Law:

Section:

Section 7 of the Wealth-tax Act, 1957, read with rule 1D of the Wealth-tax Rules, 1957 - Valuation of assets - Unquoted equity shares - Assessment year 1974-75 - Whether provision for gratuity liability, made by company in its books of account on actuarial basis was a contingent liability and deduction in respect of same was not allowable while valuing under rule 1D unquoted shares held by assessee in said company - Held, yes FACTS For the assessment year 1974-75, the assessee worked out the value of unquoted shares, held by him in a company, at Rs. 897.60 per share. However, the WTO ignored the provision of gratuity appearing on the liability side of the balance sheet of the aforesaid company and re-determined the value of the shares at Rs. 1,262.20 per share. The WTO ignored the provision for gratuity as he found that sub-clause(f) of clause (ii) of Explanation II of rule 1D specifically prohibited deduction representing contingent liabilities. The WTO held, on the basis of the Supreme Court decision inStandard Mills Co. Ltd. v CWT [1967] 63 ITR 470, that the provision for gratuity was a contingent liability. On second appeal, the Tribunal held that the liability for payment of gratuity being contingent, the WTO's action was justified. On reference, the assessee contended that when the provision for payment of gratuity has been made in the balance sheet on actuarial basis representing a real and definite liability, it could not be treated as a contingent liability. HELD The language used in sub-clause ( f) of clause ( ii) of Explanation II to rule 1D leaves no room for doubt for taking external aid to interpret it. This is also a settled law that where more than one constructions are possible, that which preserves its workability and efficacy is to be preferred to the one which would render its otiose or sterile. For the purpose of sub-clause (f ) of clause (ii) of Explanation II to rule 1D the term 'contingent liability' has to be given general meaning and the decision given on the interpretation of section 40A of the Income-tax Act is of no avail. The difficulty in the instant case was that no evidence had been brought before the WTO to establish that the…

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