K.R. DALAL v. WEALTH-TAX OFFICER
[Citation -1986-LL-0725-4]

Citation 1986-LL-0725-4
Appellant Name K.R. DALAL
Respondent Name WEALTH-TAX OFFICER
Court ITAT
Relevant Act Wealth-tax
Date of Order 25/07/1986
Assessment Year 1980-81, 1981-82, 1983-84, 1984-85
Judgment View Judgment
Keyword Tags opportunity of being heard • provision for taxation • wealth-tax assessment • method of valuation • fresh evidence • break-up value • special bench • yield method • market value • advance tax • net wealth
Bot Summary: In the notice the WTO also referred to valuation of market value of the flat owned by the assessee. The assessee in an undated reply to the notice under 25(2) stated that the share values had been correctly arrived at in the original assessment on the basis of Rule 1D of the WT Rules, that the CWT had not indicated in his letter what error in the computation of the WTO was. The CWT worked out such value in paras 9, 10 and 11 of his order for both the years in respect of shares held by the assessee in M/s Dalco Eng. Shri Gadgil appearing for the assessee pointed out that the break-up value a s per r. 1D was filed by the assessee with the WTO, copies of such working have also been filed before us by Shri Gadgil of the assessee's paper book) and this working was accepted by the WTO. Shri Gadgil argued that the valuation of shares so made filed with the CWT was in terms of Rule 1D and such valuation was made in accordance with the principles laid down by the Gujarat High Court decision in CWT vs. Ashok K. Parekh 129 ITR 46. From the arguments advanced before us it appears that the assessee's representative never accepted the working on yield basis particularly in the manner which it was done by the CWT. It also appears that the departmental representative is now not averse to the application of Rule 1D in the way in which it is interpreted by the PH High Court in 148 ITR 620 or by the Madras High Court in 152 ITR 599 or Bombay High Court in 149 ITR 94. We have taken into account the arguments advanced on behalf of the assessee and the main purpose for which the CWT had started proceedings under s. 25(2). We would direct that the valuation of shares held by the assessee in these two companies which are both private limited and the shares of which are unquoted should be done by application of Rule 1D in accordance with the principles laid down by the Punjab Haryana High Court in 148 ITR 620 and the Madras High Court in 152 ITR 599.


M.A. AJINKYA, A.M. These appeals are filed by assessee for asst. yrs. 1980-81, 1981- 82, 1983-84 & 1984-85. For sake of convenience, they are disposed by this common order as points involved are common. appeals relating to asst. yrs. 1980-81 and 1981-82 are directed against Commissioner's order under s. 25(2) and controversy revolved around valuation of shares held by assessee in company called M/s Dalco Engineering Pvt. Ltd. It appears that Wealth-tax assessment for both these years viz. 1980-81 and 1981-82 were completed by WTO 'L' Ward, Pune under 16(1) of WT Act accepting figure of net wealth shown as per return on 23rd Nov., 1981. It appears that CWT, Pune issued notice under s. 25(2) of WT Act for both these years on 8th July, 1983 because he felt that assessment completed by WTO under s. 16(1) on 23rd Nov., 1981 were erroneous and prejudicial to interests of Revenue mainly because WTO had not worked out value of shares held by assessee in M/s Dalco Engineering Pvt. Ltd. and M/s Sealol Hindustan Pvt. Ltd. as per r. 1D of WT Rules as these shares were not quoted in stock- exchange. In notice WTO also referred to valuation of market value of flat owned by assessee. It appears that this aspect of matter was not pursued by CWT in proceedings under s. 25(2). assessee in undated reply to notice under 25(2) stated that share values had been correctly arrived at in original assessment on basis of Rule 1D of WT Rules, that CWT had not indicated in his letter what error in computation of WTO was. assessee also enclosed computation sheet showing working of share value of Dalco Engineering Pvt. Ltd. for both years concerned. It appears that thereafter CWT wrote another letter to assessee on 19th Aug., 1983 in terms of which one more opportunity of being heard was given to assessee. It appears that some further correspondence took place between CWT and assessee from which it would appear that CWT indicated that break-up value method for application of r. 1D was not only method of valuation and that value could be worked out on basis of yield method. Ultimately, CWT passed his consolidated order two years concerned on 14th Nov., 1983. perusal of this order indicates that assessee's representative had agreed without prejudice to his order arguments to give relevant balance sheets etc. to Commissioner to enable him to determine value on yield method. CWT worked out such value in paras 9, 10 and 11 of his order for both years in respect of shares held by assessee in M/s Dalco Eng. Pvt. Ltd. and M/s Sealol Hindusthan Ltd. It is calculation made by CWT that is challenged in present appeals. Shri Gadgil appearing for assessee pointed out that break-up value s per r. 1D was filed by assessee with WTO, copies of such working have also been filed before us by Shri Gadgil (pages 4,5,7, and 8) of assessee's paper book) and this working was accepted by WTO. Shri Gadgil argued that valuation of shares so made filed with CWT was in terms of Rule 1D and such valuation was made in accordance with principles laid down by Gujarat High Court decision in CWT vs. Ashok K. Parekh (1981) 129 ITR 46 (Guj). Shri Gadgil further argued that he had only agreed to supply relevant information that would enable WTO to work out valuation of shares on yield basis without prejudice to his original contention that valuation made in original assessment was correctly made. He objected to method adopted by CWT in making valuation and manner in which he made it. For Department Shir Srinivasan, ld. departmental representative pointed out that assessee s council had furnished fresh evidence which should not be admitted. This fresh evidence consisted opinion of Chartered Accountant giving format of valuation of shares (vide pages 12, 14 of assessee's paper book) and calculation done on yield method basis by other firm of Chartered Accountants, copies of which were filed vide page 20-22 of assessee's compilation. Shri Srinivasan relied on decision of Poona Bench of Tribunal in NTA No. 496/PN/1984 dt. 3rd Jan., 1986 for asst. yr. 1981-82 in support of his argument that Special Bench judgment on question of interpretation r. 1D was not followed by Poona Bench in view of subsequent decision, such as Punjab & Haryana High Court's decision in Ashok Kumar Oswal (minor) vs. CWT (1984) 43 CTR (P&H) 216: (1984) 148 ITR 620 (P&H) Madras High Court's decision in T.V. Srinivasa vs. CWT (1985) 152 ITR (P&H) Madras High Court's decision in T.V. Srinivasa vs. CWT (1985) 152 ITR 599 (Mad) and Bombay High Court's decision in CIT vs. Hoechst Pharmaceutical Ltd. (1984) 39 CTR (Bom) 246: (1984) 149 ITR 94 (Bom). Shri Srinivasan argued that yield method of valuation was only alternative method although primarily valuation of upquoted shares has to be in terms of provisions of r. 1D as interpreted by aforementioned decisions and not as interpreted by Gujarat High Court in (1981) 129 ITR 46 (Guj). Alternatively and without prejudice Shri Srinivasan argued that if Rule 1D is not to be applied correct working on yield method should have been given by assessee in which yield of return should have been adopted at 12 per cent and not 15 per cent as adopted by assessee. We have carefully considered submissions made by representative of contesting parties it would appear that there was prima facie error made by ITO in method of calculation of shares in terms of r.1D as laid down under WT Rules. It is this error in calculation which was intended to be corrected by CWT when he started proceedings under s. 25(2). It appears that CWT felt that yield method should be adopted and would be acceptable to assessee's representative and that calculation of such yield method in proceeding under s. 25(2) should be done by CWT himself. From arguments advanced before us it appears that assessee's representative never accepted working on yield basis particularly in manner which it was done by CWT. It also appears that departmental representative is now not averse to application of Rule 1D in way in which it is interpreted by P&H High Court in (1984) 148 ITR 620 (P&H) or by Madras High Court in (1985) 152 ITR 599 (Mad) or Bombay High Court in (1984) 149 ITR 94 (Bom) (supra). We have carefully considered all aspects of issue. We have taken into account arguments advanced on behalf of assessee and main purpose for which CWT had started proceedings under s. 25(2). We would direct that valuation of shares held by assessee in these two companies which are both private limited and shares of which are unquoted should be done by application of Rule 1D in accordance with principles laid down by Punjab & Haryana High Court in (!984) 148 ITR 620 (P&H) (supra) and Madras High Court in (1985) 152 ITR 599 (Mad). These decisions in effect lay down that under sub-cl. (a) of cl. (1) of r. 1D and amount paid as advance tax and shown as asset in balance-sheet of company is not to be treated as asset and under sub-cl. (E) of cl. (Iii) only difference between amount representing provision for taxation and amount payable as tax on book profits is to be treated as liability. same principles were followed by Madras High Court in (1985) 152 ITR 599 (Mad) (supra). In result, order of CWT will stand modified as indicated above. WTO is directed to recalculate value of shares in light of above discussion, for asst. yrs. 1980-81 and 1981-82. appeals for asst. yrs. 1983-84 and 1984-85 are against consolidated order of AAC dt. 25th July, 1985 and issue involved is same, viz. Valuation of shares of M/s Dalco Engg. Works and M/s Sealol Hindustan Ltd. For these two years, AAC confirmed valuation adopted by WTO because h e found that assessee had himself disclosed value of these shares in accordance with r. 1D. For these years, it is case of Shri Gadgil that AAC erred in rejecting assessee's claim that said shares should be valued on yield method basis. We have already held in preceding paragraphs that shares of these t w o companies should be valued by application of Rule 1D in terms of principles laid down by Punjab & Haryana High Court decision in (1984) 148 ITR 620 (P&H) (supra) and Madras High Court decision in (1985) 152 ITR 599 (Mad) (supra). We would give same finding for asst. yrs. 1983-84 and 1984-85 also. directions given as above result in enhancement of assessment. assessment to that extent should be enhanced as provided under s. 24(5) of Act. In result, appeals for asst. yrs. 1980-81 and 1981-82 will be treated as partly allowed and those for asst. yrs. 1983-84 and 1984-85 will be dismissed. *** K.R. DALAL v. WEALTH-TAX OFFICER
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