1. This reference under s. 27(1) of the W.T. Act arises out of wealth-tax assessment proceedings of Shri A. E. Maskati, Bombay, who is now no more and whose interest are now represented by two exactors of his estate for whom Shri Pandit appears.
2. The assessee owned 461 shares in M/s. Garlick & Co. Pvt. Ltd., and the controversy in the reference relates to the valuation of these shares. The WTO determined the break-up value of these shares at Rs. 1,611 per share on the basis of the balance-sheet of the company as at 1961, the relevant assessment year in question being 1962-63. The December 31, 1960. The material valuation date was November 8, break-up value was arrived at by taking the total of the paid up capital, reserves and surplus and dividing it by 3,471 which was a the number of the equity shares of the company.
3. In appeal before the AAC, two contentions were realised on behalf of the assessee. It was contended that while determining the break-up value of the shares of the company, a deduction should have been given on account of additional super-tax which would be payable by the company as a result of non-declaration of dividend and a further deduction should have been made on account of provision for bonus which the company was liable to pay for the 1960, according to the agreements between the company and its employees dated April 29, 1957. Both these contentions were accepted by the AAC who took the view that the directors has not proposed any dividends and the provisions of s. 104 of the I.T. Act, 1961, were, therefore, clearly attracted and, consequently, while determining the tax liability of the company, the additional super-tax liability should also be taken into consideration in determining the break-up value. With regard to the claim for the provision for bonus, he held that the auditors had made a clear note in the balance-sheet pointing out that the provision for bounds payable for 1960 had not been made in the actuating for the year in question. Thus he took the view that procession for bonus should also be allowed as a liability in determining the break-up value. The department appeal before the Appellate Tribunal came to be dismissed as the Tribunal upheld the view taken by the AAC.
4. On these facts, the following question has been referred to this court at the instance of the revenue :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provision in respect of additional super-tax under section 104 of the Income-tax Act, 1961, made in the balance-sheet of M/s. Garlick & Co. Pvt. Ltd., and the liability for bonus not provided for in the accounts should be deducted in computing the break-up value of the share of the company for the purposes of the wealth-tax assessment of the assessee for the assessment year 1962-63 ?'
5. Mr. Pandit, appearing on behalf of the assessee, has fairly drawn our attention to the decision of this court in CWT v. S. K. Varma : 113ITR882(Bom) , in which this court has taken the view that in the wealth-tax assessment of an assessee who holds shares in a company, the WTO adopting the break-up method would be justified in considering that the provision for additional super-tax under s. 104 of the I.T. Act, 1961, made was not allowable as a deduction where the order determining the liability of the company to super-tax has not been made before the material valuation date. In that decision, this court has taken the view on a construction of the processions of s. 23A of the Indian I.T. Act, 1922, the corresponding procession in the 1961 Act being s. 104 that the structures of s. 23A and the manner in which the liability to additional super-tax arises thereunder leave no room for doubt that the liability is not charged automatically by statutory force but arises only from an order of the ITO, which he will make only after a consideration of and decision of various factual factors to be found by him. Therefore, as far as this court is concerned, it must be taken to be settled law that for the purpose of computation of net wealth under the W.T. Act, where the assessee owns shares, the break-up value of which has to be determined. Unless an order determining the additional super-tax liability of the company is made by the ITO, such liability cannot be taken into consideration and the amount shown as provision for the additional super-tax cannot be allowed as a deduction unless the order of the ITO is passed before the material valuation date. The view taken by the Tribunal and the AAC that the provision in respect of the additional super-tax should be deducted in computing the break-up value of the shares of the company in question cannot, therefore, be sustained.
6. However, so far as the provision for bonus is concerned, admittedly, there was an agreement which governed the payment of bonus by the company to its employees. The agreement was dated April 29, 1957. There was, therefore, no dispute that bonus was payable to the employees in accordance with this agreement. The amount which was required to be paid as bonus in accordance with this agreement was, therefore, clearly a liability in respect of which deduction should have been made for the purposes of determination of the break-up value notwithstanding the fact that such a provision was not made in the balance-sheet. The auditors has made a note with raged to this omission and, in any case, the liability having accrued to the company, the said amount was clearly liable to be excluded.
7. In this view of the matter, the question referred to us is answered as follows :
(a) The provision in respect of additional super-tax was not liable to be deducted in computing the break-up value of the shares.
(b) The liability for bonus was liable to be deducted in computing the break-up value.
8. Having regard to the partial success and failure of both parties, there will be no order as to costs of this reference.