AJIT K.SENGUPTA,J. - (1.) IN this reference under s. 27(1) of the WT Act, 1957, the following questions of law have been referred to this Court for the asst. yrs. 1976-77 and 1977-78 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the market value of unquoted shares should be valued only in accordance with r. 1D of the Wealth-tax Rules, 1957 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provision for gratuity made by the company was deductible from the assets of the company for computing market value of unquoted shares of the company in accordance with rule 1D of the WT Act, 1957 ?"
(2.) IT is not in dispute that the first question is concluded by the decision of this Court in CWT vs. India Exchange Traders' Association (1992) 197 ITR 356. Accordingly, the first question is answered in the affirmative and against the assessee and in favour of the Revenue. The facts relating to the second question is that the WTO while computing the value of unquoted shares of Surrendra Overseas Ltd. excluded the provision for gratuity from the liability of the said company on the ground that the provision was for a contingent liability. The Commissioner of Wealth-tax (A), however, directed the ITO to take the provision for gratuity as eligible liability outside the scope of cl. (ii)(f) of Explanation II to r. 1D of the Wealth-tax Rules, 1957. In the second appeal before the Tribunal reliance was placed on behalf of the Revenue on the decision of the Supreme Court in Shree Sajjan Mills Ltd. vs. CIT (1995) 49 CTR (SC) 193 : (1985) 156 ITR 585. Before the Tribunal, counsel for the assessee relied upon the judgments of the Madras High Court in CWT vs. S. Ramaswami (1983) 33 CTR (Mad) 340 : (1983) 140 ITR 606 and CWT vs. S. Ram (1984) 147 ITR 278. In those cases the WTO did not consider the liability for gratuity as a present liability. In S. Ramaswami's case (supra), the Madras High Court held that when the CIT had granted his approval to the gratuity fund the contributions made by the respective concern to the gratuity fund must be regarded as certain liabilities and not as contingent liabilities and consequently these liabilities were to be deducted for arriving at the net worth of the concern for the purpose of working out the valuation of the shares in the company. In S. Ram's case (supra), the Madras High Court has taken a more general view that payment of gratuity, when provided for on a scientific and actuarial estimate, is a deductible provision and such provision is a present direct and minimum liability of the company for the reason that it represents the present discounted value of the employer's commitment as a whole to pay the workmen gratuity and it becomes a liability. Therefore, according to the Madras High Court, Explanation II(ii)(f) to r. 1D will not apply in respect of such provision for gratuity in valuing unquoted shares.
(3.) UNLIKE the earlier decision, the Madras High Court took a broader view in the later one. In deciding the issue it has taken notice of Standard Mills Co. Ltd. vs. CWT (1967) 63 ITR 470, where the Supreme Court held that gratuity is a contingent liability so long as there is no interposition of the gratuity trust to whom the company is under an obligation to pay yearly contribution towards gratuity liability.;