Law:

Section:

Section 7(2)(a) of the Wealth-tax Act, 1957, read with Explanation II(ii)(e) to rule 1D of the Wealth-tax Rules, 1957 - Valuation of assets - Unquo- ted equity shares - Asssssee held certain shares in a private limited company whose shares were not quoted in stock exchange - Assessee claimed that entire provision for taxation made by said company should be regarded as a liability and deducted in ascertaining net value of its assets for purpose of determining break-up value of shares - Whether only total amount of tax payable by assessee on income from profits and gains could be allowed as a deduction and, therefore, when WTO had not worked out valuations no that basis, matter was to be remanded to Tribunal to check up accuracy of working of WTO on basis of aforementioned principles - Held, yes FACTS The assessee held certain shares in a private limited company whose shares were not quoted in the stock exchange. The value of the shares was determined by the ITO in accordance with rule 1D. On appeal, the assessee objected to the values of the shares computed by applying the provisions contained in rule 1D on the ground that the entire provision for taxation made by the company should be regarded as a liability and deducted in ascertaining the net value of the company's assets for the purpose of determining the break-up value of the shares. The Commissioner (Appeals) worked out the excess provision for the purpose of disallowace under rule 1D on the liabilities side, on the basis of certain assumed figures, without going into the actual figures according to the balance sheet and working out the value of each share according to rule 1D. On second appeal, the Tribunal without going into the relevant particulars, upheld the formula indicated by the Commissioner (Appeals). On reference: HELD The manner in which the market value of unquoted equity shares of the companies should be computed is indicated in rule 1D. On the liabilities side, sub-clause (e) of clause (ii) of Explanation II to rule 1D provides that an adjustment must be made if called for, to the amount appearing as provision for taxation in the balance sheet. The real effect of this provision is to permit…

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