S. SIVARAMAKRISHNA IYER VS COMMISSIONER OF WEALTH TAX, 1992 PTD-KERALA-HIGH-COURT-INDIA 1021 (1990)

Wealth tax---

---- Wealth tax---Appeal to AAC---Valuation of shares---Purchase of shares paying more than their market price ---WTO assessing excess as amount paid to secure controlling interest in company---Direction by AAC to value shares on the basis of the price paid by the assessee---Valuation of shares by WTO according to the direction---Valid.

The assessee had purchased shares of the company P and showed the value of the said shares at the stock exchange rates prevailing on the relevant valuation dates. The Wealth-tax Officer got information that the assessee had purchased the shares at rates higher than those quoted in the stock exchange. The Wealth-tax Officer took the view that such purchases were made to secure a controlling interest in the company. He, therefore, reopened the assessments for the three years to include in the net wealth the value of an asset styled "controlling interest". In the assessments thus reopened, the value of the shares, as returned, was neither accepted nor disturbed. The only thing that was done was that an asset styled "controlling interest" was also brought to wealth-tax. On appeal, the Appellate Assistant Commissioner, by his order, dated December 31, 1975, upheld the validity of the reassessment and directed the Wealth-tax Officer to adopt the enhanced value of the shares for which the assessee had purchased them as their value. He also held that there was no asset known as "controlling interest". Accordingly, the Wealth-tax Officer passed fresh assessment orders deleting the value of the "controlling interest". However, the Wealth-tax Officer determined the value of the shares at the purchase-price of the shares of the assessee which was admittedly higher than the rates quoted for the shares in the stock exchange. Against these fresh assessment orders, the assessee preferred appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the valuation of the shares should be made in accordance with rates quoted in the stock exchange on the relevant valuation dates. The Tribunal held that the Appellate Assistant. Commissioner could not set aside his earlier order, dated December 31, 1975, which had become final. The Tribunal set aside the orders passed by the Appellate Assistant Commissioner in the revised proceedings and restored the orders passed by the Wealth-tax Officer. On a reference:

Held. that a perusal of the appellate order dated December 31,1975 passed by the Appellate Assistant Commissioner showed that there was a positive direction to the Wealth-tax Officer to adopt the enhanced purchase value for which the assessee purchased the shares as the market price for the entire block of shares held by the assessee in the P company. The Tribunal was justified in confirming the valuation of shares as adopted by the Wealth-tax Officer.

B.S. Krishnan for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

JUDGMENT

K.S. PARIPOORNAN, J.---At the instance of the assessee to wealth tax, the Income-tax Appellate Tribunal has referred the following two questions of law for the decision of this Court:

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in confirming the valuation of the shares held by the assessee in Peninsular Plantations Ltd., for the assessment years 1957-58, 1958-59 and 1959-60?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that by order, dated December 31, 1975, the Appellate Assistant Commissioner had directed the adoption of the purchase price of the assessee as the market value?"

The respondent is the Revenue. The matter arises in connection with wealth-tax proceedings. We are concerned with the assessment years 1957-58, 1958-59 and 1959-60. The respective valuation dates are March 31, 1957, March 31, 1958 and March 31, 1959. The net wealth of the assessee included a block of shares of Peninsular Plantations Ltd. In the wealth-tax returns filed, the assessee had shown the value of the said shares at the stock exchange rates prevailing on the relevant valuation dates. The Revenue got information that the assessee had purchased certain shares of Peninsular Plantations Ltd., at rates higher than those quoted in the stock exchange. The Wealth-tax Officer took the view that such purchases were made to secure the "controlling interest" in the company. He, therefore, reopened the assessments for the three years to include in the net wealth the value of an asset styled, "controlling interest". In- the assessments thus reopened, the value of the shares, as returned, was neither accepted nor disturbed. The only thing that was done was that an asset styled "controlling interest" was also brought to wealth-tax. Against the reopened assessments, the assessee filed appeals before the Appellate Assistant Commissioner of Wealth-tax. He upheld the validity of the reassessments. He further held that there was no asset known as "controlling interest", which could be valued and included in the net wealth. He further held that the value of the shares to be taken should have been the real price which was paid by the assessee and received by the seller. Admittedly, the assessee paid more than what is commonly known as "quoted price". Since there was evidence in the case to show that the assessee paid enhanced values for the shares that really represented the market value of the shares and the Wealth tax Officer was directed to adopt that market price (the enhanced value of the shares for which the assessee purchased them) for the entire block of shares held by the assessee. The appellate order is dated December 31, 1975. It is common ground that the said order, though related to the assessment year 1957-58, it was adopted as applicable to the assessment years 1958-59 and 1959-60 also, since the appeals for those two later years were disposed of on the same day, relying upon the order passed earlier in the day for the year 1957-58. Though the Revenue filed appeals from the aforesaid appellate orders, they were subsequently withdrawn. The assessee did not file appeals from the appellate orders dated December 31, 1975, passed by the Appellate Assistant Commissioner. As a sequel to the appellate orders dated December 31, 1975, passed by the Appellate Assistant Commissioner, the Wealth-tax Officer passed fresh assessment orders dated July 23, 1980, and in completing the assessments, he deleted the value of the "controlling interest". However, the Wealth-tax Officer determined the value at the purchase price of the shares of the assessee, which was admittedly higher than the rates quoted for the said shares in the stock exchange. Against the fresh assessment orders dated July 23, 1980, passed by the Wealth-tax Officer, the assessee filed appeals before the Appellate Assistant Commissioner of Wealth-tax. The Appellate Assistant Commissioner held that the valuation of the shares should be made in accordance with the rates quoted in the stock exchange on the relevant valuation dates. Aggrieved by the aforesaid decision of the Appellate Assistant Commissioner, the Revenue carried the matter by way of second appeals before the Appellate Tribunal. While the said appeals were pending, the assessee filed three appeals against the earlier orders of the Appellate Assistant Commissioner dated December 31, 1975, alongwith petitions to condone the delay in filing the appeals. 'Finally, the Appellate Tribunal disposed of the three appeals filed by the Revenue and also the three appeals filed by the assessee by a common order, dated October 15, 1984. The Appellate Tribunal declined to condone the delay caused in filing the appeals by the assessee. In this view, the appeals filed by the assessee were dismissed. In the appeals filed by the Revenue, the Appellate Tribunal held that the Appellate Assistant Commissioner acted erroneously in deviating from his earlier orders, dated December 31, 1975, and in holding that the value of the shares should be computed on the basis of the stock exchange rates. The Appellate Tribunal took the view that the Appellate Assistant Commissioner, in the revised proceedings, really set aside the earlier orders, dated December 31, 1975, passed by him, which had become final. In this perspective, holding that it is illegal and not permissible and that, in the implementation proceedings, the only question that arose before the Wealth tax Officer was the actual purchase price of the shares by the assessee, the Appellate Tribunal set aside the orders passed by the Appellate Assistant Commissioner in the revised proceedings and restored the orders passed by the Wealth-tax Officer. The appeals filed by the Revenue were allowed. It is, thereafter at the instance of the assessee that the Income-tax Appellate Tribunal has referred the two questions of law formulated hereinabove for the decision of this Court.

We heard counsel for the assessee, Shri P.R. Raman and also counsel for the respondent Revenue, Shri, P.K.R. Menon. We should say that the first question referred to us is rather vague and ambiguous. In its order dated October 15,1984, the Appellate Tribunal really set aside the basis for valuation adopted by the Appellate Assistant Commissioner and restored the valuation made by the Wealth-tax Officer. The Appellate Tribunal did not confirm the valuation of the shares made by the Appellate Assistant Commissioner. Counsel for the assessee submitted that we should understand the first question referred by the Appellate Tribunal to say, whether the Appellate Tribunal is right in law in confirming the valuation of the shares held by the assessee in Peninsular Plantations Ltd., as made by the Wealth-tax Officer Even understanding the question in its modified form, the answer to the said question will depend upon our answer to question No.2 which is more vital and decides the entire controversy in this case.

Counsel for the assessee submitted that the Appellate Assistant Commissioner, by his orders, dated December 31, 1975, did not give any direction to the Wealth-tax Officer to adopt the purchase price of the shares as the market value. It was argued that there are only stray observations in the order, dated December 31, 1975 of the Appellate Assistant Commissioner which cannot be stated to be findings. We are unable to accept this plea. It is seen from the appellate order dated December 31, 1975, that the assessee himself put forward the plea that he has paid more than the quoted market price for the shares purchased by him. In paragraph 6 of the earlier order, dated December 31, 1975, the Appellate Assistant Commissioner categorically stated as follows:

"...Thus, the value of the shares to be taken should have been the real price which has been paid by the appellant and has been received by the seller. Viewed in this light, the Wealth-tax Officers' action in reopening the assessment to assess the proper value is correct. He has jurisdiction to reopen the assessment:'

Further, in paragraph 10 of the same order, the Appellate Assistant Commissioner has held as follows:

"it is seen that the present appellant (assessee) has paid enhanced value for the shares which he has purchased. This transaction took place at the time when the quoted price was less than the amount paid by the appellant (assessee). The share market quotation is only one of the ways of establishing the price of shares. Since there is another and more reliable value (is?) available in the form of one transaction where the appellant (assessee) himself is a party that price has to be taken as the market value of the shares in the absence o any other information. The Wealth-tax Officer is, therefore, directed to adopt that market price for the entire block of the shares held by the appellant (assesse)." (emphasis supplied).

In the order of the Appellate Assistant Commissioner, there is a specific direction whereby the Wealth-tax Officer was directed to adopt the price paid by the assessee as the market value for the entire block of shares purchased and held by the assessee. The Wealth-tax Officer only, carried out this direction in the revised proceedings. He was bound to do so. No doubt in the appeals filed from the revised proceedings, the Appellate Assistant Commissioner took a different view and held that it is only the rates quoted in the stock exchange on the relevant valuation dates that should be adopted. Before the Appellate Tribunal, the assessee had no case that the Tribunal should "independently" evaluate the valuation of the shares and that it is open to the assessee in the appeals filed by the Revenue to sustain the conclusion of the Appellate Assistant Commissioner on other grounds. The assessee himself proceeded on the ground that he is bound by the appellate orders dated December 31, 1975. 1t is in that light that the assessee filed three appeals with petitions for condonation of the delay caused in filing the appeals. What is more, in the appeals filed by the Revenue, the assessee had no plea that the orders passed by the Appellate Assistant Commissioner in the revised proceedings could be sustained on "independent reasoning", and wherein the assessee could attack the basis of the orders dated December 31, 1975, originally passed by the Appellate Assistant Commissioner. In other words, the parties proceeded on the common ground that they are bound by the findings, if any, contained in the appellate orders, dated December 31, 1975. The only question that loomed large before the Appellate Tribunal was whether there was any finding in the appellate orders dated December 31, 1975, by which the Wealth-tax Officer would be bound. In our view, on a perusal of the appellate orders dated .December 31, 1975 passed by the Appellate Assistant Commissioner, there is a positive direction to the Wealth-tax Officer to adopt the enhanced purchased value for which the assessee purchased the shares as the market price for the entire block of shares held by the assessee in Peninsular Plantation Ltd. In this perspective, we are of the view that the Appellate Tribunal was right in holding that, by orders, dated December 31, 1975, the Appellate Assistant Commissioner had directed the adoption of the purchase price of the assessee as the market value. We answer question No.2 in the affirmative, against the assessee and in favour of the Revenue. On the basis of our answer to question No.2, we answer question No.1 as follows: The Appellant Tribunal was justified in confirming the valuation of the shares adopted by the Wealth-tax Officer. Even in the modified form in which counsel for the assessee desired us to answer question No.1, we are of the view that question No.1 should be answered in the affirmative, against the assessee and in favour of the. Revenue. The Appellate Tribunal was justified in confirming the valuation of shares as adopted by the Wealth-tax Officer. Both the questions are answered against the assessee and in favour of the Revenue. The references are disposed of as above.

A copy of this judgment under the seal of this Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.

M.BA./1562/TOrder accordingly.