Dipak Kumar Sen, J. - (1.) The present reference arises out of the wealth-tax assessment of the estate of late Sir E.C. Benthal in the hands of his executors in the assessment years 1957-58 and 1958-59, the relevant valuation dates being the 31st March of the calendar years 1957 and 1958. The items involved are 13,280 ordinary shares and 45,000 deferred shares of Messrs. Bird & Co. (P.) Ltd. and 5,255 ordinary and 20,000 deferred shares of Messrs. F.W. Heilgers & Co. (P.) Ltd. The face value of the ordinary shares of both the companies are Rs. 100 per share and the face value of the deferred shares of both are Rs. 10 per share.
(2.) For the assessment year 1957-58, the WTO estimated the market value of the ordianry shares of Messrs. Bird & Co. (P.) Ltd. at Rs. 172 per share and that of Messrs. F. W. Heilgers & Co. (P.) Ltd. at Rs. 198 per share and the deferred shares of both the said companies at 1/10th of the value of their respective ordinary shares estimated respectively as aforesaid. For the assessment year 1958-59, the value of the ordinary shares was estimated at Rs. 163 per share of Messrs. Bird & Co. (P.) Ltd. and Rs. 169 per share of Messrs. F. W. Heilgers & Co. (P.) Ltd. and that of deferred shares of the said companies at 1/10th of the aforesaid.
(3.) On appeal, such valuations were upheld by the AAC. On further appeal by the assessee before the Income-tax Appellate Tribunal, it was contended that while determining the break-up value of the shares of the two companies on the basis of the balance-sheet, deduction should have been made of the proposed dividends on the cumulative preference shares. There was no dispute that the break-up value of the shares would be taken as the market value thereof. The Tribunal held that while the proposed dividends on cumulative preference shares might or might not be recorded as debt owed by the assessee for the purpose of determining the net wealth of the companies concerned, such proposed dividends being a first charge on the profits of a company would certainly enter into the calculation of a prudent buyer of such ordinary and deferred shares as a holder of ordinary and deferred shares would be entitled to dividend only out of the surplus, if any, remaining after the payment of dividend on cumulative preference shares. The Tribunal accordingly upheld the contention of the assessee and held that there should be deduction of proposed dividends on cumulative preference shares in the case of both the companies.;