High Court Of Madras
Commissioner Of Wealth Tax vs. V.T. Ramalingam
Section WT RULE 1D
Asst. Year 1974-75, 1975-76
R. Jayasimha Babu & N.V. Balasubramanian, JJ.
Tax Cases Nos. 2062 & 2063 of 1984
18th February, 1998
C.V. Rajan, for the Revenue : P.P.S. Janarthana Raja for M/s Subbaraya Iyer, Padmanabhan & Ramamani, for the Assessee
R. JAYASIMHA BABU, J. :
The question referred at the instance of the Revenue in respect of the assessee’s assessment for the asst. yrs.1974- 75 and 1975-76 is, as to whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the arrears of dividends on cumulative preference shares should be deducted while working out the value of the shares of Thiru Arooran Sugars Ltd.?
2. The assessee held 250 shares in the company. He had worked out the market value by applying r. 1D of the WT Rules, 1957, framed under the WT Act, 1957, and did not deduct the arrears of dividends on the cumulative preference shares held by him, for the liability shown in the balance-sheet. The WTO held that the amount could not be deducted as undeclared dividend for which monies had been set apart by the company, as the dividends had not been declared as on the valuation date of a general meeting of the company. The assessee appealed to the CIT(A), who allowed the assessee’s claim by referring to r. 1D, Expln. II(ii)(f) which refers to “any amount representing contingent liabilities other than arrears of dividends payable in respect of the cumulative preference shares”. The CIT held that the arrears of dividends on cumulative preference shares were not in the nature of a contingent liability and was not required to be deducted from the total liabilities of the company for the purpose of determining the value of the share under r. 1D of the Act. The Tribunal has affirmed the view of the CIT.
3. We find no error in the order of the CIT and of the Tribunal. Rule 1D, Expln. II(f) of the Act is unambiguous. It clearly treats the arrears of dividends payable in respect of cumulative preference shares, as a liability for the purpose of determining the break-up value under r. 1D of the Rules. Explanation II cl. (ii) of r. 1D states that, “the following amounts shown as liabilities in the balance-sheet shall nto be treated as liabilities.” Sub-cl. (f) under cl. (ii) of Expln. II of the Rules which requires that all amounts representing contingent liabilities not be treated as liability, specifically excludes the arrears of dividends payable in respect of cumulative preference shares.
The legislative intention clearly was to treat arrears of dividends payable in respect of cumulative preference shares, as a liability if so shown in the balance-sheet.
The question referred to us is, therefore, answered in the affirmative, against the Revenue and in favour of the assessee. Costs of Rs. 500 to the assessee.
[Citation : 255 ITR 651]