "other than the amount referred to in cl. (i)(a)" means that the advance-tax paid shown as an asset in the balance-sheet should be deducted from provision for taxation shown as a liability in the balance-sheet. There are a number of decisions of the Bombay Bench of the Tribunal as well as a decision of the Cochin Bench according to which the claim of the Department is not correct. The main order of the Bombay Bench is in the case of Shri Pratap Bhogilal(1). In interpreting cl. (ii)(e) of Expln. II to rr. 1D in that case the Tribunal stated: "The Departmental Representative submits that cl. (ii)(a) of Expln. II excludes from consideration the amount paid as advance-tax because of the expression used `other than the amount referred to in cl. (i)(a)", only the amount of provision for taxation other than the amount of advance tax is to be taken into account in determining the excess provision for the purpose of cl. (ii)(e) and that since cl. (ii)(e) excludes from consideration altogether t....
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....follows; "It is true that the above interpretation lays emphasis on the form in which the advance tax is shown whether as a part of the assets or as a deduction from the provision for taxation but the reference to the amounts in cl. (i)(a) in cl. (ii)(e) seems to be quite out of place except as interpreted above because the advance payment of tax can never, in our understanding, figure as a liability and if it were to appear on the liability side, it can only be as a deduction against the provision for taxation according to accounting principle." 6. In other words, the view of the Bombay Benches of the Tribunal is that unless there is a separate provision for advance-tax included in the provision for tax shown on the liability side advance tax shown as an asset in the asset side of the balance-sheet cannot be deducted from the provision for taxation shown on the liability side under cl. (ii)(e) of Expln. II. The learned counsel for the assessee relied strongly on the above decisions of the Bombay Benches copies of which have been filed before us. The learned departmental representative, on the other hand, urged that the words "tax payable" must be interpreted in the way the S....
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....hown in balance sheet . 2,00,00,000 . Break up value 1,50,00,000 In both the cases since provision for taxation is equal to the actual liability on actual profits it is excluded from the liability side. The above working shows that if the Department's view is not accepted in the case of the two companies the break up value in one case would be Rs. 1 crore and in another case it would be Rs. 1 1/2 crores although commercially the intrinsic value of shares in both the companies would be the same. 8. There is, therefore, some substance in the interpretation canvassed on behalf of the Department. But having regard to the actual language used we think the interpretation given by the Bombay Benches to cl. (ii)(e) of Expln. II to Rule. 1D is preferable especially as it is not less plausible than the one canvassed on behalf of the Department and in such circumstances the benefit of doubt has necessarily to be given to the tax-payer. The AAC's view which is in consonance with the view taken by the Bombay Benches of the Tribunal in this regard is, therefore, upheld. 9. With regard to the provision for gratuity the learned departmental representative relied on the judg....