WEALTH-TAX OFFICER v. RAMLAL RAJGARHIA & SONS
[Citation -1984-LL-0604]

Citation 1984-LL-0604
Appellant Name WEALTH-TAX OFFICER
Respondent Name RAMLAL RAJGARHIA & SONS
Court ITAT
Relevant Act Wealth-tax
Date of Order 04/06/1984
Assessment Year 1977-78
Judgment View Judgment
Keyword Tags procedural in nature • method of valuation • wealth-tax act • stock exchange • special bench • market value • net wealth • gift-tax
Bot Summary: The WTO computed the value at Rs. 18 per share in accordance with rule 1 D of the Wealth-tax Rules, 1957. In the second year the dispute relates to the shares in Ajay Paper Mills which the assessee estimated at Rs. 10 per share but the WTO computed at Rs. 16.83 again in accordance with rule 1D. The assessee filed appeals for both the years in question before the AAC and relied upon the decision of the Supreme Court in the case of CGT v. Smt. Kusumben D. Mahadevia 1980 122 ITR 38 for the proposition that the shares had to be valued according to the profit-yielding method, i.e., on the maintainable profit basis. A number of authorities were cited by the representative of the department for the proposition that the value of these shares should be computed in accordance with rule 1D. For example, reference was made to CWT v. Smt. Chandrakala Lal 1978 111 ITR 185, which lays down that the proper method of valuation. In CWT v. Laxmipat Singhania 1978 111 ITR 272, it was held that rules 1C and 1D inserted in the Rules, 1967 were applicable to pending assessments even though assessment related to earlier years prior to the date of these Rules having come into force. For the proposition that rule 1D was mandatory and its provision had to be followed in determining the value of the unquoted equity shares of companies for wealth-tax purpose. So far as the applicability of the Rules is concerned, notwithstanding the decision of the Bombay High Court in the case of Smt. Kusumben D. Mahadevia, the Special Bench of the Tribunal at Delhi has already held in Biju Patnaik v. WTO 1982 1 SOT 623 that rule 1BB of the Rules is procedural in nature and retrospective in operation. Accordingly, we accept these appeals, set aside the order of the AAC, and direct that the value of these shares shall be computed in accordance with rule 1D. 6.


dispute in these appeals relates to market value of unquoted equity shares in Orient Steel (P.) Ltd. and Ajay paper Mills for purpose of computation of net wealth of assessee. 2. In first appeal assessee filed return declaring value of each share in Orient Steel (P.) Ltd. at Rs. 16.36 per share. Then he revised it to Rs. 4.99 per share on yield basis as according to him, shares were not quoted in any stock exchange and company was not in liquidation. WTO, however, computed value at Rs. 18 per share in accordance with rule 1 D of Wealth-tax Rules, 1957 ('the Rules'). In second year dispute relates to shares in Ajay Paper Mills which assessee estimated at Rs. 10 per share but WTO computed at Rs. 16.83 again in accordance with rule 1D. assessee filed appeals for both years in question before AAC and relied upon decision of Supreme Court in case of CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38 for proposition that shares had to be valued according to profit-yielding method, i.e., on maintainable profit basis. AAC accepted this contention and directed WTO to value shares on yield method. revenue has come up in second appeal before us. 3. We have heard representatives of parties at length in these appeals. number of authorities were cited by representative of department for proposition that value of these shares should be computed in accordance with rule 1D. For example, reference was made to CWT v. Smt. Chandrakala Lal [1978] 111 ITR 185 (Cal.), which lays down that proper method of valuation. Similarly, in CWT v. Laxmipat Singhania [1978] 111 ITR 272 (All.), it was held that rules 1C and 1D inserted in Rules, 1967 were applicable to pending assessments even though assessment related to earlier years prior to date of these Rules having come into force. Reference may next be made to another two judgments of Allahabad High Court in CWT v. Sripat Singhania [1978] 112 ITR 363 and Bharat Hari Singhania v. CWT [1979] 119 ITR 258, wherein expression 'as it thinks fit' in section 25 of Wealth-tax Act, 1957 was held not to take away of whittle down binding effect of rule 1D and it was held that Tribunal was not justified in approving assessee's method of valuation of unquoted equity shares which were not in accordance with Rules. Lastly, reference may be made of CWT v. Mamman Varghese [1983] 139 ITR 351 (Ker). for proposition that rule 1D was mandatory and its provision had to be followed in determining value of unquoted equity shares of companies for wealth-tax purpose. 4. On behalf of assessee reliance was placed upon well known decision of Hon'ble Supreme Court in Smt. Kusumben D. Madhadevia's case (supra) for proposition that proper method of valuation to be adopted in case of shares of public limited company not quoted on stock exchange or private limited companies would be profit-earning method. Reference was also made to decision of Tribunal at Bombay in WT Appeal Nos. 471 to 476 (Bom) of 1979 wherein reference is made to Smt. Kusumben D. Mahadevia v. CWT [1979] 2 TAXMAN 225 in which Bombay High Court had held that rule 1D is not mandatory and is merely directory. learned Members, therefore, accepted assessee's claim that value of shares should be determined by WTO according to principles laid down in case of Smt. Kusumben D. Mahadevia (supra) decided by Supreme Court. 5. After carefully considering all facts and circumstances of case, we are not inclined to agree with assessee. So far as applicability of Rules is concerned, notwithstanding decision of Bombay High Court in case of Smt. Kusumben D. Mahadevia (supra), Special Bench of Tribunal at Delhi has already held in Biju Patnaik v. WTO [1982] 1 SOT 623 that rule 1BB of Rules is procedural in nature and retrospective in operation. It, therefore, applies to pending assessments. decision in case of Smt. Kusumben D. Mahadevia (supra) by Hon'ble Supreme Court was in relation to gift-tax matter and applicability of rule 1D was not specifically in dispute in that case. Now that we have got specific rule and number of High Court authorities wherein they have held that Tribunal has no discretion in matter of valuing unquoted equity shares otherwise rule notwithstanding fact that Bench of Tribunal has not properly considered effect thereof. Accordingly, we accept these appeals, set aside order of AAC, and direct that value of these shares shall be computed in accordance with rule 1D. 6. appeals are accordingly allowed. *** WEALTH-TAX OFFICER v. RAMLAL RAJGARHIA & SONS
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