TMI Blog1992 (5) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... rangement' approved by the Hon'ble Bombay High Court on 3-9-1986. As per that arrangement, assets and liabilities of Kanjur Division stood transferred to another company, viz., Echjay Forgings Pvt. Ltd. ('E Forgings PL: in short). Assessees claimed that in respect of Kanjur Division, there was excess-of assets over liabilities to the extent of the said sum of Rs. 1,03,50,437 and in view of the Scheme of Arrangement approved by the Hon'ble Bombay High Court, they stood transferred to E Forgings PL from the effective date, which as specified as 1-1-1983. Assessees further claimed that in applying the provisions of Rule 1D of the Wealth-tax Rules, 1957, for determining the market value of the shares of the old company, viz., E Ind. PL. the said sum of Rs. 1,03,50,437 should be regarded as having gone out of the coffers of that company, viz., E Ind. PL. The Departmental authorities did not accept this claim primarily by saying that the shareholders of E Ind PL. would be entitled to the shares of E Forgings PL and hence transfer of that excess of assets over liabilities from E Ind. PL to E Forgings PL did not really make a difference in determining the value of the assets of the share-h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision remained the property profit of the share-holders, through the modality of another company, viz., E Forgings PL. He submitted that only because E Forgings PL had not drawn up the accounts, the effect of the existence of the net assets worth Rs. 1,03,50,437 cannot stand ignored in the quantification of the net wealth of the shareholders concerned. 6. We have very carefully considered the rival submissions and perused the relevant papers. There is lot of substance in the submissions of the learned Chartered Accountant for the assessee that the Balance Sheet of E. Ind. PL as on 31-12-1983 has to be considered in applying the provisions of Rule 1D of the Wealth-tax Rules, 1957 for determining the value of unquoted equity shares on what is popularly known as Break-up Value method. Since reduction of the said sum of Rs. 1,03,50,437 has been effected from the General Reserves of that Company as on 31-12-1983 and that is in accordance with the Scheme of Arrangement approved by the Hon'ble High Court on 3-9-1986, there is no escape from accepting the assessee's contention. 7. We have considered carefully also the aspect and effect of the stipulation of allotment of eight equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, for and from Assessment Year 1984-85. 8. Next dispute is in regard to the quantum of tax liability deductible from the assets. To be specific, the dispute is about the deductibility of a sum of Rs. 2,47,25,618. Assessees have claimed that the assessment and appellate proceedings for and upto Assessment Year 1984-85 for that company, viz., E Ind. PL had been completed upto the date of finalisation of balance-sheet as on 31-12-1983, viz. 28-3-1987, and that resulted in extra tax liability of Rs. 2,47,25,618, for all the nine years taken together, i.e., from 1976-77 to 1984-85. Assessees claimed that tax liabilities to the above extent of Rs. 2,47,25,618 stood crystallised and the company was liable to bear or pay the same. They claimed that it was crystallised and fastened liability on that company and that only went to reduce the breakup value of the equity shares in terms of Rule 1D of Wealth-tax Rules, 1957. The departmental authorities have rejected the assessees' claim by relying on sub-clause (e) of clause (ii)of Explanation II below Rule 1D. 9. Learned Chartered Accountant for the assessees reiterated the stand of the assessees in the course of hearing before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (ii) covers six items marked (a) to (f) and directs that those items shown as liabilities in the balance sheet shall not be treated as liabilities. Item (e) reads as follows-- (e) "any amount representing provision for taxation other than the amount referred to in clause (i)(a) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto ;" We have to consider whether the terms 'provision for taxation' and 'tax payable' used in the above sub-clause come in the way of acceptance of assessees' plea. We are inclined to agree with the assessees that once the tax liabilities have been quantified and have become final, they cease to be mere provisions in that sense of the phrase. They become the amounts set apart rather than the mere provisions. The above sub-clause (e) envisages a situation when the assessments are not completed or they have not become final and states that in such a situation the provision for taxation has to be allowed on the basis of book profits only, and may be the Income-tax provisions like weighted deduction under section 35B and disallowances under section 40A(5) or section 40(c) also re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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