SMT. SARLA JAIN v. INSPECTING ASSISTANT COMMISSIONER
[Citation -1985-LL-1129]

Citation 1985-LL-1129
Appellant Name SMT. SARLA JAIN
Respondent Name INSPECTING ASSISTANT COMMISSIONER
Court ITAT
Relevant Act Income-tax
Date of Order 29/11/1985
Assessment Year 1977-78
Judgment View Judgment
Keyword Tags return of net wealth • method of valuation • valuation officer • audit objection • break-up method • wealth-tax act • valuation date • break-up value • annual report • yield method
Bot Summary: Following contentions were raised on behalf of the assessee before the learned Commissioner and these did not find favour with him: That under section 25(2) the Commissioner has no powers to revise an assessment made by an IAC; That the learned Commissioner had not exercised his own discretion, since he had acted on an audit objection; and That the yield method of valuation was rightly applied and the assessment was not erroneous. The Hon'ble Delhi High Court held as under: We are of the opinion that where the valuation date of the company and o f the assessee is the same then application of rule 1D is mandatory. He has to determine break-up value of the shares in the manner in rule 1D. If the value so determined is more than the value returned and the provisions of rule 3B are applicable, then the question of valuation of the said shares has to be referred by the Wealth-tax Officer to the Valuation Officer under section 16A. The Valuation Officer, when a reference has been made to him, has to determine the valuation of the unquoted shares in accordance with the provisions of section 7(3) of the Act, i.e., he is to determine the price which those shares will fetch if sold in the open market on the valuation date. Their Lordships concludingly held that-- In the instant case the valuation date of the petitioner and the last date of the accounting period of the company were different. As regards assessee's holding in Mahavir Export Import Co. Ltd., rule 1D is applicable, but the Hon'ble High Court is very categorical that even in case where rule 1D is mandatory and applicable, the Valuation Officer while valuing the shares has to apply the principles of valuation laid down by the Hon'ble Supreme Court in the cases of Mahadeo Jalan and Smt. Kusumben D. Mahadevia. The Hon'ble High Court having further held that break-up method is to be used only if the company, on the valuation date is ripe for winding up. In the case of shares held by the assessee in Mahavir Export Import Co. Ltd., there is no material with us to hold that the said company was ripe for winding up and accordingly giving due consideration to the totality of the circumstances and following with respect the ratio laid down by the Hon'ble Delhi High Court in the case of Sharbati Devi Jhalani we have to hold that the assessee having valued the shares in accordance with as such, can be summarised as under: That the question about valuation of unquoted shares has to be dealt with by the WTO for determination of the valuation in accordance with the provisions of section 7(1) read with rule 1D, if applicable.


Facts, stated briefly but in right perspective are that assessee who has been assessed in status of resident-individual filed return of net wealth, declaring positive net figures of Rs. 4,48,100. This return was filed on 19- 7-1977. return was later on revised and net wealth declared stood at Rs. 3,40,200. reasoning for revising return was as under: (a) Increase in value of agricultural land as per valuer's report: (b) Revision of value of shares as per Supreme Court decision in case of CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38; (c) Revision of value of jewellery; (d) Taking of correct balances of assessee with Arvind Construction Co. (P.) Ltd.; and (e) Claim of exemption under section 5(1A) of Wealth-tax Act, 1957 ('the Act'). assessment was completed by learned IAC (Assessment) vide orders dated 26-2-1982. learned Commissioner, in action under section 25(2) of Act, set aside assessment since he was satisfied that assessment framed by learned IAC was not only erroneous, but also prejudicial to interests of revenue. His reasoning being that shares held by assessee in Mahavir Export & Import Co. (P.) Ltd., and in Arvind Construction Co. (P.) Ltd., should have been valued in assessment order, on break-up method laid down under rule 1D of Wealth-tax Rules, 1957 ('the Rules') and not on yield method as have been done in assessment. Following contentions were raised on behalf of assessee before learned Commissioner and these did not find favour with him: (i) That under section 25(2) Commissioner has no powers to revise assessment made by IAC; (ii) That learned Commissioner had not exercised his own discretion, since he had acted on audit objection; and (iii) That yield method of valuation was rightly applied and assessment was not erroneous. Reliance was placed by assessee on decisions in CWT v. Mahadeo Jalan [1972] 86 ITR 621 (SC), Smt. Kusumben D. Mahadevia's case and Smt. Kusumben D. Mahadevia v. N.C. Upadhya [1980] 124 ITR 799 (Bom.). 2. assessee is in appeal and we have heard at length Shri M.S. Sekhon and Shri Satyendra Prakash, authorised representatives of parties. assessee's paper book (52 pages) has also been duly noted. It contains, inter alia, judgment of Hon'ble Delhi High Court in Sharbati Devi Jhalani v. CWT [Civil Writ Petition Nos. 2009 to 2013 and 2033 of 1984, dated 28-8-1985]. parties being one Sharbati Devi Jhalani. Annual report and accounts of companies whose shares are subject-matter in proceedings as also valuation of said shares on yield basis have also been placed on our file in assessee's paper book. 3. In case of Sharbati Devi Jhalani, Hon'ble High Court was seized o f identical issue, since there also assessee had valued share supported by registered valuer's report in tune with decision of Hon'ble Supreme Court in cases of Kusumben D. Mahadevia and Mahadeo Jalan. There also, on identical facts with same set of circumstances, action under section 25(2) was resorted to by learned Commissioner and said order was subject-matter of civil writs. Hon'ble Delhi High Court held as under: " We are of opinion that where valuation date of company and o f assessee is same then application of rule 1D is mandatory. Where, however, two dates do not coincide then applicability of rule 1D would be directory and not mandatory. In latter case, it will be open to assessee to show to Wealth-tax Officer that on his valuation date value of unquoted shares was different from value as arrived at by applying rule 1D. In former case, where valuation date is identical, Wealth-tax Officer will have to compute value of unquoted shares by applying rule 1D. Where, however, like present, valuation date is not same, even Wealth-tax Officer may not be bound to take recourse to provisions of rule 1D. " Their Lordships summarised position further, as under: " To summarise, position, therefore, is that when question arises as to value of unquoted shares Wealth-tax Officer has to act according to provisions of section 7(1) read with rule 1D, if applicable. He has to determine break-up value of shares in manner in rule 1D. If value so determined is more than value returned and provisions of rule 3B are applicable, then question of valuation of said shares has to be referred by Wealth-tax Officer to Valuation Officer under section 16A. Valuation Officer, when reference has been made to him, has to determine valuation of unquoted shares in accordance with provisions of section 7(3) of Act, i.e., he is to determine price which those shares will fetch if sold in open market on valuation date. It is obvious that Valuation Officer is not to determine value of unquoted shares by applying break-up value method. correct method in valuing such shares would be method as approved by Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621 and CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38, which is by applying yield method. break-up method is to be used only if company, on valuation date, is ripe for winding up. " Their Lordships concludingly held that--- " In instant case valuation date of petitioner and last date of accounting period of company were different. Therefore, applicability of rule 1D was not mandatory. Moreover, when, as in this case, petitioner had disputed valuation proposed to be arrived at by Wealth-tax Officer, it was incumbent upon him to have referred question of valuation to Valuation Officer under section 16A of Act. " 4. ratio laid down by Hon'ble High Court, assessment year under appeal and as it stands revealed by assessment order is 31-3-1977 while accounting periods of Mahavir Export & Import Co. (P.) Ltd. ended on 31-3-1977 and that of Arvind Construction Co. (P.) Ltd. on 31-12-1976. So in case of shares held by assessee in Arvind Construction Co. (P.) Ltd., rule 1D is directory and not mandatory as held by Hon'ble High Court, hence impugned order of learned Commissioner cannot be upheld. As regards assessee's holding in Mahavir Export & Import Co. (P.) Ltd., rule 1D is applicable, but Hon'ble High Court is very categorical that even in case where rule 1D is mandatory and applicable, Valuation Officer while valuing shares has to apply principles of valuation laid down by Hon'ble Supreme Court in cases of Mahadeo Jalan and Smt. Kusumben D. Mahadevia. Hon'ble High Court having further held that break-up method is to be used only if company, on valuation date is ripe for winding up. In case of shares held by assessee in Mahavir Export & Import Co. (P.) Ltd., there is no material with us to hold that said company was ripe for winding up and accordingly giving due consideration to totality of circumstances and following with respect ratio laid down by Hon'ble Delhi High Court in case of Sharbati Devi Jhalani we have to hold that assessee having valued shares in accordance with as such, can be summarised as under: (i) That question about valuation of unquoted shares has to be dealt with by WTO for determination of valuation in accordance with provisions of section 7(1) read with rule 1D, if applicable. He has to determine break-up value of shares in manner laid down in rule 1D and if value so determined is more than value returned and provisions of rule 3B of Rules are applicable, then question of valuation has to be referred to Valuation Officer under section 16 of Act and Valuation Officer is not to determine value of unquoted shares by applying break-up value method since correct method in valuing such shares would be method as approved by Supreme Court in Mahadeo Jalan's case and Smt. Kusumben D. Mahadevia's case, which is by applying yield method; (ii) That break-up method is to be used only if company, on valuation date, is ripe for winding up; (iii) That where valuation date of company and assessee is same then application of rule 1D is mandatory; (iv) That where two dates do not coincide then applicability of rule 1D would be directory and not mandatory. 5. Now on facts of present assessee's case, subject-matter of action by learned Commissioner under section 25(2) is shares of: (i) Mahavir Export & Import Co. (P.) Ltd., and (ii) Arvind Construction Co. (P.) Ltd. valuation date of assessee relevant for principles of valuation laid down by Hon'ble Supreme Court in Smt. Kusumben D. Mahadevia's case and said valuation having been made basis of assessment, assessment order dated 26-2-1982 made by IAC in case of assessee for assessment year 1977-78 is not erroneous and if that be position, then it cannot be held to be prejudicial to interests of revenue, hence impugned order of learned Commissioner stands cancelled and assessment order dated 26-2-1982 stands restored. 6. appeal by assessee succeeds and stands allowed. *** SMT. SARLA JAIN v. INSPECTING ASSISTANT COMMISSIONER
Report Error