Law:

Section:

Section 7 of the Wealth-tax Act, 1957 - Valuation of assets - Shares - Whether separate reserve credited for unexpired risks as required by Insurance Act and Code of Conduct cannot be treated as surplus profits by authorities under Act, for purpose of determining intrinsic value of shares of insurance company - Held, yes FACTS The assessee held certain shares in a company which carried on business of motor and general insurance. The shares of the company were not quoted in the share market. As on the valuation date, for the assessment years 1960-61 and 1961-62, the assessee had valued these shares for the purpose of inclusion in his net wealth at their face value of Rs. 100 per share. The WTO did not accept the said valuation. He worked out their value on the basis of the balance sheet of the company. The WTO in arriving at the value of the share took the amounts shown as "balance of funds and accounts" in the two balance sheets of the company as revenue reserve or appropriation of profit which would enhance the intrinsic worth of the shares. The AAC and the Tribunal upheld the computation of the value of the shares made by the WTO. On reference, the assessee contended that the WTO was not justified in taking the amounts to the credit of "balance of funds and accounts" as surplus for purposes of finding out the value of the shares, that the said amount had to be excluded in the computation of the intrinsic value of the share, as that amount really represented the estimated value of an accrued liability, that it was not a contingent liability as was assumed by the taxing authorities, and that, therefore, it could not be treated as surplus or accumulated profits. HELD The Code of Conduct for the general insurance business framed by the General Insurance Council is statutory. Section 64-L of the Insurance Act, 1938, enumerates the functions of the executive committee of the General Insurance Council, and section 64-R empowers the General Insurance Council to frame regulations in respect of any matter which may be necessary for the purpose enabling it to carry out its duties under the Act, with the previous approval of the Central Government. Therefore, it is not…

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