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Commissioner of Wealth Tax (Central) v. Om Parkash Munjal C/o Hero Cycles (P) - WTC-1-1995  RD-P&H 10050 (7 November 2006)
W.T.C. No.1 of 1995
Date of Decision:6.11.2006
Commissioner of Wealth Tax (Central)
Om Parkash Munjal C/o Hero Cycles (P)
CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL
HON'BLE MR. JUSTICE RAJESH BINDAL
Present:- Mr. S.K.Garg Narwana, Advocate for the revenue.
Mr. Akshay Bhan, Advocate for the assessee.
ADARSH KUMAR GOEL, J.
The revenue has approached this Court by filing the present petition under Section 27(3) of the Wealth Tax Act, 1957 (for short, `the Act') seeking a direction to the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, `the Tribunal') to refer following question of law to this Court for opinion, arising out of order passed by the Tribunal in common order passed in W.T.A. Nos.315/Chandi/88 and 317/Chandi/88 for the assessment year 1981-82:-
"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the rates at which the assessee had sold the shares cannot be called to be lesser or inadequate and thereby deleting the addition made to the declared wealth under section 4(1)(a)(iii) of the Wealth Tax Act, even when the declared sale consideration was lower than the value of the shares as per Rule 1D of the Wealth Tax Act?"
As the complete facts of the case are on record and are not in dispute, we deem it appropriate that the question of law reproduced above is referred to this Court for opinion and accordingly, proceed to answer the same as we find that the issue being raised herein is covered by judgments of Hon'ble the Supreme Court.
Briefly, the facts of the case are that the assessee, who is an individual, filed his return of income for the assessment year 1981-82 on 28.8.1981 declaring his net wealth at Rs.4,70,000/-. It was noticed by the Assessing Officer that the assessee had transferred unquoted 950 equity shares and 10125 preference shares of M/s Hero Cycles (P) Limited at a sale consideration of Rs.175/- and Rs.30/- per share respectively to M/s Om Parkash Sudarshan Kumari Family Trust. As the value of the equity shares and preference shares referred to above, if worked out, as per Rule 1-D of the Wealth Tax Rules, 1957 (for short, `the Rules') would be higher than the consideration at which the shares were transferred, the Assessing Officer valued the equity shares at Rs.238/- and Rs.37.50 per share for equity and preference shares respectively. On this basis, an addition of Rs. 6,05,562/- was made in the net wealth and assessment was framed accordingly vide order dated 13.3.1986. The Commissioner of Wealth Tax (Appeals), Ludhiana vide order dated 27.7.1988 partially accepted the appeal of the assessee and reduced the valuation. In further appeal before the Tribunal, the Tribunal accepted the appeal of the assessee in toto and deleted the entire addition whereas the appeal of the revenue was dismissed. The reason given by the Tribunal for accepting the appeal of the assessee was that even in gift tax and income tax proceedings the value of the shares as declared by the assessee for the purpose of deemed gift and capital gain was accepted.
We have heard learned counsel for the parties and find that the appliability of Rule 1-D of the Rules regarding valuation of unquoted equity shares has been gone into by Hon'ble the Supreme Court in Bharat Hari Singhania Vs. Commissioner of Wealth Tax, (1994) 207 ITR 1 wherein it was held that valuation of unquoted equity shares has to assess as per Rule 1-D of the Rules as under:-
"The next argument that Rule 1-D is not mandatory but directory proceeds upon a certain misconception. A provision is said to be directory when the absence of a strict or literal compliance with it and in some cases, even non-compliance with it may not vitiate the thing done. On the other hand, a mandatory provision is one which has to be obeyed in its letter and spirit and anything done without such compliance stands vitiated. The counsel for the assessees, however, do not understand the said expressions in the above sense. What they really say is that following Rule 1-D should be optional.
According to them, in all cases except in the case of companies ripe for winding-up, Rule 1-D ought not to be followed and that only the yield method should be. This is really substituting a Rule of the choice of assessees in the place of the Rule made by the rule-making authority under Section 46 of the Act. If the Rule is good and valid as we find it to be, it has to be followed in each and every case. It is not a matter of choice or option. The rule-making authority has prescribed only one method for valuing the unquoted equity shares. If this method were not to be followed, there is no other method prescribed by the Rules. The acceptance of the assessees' contention would mean that it would be open to the Wealth Tax Officer to adopt such other method of valuation as he thinks appropriate in the circumstances. This is bound to lead to vesting of uncalled for wide discretion in the hands of Wealth Tax Officer/valuing authorities. It would lead to uncertainty and may be arbitrariness in practice. Where there is a Rule prescribing the manner in which a particular property has to be valued, the authorities under the Act have to follow it. They cannot devise their own ways and means for valuing the assets. It is equally well to remember that Rule 1-D does not treat the break-up value as the market value. A deduction of 15% is made in the break-up value to arrive at the market value. It is equally relevant to notice that Rule 1-D uses the expression `shall', which prima facie indicates its mandatory character." The same view has been reiterated by Hon'ble the Supreme Court in Commissioner of Wealth Tax Vs. Sita Ram Jindal, (2001) 248 ITR 111, Commissioner of Wealth Tax Vs. Shilaben Family Trust and Others, (2001) 248 ITR 183 and Commissioner of Wealth Tax Vs.
T.S.Santhanam (HUF) and Others, (2001) 248 ITR 575.
Following the principles of law laid down by Hon'ble the Supreme Court in Bharat Hari's case (supra), it is held that the value of the unquoted equity shares is to be assessed as per Rule 1-D of the Rules.
Accordingly, the question referred is answered in favour of the revenue and against the assessee.
( ADARSH KUMAR GOEL )
November 6, 2006 ( RAJESH BINDAL )
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