COMMISSIONER OF WEALTH TAX Vs. STANDARD MILLS COMPANY LIMITED

JUDGEMENT

(1.) THIS is a reference under Sub -S. (1) of S. 27 of the WT Act (hereinafter referred to as the Act). The assessee is a public limited company. The valuation date is 31st Dec., 1956, the corresponding assessment year being 1957 -58. The company made up its accounts as at 31st Dec., 1956, and a copy of the balance - sheet and profit and loss account of the company is on the record of this reference as annexure "A". The WTO proceeded to compute the net wealth of the assessee in accordance with Sub -S. (2) of S. 7 of the Act without ascertaining the market value of each of the assets of the company in accordance with Sub -S. (1) of S. 7 of the Act. In short, in making the valuation under sub - S. (2) of S. 7 the WTO took the net value of the assets of the business as a whole having regard to the balance -sheet of the assessee as on the valuation date. He, however, made certain adjustments. The contentions raised by the assessee before the WTO were two -fold. It first contended that provision had been made by it on an estimate basis to the extent of Rs. 33,14,504 to meet its tax liabilities in respect of the income -tax for the accounting year to the extent of Rs. 29,45,421 and in respect of the additional liability to pay business profits tax to the extent of Rs. 3,70,083 for the chargeable accounting periods between 1st April, 1946, to 31st March, 1949. These amounts should be allowed as a deduction, they being debts owing by the assessee on the date of valuation. Its second contention was that provision had been made by it for the proposed dividends to be declared at the next annual general body meeting of the company to the extent of Rs. 20,23,500 and that amount should also be allowed as a deduction in the computation of the net wealth inasmuch as it was a debt owing by the assessee company on the valuation date. The WTO did not allow the claim of the assessee for the sum of Rs. 3,70,083, which, according to the assessee, represented the taxes that would have been due on finalisation of the business profits tax assessment. He, therefore, directed that (1) (1957) 31 ITR 82.(2) (1961) 41 ITR 257. the sum of Rs. 3,70,083 should be added back.

(2.) THE WTO also did not allow the claim of the assessee to the extent of Rs. 29,44,421, which, according to the assessee, represented the estimated liability of income -tax payable for the accounting year ending with 31st Dec., 1956, on the ground that the liability to pay income -tax would arise only on April, 1957, and not on the valuation date. He also did not allow the claim of the assessee for the deduction of the aforesaid proposed amounts set apart for being distributed as dividends. In the result, the WTO computed the net wealth of the assessee at Rs. 4,01,56,268.

(3.) MR . Palkhivala, learned counsel appearing for the assessee, stated that the assessee does not press the fourth question, which has been referred at its instance. We are, therefore, here concerned only with the first three questions. Before we proceed to deal with the questions, it would be convenient to refer to the relevant provisions of the Act. Sec. 3 is the charging section and provides :