Law: Wealth Tax Act, (XV of 1963)

Section: 16(3)

Law: Income Tax Act, 1922

Section: 10(2)

Law: Wealth Tax Rules, 1963

Section: 8(2)(c)(ii)

Wealth Tax Act (XV of 1963)----S. 16(3)---Wealth Tax Rules, 1963, R.8(2)(c)(ii)---Calculation of break-up value---Reserve for contractual obligation---Free reserve--­Value of shares was declared at face value---Break-up value however was declared on the basis of final balance sheet without adding "reserve for contractual obligation" appearing on the liability side of the balance sheet---Assessing Officer worked out the break-up value by adding such reserve for contractual obligation ---Assessee contended that "reserve for contractual obligation" appearing on the balance sheet was a trade liability emanating from future obligation which had to be provided for in terms of contract and was not free reserves as envisaged under R.8(2)(c)(ii) of the Wealth Tax Rules, 1963 which was wrongly assumed to be so by the Assessing Officer--First Appellate Authority observed that Assessing Officer was required in terms of the provisions of the said rules to carefully scrutinize the balance sheet in order to exclude therefrom items which really did not form part of the reserves, as well as distinction between provisions and reserves etc.---Validity---Undoubtedly calculation of break-up value was made by treating the reserve for contractual obligation as a free reserve without scrutinizing the balance sheet with a view to exclude items which should really form part of the reserve as had been simply assumed that reserve for contractual obligation constituted free reserve without saying anything in terms of the detailed facts of such reserve or for that matter without having proved the surplus over the liabilities which could have formed the part of the reserves in terms of R. 8(2)(c)(ii) of the Wealth Tax Rules, 1963---Assessing Officer intended to treat reserves for contractual obligation as free reserve deviating from the past or if put in the words of the assessee that reserve for contractual obligation as declared position had been accepted on merit in the past, it was required that proper details should have been ascertained and assessee allowed opportunity to put their point of view---Since it was not done action of the Assessing Officer in calculating break-up value was…

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