Law: Wealth Tax Act, 1957

Section: 27(1)

Law: Land Acquisition Act, 1894

Section: 18,23

Law: Income Tax Act, 1922

Section: 18A

Law: Wealth Tax Rules, 1957

Section: 1D

Wealth tax--- Valuation---Unquoted equity shares---Break-up value based on balance-­sheet---Company doing business in real estate---Land held by Company acquired compulsorily by Government---Enhanced compensation--- Government not accepting decision and filing appeal---Pending appeals company withdrawing enhanced compensation after guaranteeing restitution and keeping amount in fixed deposits---Amount taken to suspense account and shown against liabilities in balance-sheet---Tax payable thereon shown in balance-sheet---Enhanced compensation to be included in net wealth of company---Value not to be reduced by tax thereon---No adjustments other than those in rule permitted---Indian Wealth Tax Act, 1957, Ss. 2(m) & 7--­Indian Wealth Tax Rules, 1957, R.1-D. Two companies, whose shares were not quoted on the stock exchange, did colonising business on an extensive scale by purchasing land, developing it and parcelling it into plots and selling them. Some of the lands held by the companies were compulsorily acquired by the Government and, in addition to the compensation awarded by the Collector, the District Judge, on references, awarded enhanced compensation. The Government did not accept the decision of the District Judge and preferred appeals. Pending the appeals, the companies, after providing guarantee for restitution, withdrew the enhanced compensation and kept the amounts in fixed deposits and earned interest on which they paid income-tax. The amounts representing the enhanced compensation were not brought to the profit and loss account but appeared on the liabilities side of their balance-sheets as amounts held in suspense pending adjustment. The question was whether in computing the break-up value of the shares held by the assessee in those companies the enhanced compensation should be included in the net wealth of the companies and the income-tax liability thereon could be taken into account to reduce the value of the compensation. The Appellate Tribunal held that (a) the value of the enhanced compensation had to be included in the net wealth of the companies; but (b) their value should be reduced by the amount of tax liability, before arriving at the…

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