K.L.ROY J. - (1.) THIS is a reference under s. 26(1) of the GT Act, 1958, hereinafter referred to as the "Act". On 5th March, 1960, the assessee made a gift of 312 shares in East Ganhodi Colliery (P) Ltd. of the face value of Rs. 100 each to his son who had attained majority. In his return the assessee valued these shares at their face value. The GTO found that the shares of the company were not quoted in the stock exchange and proceeded to value these shares on the break-up value method on the basis of the latest available balance sheet of the company as on 30th June, 1960. He found that the total value of the assets, as disclosed in the balance sheet, was Rs. 29,05,365 and, deducting therefrom the liabilities and provisions in the balance sheet amounting to Rs. 6,91,370, he arrived at the net wealth of the company at Rs. 22,13,995. Dividing this amount by 5,000, being the total number of subscribed shares, he arrived at a valuation of Rs. 443 per share and the value of the shares gifted by the assessee at Rs. 1,38,216.
(2.) THE assessee appealed against the order of assessment and contended before the AAC that the value of each of these shares would be Rs. 337 and not Rs. 443 as computed by the GTO as the GTO had failed to deduct the income-tax liabilities of the company as on 30th June, 1959, amounting to Rs. 5,28,005 from the value of the assets. THE AAC rejected this contention on the ground that the amount claimed was neither paid nor charged as a liability by creating a taxation reserve in the balance sheet. He confirmed the assessment. On further appeal by the assessee against the order of the AAC, the Tribunal accepted his contention. The Tribunal observed as follows : "The appellant contends that Rs. 5,28,005, being the amount of the tax liability of the said company, should also be allowed as a deduction in computing the break-up value of its shares. The Departmental Representative has not disputed the quantum of the tax liability but contends that as it was not provided for in the balance sheet as liability, it cannot be allowed. We are unable to accept the contention of the Departmental Representative. Liability to income-tax is very much a real liability and whether it is provided for in the accounts or not, any prospective buyer in the open market must take it into consideration in appraising the value of the shares. The observations of Sinha J. in the case of Kastur Chand Jain vs. GTO (1961) 42 ITR 288 (Cal) : TC36R.400, lend support to the view we have taken. In our opinion, therefore. the liability to taxation must be allowed as deduction in the computation of the break-up value of the shares of the said company. There is no dispute that if the taxation liability is taken into consideration, the break-up value would come to Rs. 337 per share." The Tribunal, accordingly, directed the GTO to value the shares at Rs. 337 each. The date of this order is 18th Oct., 1963. The CGT was not satisfied with the decision of the Tribunal and made an application under s. 26 (1) of the Act for reference of certain question of law to the High Court. Along with the applications for reference, an application was filed by the Departmental Representative before the Tribunal under s. 34 of the Act for rectification of the Tribunal's order. It was submitted that the Tribunal erred in recording that the Departmental representative did not dispute the quantum of the tax liability. Actually, the exact quantum of the liability was very much less than what had been contended for by the assessee before the Tribunal. This application is dt. 26th Aug., 1964. By its order dt. 18th Dec., 1964, the Tribunal dismissed the aforesaid application with the following observation : "It is not possible at this stage to remember with any degree of precision as to what was the submission made by the parties at the time of hearing of the appeal which had taken place more than a year back and, therefore, the record of proceedings must be regarded as the best evidence as to what had happened at that time. It may also be mentioned that before the AAC as well, there was, apparently, no dispute that the tax liability was Rs. 5,28,005. The fact, however, remains that the dispute before the Tribunal was regarding the deduction admissible in the computation of the break-up value of the shares of East Ganhodi Colliery (P) Ltd. which were gifted by the assessee. If the view taken by the Tribunal is upheld by the High Court, it is only the actual amount of the tax liability which may have to be deducted, inter alia, from the assets of the company concerned. In that case, the actual amount of tax liability, to be proved by evidence, should be deducted in computing the break-up value of the shares and the value of Rs. 337 per share as computed by the assessee would not be regarded as sacrosanct, subject, of course, to what might be said by the High Court in point."
(3.) STRANGELY enough, in its statement of the case dt. the 10th April, 1965, the Tribunal reiterated that the Departmental Representative did not dispute the quantum of the tax liability but only argued that, as it was not provided for in the balance sheet of the company as a liability, it could not be allowed as a deduction. The Tribunal has referred the following question to this Court: "Whether, on the facts and in the circumstances of the case, in determining the market value of the shares of the East Ganhodi Colliery (P) Ltd. gifted by the assessee the amount of the taxation liability of the company. though not provided for in the balance sheet, is liable to be deducted ?" Mr. B.L. Pal, learned counsel for the Revenue appearing in support of this reference, submitted that as the break-up value of the shares is to be determined with reference to the balance sheet of the company, neither any asset nor any liability not shown or provided for in the balance sheet could be taken into consideration for the purpose of determining such valuation.;