Law: Wealth Tax Act, 1957

Section: 27(1)

Law: Income Tax Act, 1922

Section: 23A

Law: Income Tax Act, 1961

Section: 104

Section 7(1) of the wealth-tax act, 1957-Valuation of assets-Whether provision in respect of additional super tax under section 104 of the income-tax act, made in balance sheet of company, deductible in computing break-up value-Held, no-Whether bonus agreed to be paid by company, but provision therefor was not made in balance sheet, deductible in computing break-up value of shares of company-Held, yes Facts The assessee owned 461 shares in a company. For the assessment year 1962-63, he had adopted the valuation date as on 8-11-1961. By taking into account the total of the paid-up share capital, reserves and surplus and dividing it by the total number of equity shares, the WTO determined break-up value of the said shares of assessee at Rs. 1,611 per share on the basis of the company's balance sheet as on 31-12-1960. On appeal, the assessee contended that while determining the said break-up value, deduction should have been made on account of (i) additional super tax payable by company under section 104; and (ii) provision for bonus which the company was liable to pay for the year 1960, as per agreement, dated 29-4-1957 between the company and its employees, for which the auditors had made a clear note in the balance sheet. The AAC and the Tribunal upheld the assessee's contention. On reference: Held 1. It must be taken to be settled law that, for computing net Wealth-tax Act, where the assessee owned share and the break-up value of which had to be determined, unless an order determining additional super tax liability of the company was made by the ITO before the material valuation date, such liability could not be considered and the amount shown as provision for additional super tax could not be allowed as a deduction. The Tribunal had, therefore, erred in allowing the impugned deduction in respect of additional super tax. 2. There was no dispute that bonus was payable to employees as per the agreement and was, therefore, a liability in respect of which deduction should have been made for determining the break-up value notwithstanding the fact that such provision was not made in the balance sheet. The Tribunal was, therefore, right in law in directing deduction…

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