Divan, C.J:— In this case, at the instance of the revenue, the following question has been referred to us for our opinion:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for the purpose of computation of the market value of the shares of M/s. Mehta Parikh and Co. Pvt. Ltd., the advance tax paid under section 210 of the Income-tax Act, 1961, and shown on the assets side of the balance sheet of the said company cannot be deducted from the tax payable, in determining whether the provision for taxation is in excess over the tax payable with reference to the book profits in accordance with the law applicable thereto within the meaning of clause (ii)(e) of Explanation II to rule ID of the Wealth-tax Rules, 1957?”

2. The facts leading to this reference are as follows: We are concerned with the wealth-tax assessment of the assessee before us and the assessment years under consideration are assessment years 1965-66 to 1971-72. The point which arises in this reference is regarding the working out of the market value of equity shares of M/s. Mehta Parikh & Co. Pvt. Ltd. The assessee held shares of that company and for wealth-tax purposes the market value of these shares had to be included in his wealth as of the valuation date. The shares were not quoted in the market and the WTO was required to determine the market value of these shares of M/s. Mehta Parikh & Co. Pvt. Ltd. on the basis of the break-up value as provided for in r. ID of the W.T Rules, 1957. The WTO determined the break-up value as per r. ID as interpreted by him. While determining this value the WTO added back advance tax paid but allowed as a deduction advance tax payable as per returns of income of earlier years not disposed of. Against the decision of the WTO the matter was carried in appeal by the assessee and the AAC passed one common order for all the seven years. Valuation of the shares of M/s. Mehta Parikh & Co. Pvt. Ltd. was one of the points urged before the AAC by the assessee. In appeal, the AAC gave some relief, for three of the years while he dismissed the assessee's appeals for the remaining four years. He did not accept the contention urged on behalf of the assessee that advance tax paid should not be treated as an asset in the balance-sheet in any of the years.

3. The assessee went on further appeal for all the seven years and the WTO filed cross-objections on some other grounds which are not relevant for the purpose of this judgment. The Tribunal by a common order covering all the seven years directed that the adjustment could not be made for advance tax paid, in other words, the WTO should not make any adjustment for advance tax, if any, paid and taken to the assets side of the balance-sheet while determining the value of shares on the basis of the break-up value and on this aspect the Tribunal considered the various arguments advanced before it and the Tribunal interpreted the provisions of Expln. 17 to rule ID of the W.T Rules and particularly cl. (i)(a) and cl. (ii)(e) of Expln. II to r. ID. The Tribunal noted that if there were two possible interpretations of these clauses of Expln. II, the interpretation which was favourable to the assessee should be adopted and accordingly the Tribunal allowed the appeal of the assessee so far as that particular point of valuation of the shares of M/s. Mehta Parikh & Co. Pvt. Ltd. was concerned. Thereafter, at the instance of the revenue, the question hereinabove set out has been referred to us for our opinion.

4. Under the W-T. Act, 1957, by s. 46, the power to make rules for carrying out the purposes of the Act has been conferred on the CBR, and under sub-s. (2)(a), without prejudice to the power conferred by sub-s. (1) of s. 46, rules made under the section may provide for the manner in which the market value of any asset may be determined. Acting under this rule-making power, the CBR, as it then was* made the Rules called the W.T Rules, 1957. Rule ID provides for arriving at the market value of unquoted shares of companies other than investment companies and managing agency companies. The rule provides as follows:

“The market value of an unquoted equity share of any company, ‘other than an investment company, or a managing agency company, shall be determined as follows;—

The value of all the liabilities as shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in that balance-sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent, of the break-up value so determined”

5. The proviso to r. ID is not material for the purposes of this judgment, Expln. I to r. ID provides:

“For the purposes of this rule, ‘balance-sheet’ in relation to any company, means the balance-sheet of such company as drawn up on the valuation date and where there is no such balance-sheet, the balance-sheet drawn up on a date immediately preceding the valuation date and in the absence of both, the balance-sheet drawn up on a date immediately after the valuation date.”

Explanation 11 is in these words:

“For the purposes of this rule—

(i) the following amounts shown as assets in the balance-sheet shall not be treated as assets, namely:—

(a) any amount paid as advance tax under section 18A of the Indian Income-tax Act, 1922 (11 of 1922), or under section 210 of the Income-tax Act, 1961 (43 of 1961);…”

6. Sub-clause (b) of cl. (i) of Expin. 11 is not material for the purposes of this judgment. Under cl. (ii) of Expln. 11:

“For the purposes of this rule—

(ii) the following amounts shown as liabilities in the balance-sheet shall not be treated as liabilities, namely:—…

(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….”

7. It is in the light of sub-cl. (a) of cl. (i) and sub-cl. (e) of cl. (ii) of the Expln. II to r. ID that the question referred to us by the Tribunal has to be answered.

8. The main portion of r. ID makes it clear that in order to arrive at the break-up value of the shares of any company, first, the balance-sheet as drawn up by the company itself has to be looked at and all the liabilities as shown in the balance-sheet are to be deducted from all the assets shown in the balance-sheet and, thus, what is known as the net worth of the company, is to be ascertained. Explanation II to r. ID lays down certain rules of interpretation and though, ordinarily, an amount paid as advance tax under s. 18A of the 1922 Act or under s. 210 of the 1961 Act will be shown on the assets side of the balance-sheet, for the purpose of arriving at the break-up value, by the artificial rule laid down in Expln. II, cl. (i)(a), the amount paid as advance tax in this manner under the law relating to income-tax is not to be treated as an asset. It is obvious that when a particular amount which is shown on the assets side is not to be treated as an asset, the net worth of the company will, to that extent, be reduced because to that extent the assets will be shown less. On the other hand, when it comes to sub-cl. (ii), which deals with what are not to be treated as liabilities under cl. (e), it is only the amount shown by way of provision on the liabilities side that is dealt with and cl. (e) makes it clear that any amount representing provision for taxation and the words in parenthesis, namely, “other than the amount referred to in cl. (iXa)” to the extent of the excess over the tax payable with reference to the book profits of the company in accordance with the law applicable thereto, is not to be treated as liabilities. Provision for tax liabilities means provision for taxation which would, under the ordinary rules of accountancy, be shown on the liabilities side of the balance-sheet. What cl. (e) provides is that only the provision for taxation which is justifiable in view of the book profits of the company in accordance with’ the law applicable thereto should be deducted as liabilities. If there is any excess over the amount shown by way of provision over what would be payable with reference to the book profits, that excess provision is not to be treated as liabilities. It must be borne in mind that sub-cl. (e) of cl. (ii) of Expln. II deals with a provision, that is, it does not deal with the actual payment made by the company concerned but it deals only with the provision for liability for taxation and it is, therefore, clear that the words “other than the amount referred to in cl. (i)(a)” refer to the provision for taxation other than the provision for advance tax. The words “the amount referred to in cl. (i)(a)” do not mean the amount paid as advance tax under s. 18A of the Indian I.T Act, 1922, or s. 210 of the I.T Act, 1961. Really speaking, the words “referred to in cl. (i)(a)” mean the amount mentioned in cl. (i)(a) and the entire sub-cl. (e) of cl. (ii) of Expln. II refers to the provision and not to the payment and, therefore, while considering this question of provision for taxation and to what extent the provision is in excess of the amount of tax payable as per the book profits in accordance with the law applicable thereto, what one has to see is not the payment made but the provision made by the company in its balance-sheet on the liabilities side. While considering the provision for taxation, it must be found out that there is no provision for payment of advance tax because provision for advance tax is to be excluded from the scope of sub-cl. (e) of cl. (ii) by the words “other than the amount referred to in cl. (i)(a)”. Therefore, what sub-cl. (e) of cl. (ii) requires the WTO to do is to ascertain first as to what are the book profits shown by the company and in the light of those book profits what would be the tax payable with reference to those book profits in accordance with the law applicable thereto. Having thus ascertained the amount of the tax payable with reference to the book profits, the WTO has then to see whether the provision for taxation on the liabilities side of the balance-sheet is in excess of the said amount of tax payable with reference to the book profits as already ascertained by him. If there is any excess in the provision for tax liabilities, then that excess is not to be treated as part of the liabilities of the company while computing the break-up value of the shares of the company. It is equally clear that so far as provision for advance tax is concerned, that provision has to be disregarded while applying the provisions of sub-cl. (e) of cl. (ii) of Expln. II. It is obvious that to the extent to which the liabilities are reduced, the net wealth will go up. The revenue would be interested in showing a higher net wealth and higher break-up value whereas the assessee who has shares in a company, the shares of which are not quoted on the stock-exchange, is interested in seeing that the net worth and consequently the break-up value of the shares is shown as low as possible. In our opinion, sub-cl. (a) of cl. (i) of Expln. II is intended to give a benefit to the (holders of) shares of those companies, who have been prompt in making payment of their advance tax under the provisions of the law relating to income-tax. Once having granted that benefit to such companies, the rule-making power wants to indicate in sub-cl. (e) of cl. (ii) of Expln. II that excess provision to the extent of the excess, when making the provision for liabilities for taxation, other than the provision for advance tax, is to be disregarded and only the provision on the liabilities side by way of provision for taxation to the extent of the tax payable with reference to the book profits in accordance with the law applicable thereto is to be treated as part of the liabilities of the company. It is obvious that under the operative part of r. ID, the main provision, the balance-sheet of the company is ordinarily to be taken on its face value for the purpose of arriving at the break-up value of shares on the basis of net worth. If there is any undue provision for taxation made and thus there is an inflated figure of liabilities shown by making an excess provision for taxation on the liabilities side, to the extent of the excess that provision is to be disregarded by the operation of sub-cl. (e) of cl. (ii) of Expln. II and that is sound commonsense. But because of the words “other than the amount referred to in cl. (i)(a)” occurring in parenthesis in sub-cl. (e) of cl. (ii), if any advance tax is already paid, that has not to be brought back, as the WTO and the AAC seek to do in the instant case. Sub-cl. (e) of cl. (ii) and sub-cl. (a) of cl. (i) of the rule operate in two different fields altogether. Clause (i)(a) operates in the field of actual payment of advance tax. Clause (ii)(e) operates in the field of excess provision for taxation other than the provision for taxation regarding advance tax, and it is in this light that r. ID has to be approached. In our opinion, the conclusion reached by the Tribunal was correct, though the reasoning which appealed to the Tribunal in arriving at its conclusion is different from the reasoning which has appealed to us. In arriving at its conclusion the Tribunal followed the decision of the Bombay Bench of the Tribunal in the case of WTO v. Pratap Bhogilal Bombay and Mrs. Nita M. Bhogilal Bombay (W.T.A Nos. 143-144 (Bom) of 71-72). But, in our opinion, it is only by a process of interpretation bearing in mind the basic distinction between actual payment which is one concept and provision for certain liabilities which is another concept altogether that the two els. (i)(a) and (ii)(e) of Expln. II to r. ID can be properly interpreted and understood, and, in our opinion, this is the only way of interpreting these two clauses of Expln. II to r. ID. Under these circumstances, it is obvious that the wealth-tax authorities were not justified in seeking to add back the amount of advance tax paid under the provisions of the income-tax law by M/s. Mehta Parikh & Co. Pvt. Ltd. for arriving at the market value on the basis of the break-up value of the shares of the company. The Tribunal was, therefore, right in coming to its conclusion that in determining the break-up value of the shares the amount of advance tax paid by the company in the relevant year and shown on the assets side of the balance-sheet has not to be deducted from the tax payable in determining whether the provision for taxation is in excess over the tax payable with reference to the book profits in accordance with the law applicable thereto.

9. We, therefore, answer the question referred to us in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.