Law:

Section:

Section 7 of the Wealth-tax Act, 1957 read with rule 1D of the Wealth-tax Rules, 1957 - Valuation of assets - Assessment years 1971-72 and 1972-73 - Unquoted equity shares - Provision for taxation for three assessment years 1961-62 to 1963-64 included three items, representing liabilities under section 23A of the Indian Income-tax Act, 1922 - Said liabilities were cancelled by Tribunal - Departmental reference against Tribunal's order was pending in High Court - Whether when liabilities had been cancelled WTO was obliged to ignore these liabilities for purpose of valuing shares under rule ID - Held, yes FACTS For the assessment years 1961-62 to 1963-64, the provision for taxation included three items. The above liability was determined under section 23 A of the Indian Income-tax Act, 1922 [corresponding to section 104 of the Income-tax Act, 1961]. However, these liabilities were cancelled by the Tribunal in favour of the assessee. The reference application filed by the department against such order of the Tribunal was then pending. The assessee contended that the provision in regard to these liabilities was, in fact, not a provision, but represented liability and in the event of the department succeeding before the High Court it was likely to be fastened with these liabilities. The Tribunal accepted the assessee's contention and held that the value of the assets of the company had to be reduced by such an amount for the purpose of computing the break-up value of the shares under rule ID. On reference, the department contended that when the liabilities were cancelled it was not only open but the WTO was obliged to ignore these liabilities for the purpose of valuing the shares under rule ID. However, the assessee reiterated that the liabilities in question continued to exist during the pendency of the reference proceedings. HELD The assessee's view that the liabilities in question continued to exist during the pendency of the reference proceedings was not correct. What has to be taken into consideration is the relevant valuation date. If on the valuation date the liability did not exist, then it was not possible to hold that merely because the department had…

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