COMMISSIONER OF WEALTH TAX VS DOMINIC JOSEPH, 1992 PTD-KERALA-HIGH-COURT-INDIA 1499 (1991)

(a) Wealth tax---

---- Valuation of assets---Valuation of shares---Provision for taxation to be considered a liability without deducting advance tax payment---Indian Wealth Tax Rules, 1957, R.1-D.

Rules made under a statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act and are to be judicially noticed for all purposes of construction or obligation. The Indian Wealth Tax Act and the Rules made under section 46 thereof by the Central Board of Direct Taxes constitute a self-contained Code providing for the levy of wealth tax and, therefore, any action taken by the assessing authority must conform tc3 the provisions of the Act or the Rules. Rule l-D of the Indian Wealth Tax Rule.

1957, prescribes the procedure the assessing authority should follow while determining the market value of an unquoted equity share of any company other than an investment company or a managing agency company. The plain and unambiguous language employed in the rule makes it clear that the assessing authority is directed not to treat the amount paid as advance income- tax and shown as an asset in the balance-sheet, as an asset while assessing the value of the assets shown in the balance-sheet for the purpose of determining the market value of the unquoted equity share. That is what is intended to be accomplished, is made further clear by the words in brackets in Explanation 11(ii)(e) to Rule 1-D, namely, other than the amount referred to in clause (i)(a). In other words, the words preceding the words in brackets, namely, any amount representing provision for taxation', read and understood alongwith the words in brackets, make it abundantly clear that the amount paid as advance tax shall not be treated as an asset within the meaning of the rule. Any other interpretation would make clause (a) of Explanation II(ii) otiose. As far as possible, the Court shall endeavour to rake every part of the statute effective, harmonious and sensible. Hence, in valuing shares, the Wealth Tax Officer must allow the provision for taxation as a liability without deducting the advance tax payment.

CWT v. Arvindbhai Chinubhai (1982) 133 I T R 800 (Guj.); CWT v. Partap Bhogilal (1987) 167 I T R 501 (Bom.); CWT v. Ashok K. Parikh (1981) 129 I T R 46 (Guj.) and Balakrishnan (L.G.) v: CWT (1988) 173 I T R 266 (Mad.) fol.

Ashok Kumar Oswal v. CWT (1984) 148.1 T R 620 (P&H); CWT v. Krishnan (1986) 162 I T R 309 (Kar); CWT v. Latha D. Pai (1989) 179 I T R 249 (Kar.) and C.I.T. v. M. Lakhshmaiah (1988) 174 I T R 4 (AP) dissented from.

State of U.P. v. Babu Ram A I R 1961 SC 751 ref.

(b) Interpretation of statutes---

---- Rules made under the Act---Effect---Act and the Rules thereunder constitute: a self-contained Code.

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

K.N. Sivasankaran and V.V. Asokan for the Assessee.

JUDGMENT

K.P. RADHAKRISHAN MENON, J.---The Commissioner of Wealth is before us.

The question referred to us for our opinion reads:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in directing the Wealth-tax Officer to value the shares held by the assessee by allowing the provision for taxation as a liability without deducting the advance tax payment?"

There is no need to state the facts because the answer to the question depends purely upon the construction of the relevant rule. However, we would refer to the relevant parts of the order from which the above question arises and pertaining to the issue. They read:

"...But, we find that this very question (Identical to the one extacted above) was considered by the Bombay High Court in a very recent decision in the case of CWT v. Pratap Bhogilal (1987)167 ITR 501, wherein the High Court had considered all the High Court decisions on this point and have held in favour of the &-lessee. Since the High Court had considered all the decisions and found it necessary to follow the Gujarat High Court decision, we are of the opinion that we should also follow the Gujarat High Court decision. Therefore, we will accept the assessee's appeal and reject the Department's contentions."

Now coming to the question: The answer thereto depends upon the construction of rule ID, Explanation II(i) (a) and Explanation 11(ii)(e) of the Wealth Tax Rules, 1957. For easy reference, we shall extract these rules (leaving out unnecessary parts):

"Rule ID. Market value of unquoted equity shares of companies other than investment companies and managing agency companies.--The market value of an unquoted equity share of any company; other than an investment company or a managing agency company, shall be determined as follows:

The value of all the liabilities as shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in the balance-sheet the net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent. of the break-up value so determined...

Explantion II--For the purposes of this rule--(i) the following amounts shown as assets in the balance-sheet .shall not be treated as assets, namely:

(a) any amount paid as advance tax under section 18A of the Indian Income-tax Act, 1922 (11 of 1922), or under section 210 of the Income Tax Act, 1961 (43 of 1961)...

(ii) the following amounts shown as liabilities in the balance-sheet not be treated as liabilities, namely:-

(e) any amount representing provision for taxation (other than the amount referred to in clause (i)(a)) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto."

This rule prescribes the procedure the assessing authority should follow while determining the market value of an unquoted equity share of any company other than an investment company or a managing agency company. To determine the market value of unquoted equity shares, the assessing authority shall first deduct all the liabilities as shown in the balance-sheet from the value of all its, assets, again as shown in the balance-sheet. In view of Explanation II(i)(a) (hereinafter mentioned as clause `a'), the assessing authority, however, shall not treat the amount paid as advance tax under section 18A of the Indian Income-tax Act, 1922 (11 of 1922), or under section 210 of the Income-tax Act, 1961 (43 of 1961), as an asset although the same is shown as an asset in the balance-sheet. Similarly, the amount representing provision for taxation (other than the amount referred to in clause (i)(a)) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto, the assessing authority shall not treat as a liability notwithstanding the fact that the same is shown as a liability in the balance-sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. Eighty-five per cent of the break-up value so determined is the market value of each unquoted equity share.

The plain and unambiguous language employed in the Rules makes it clear that the assessing authority is directed not to treat the amount paid as advance income-tax and shown as an asset in the balance-sheet, as an asset while assessing the value of the assets shown in the balance-sheet for the purpose of determining the market value of the unquoted equity share. That is what is intended to be accomplished, is made further clear by the words in brackets in Explanation II(ii)(e) (hereinafter mentioned as clause (e), namely, "other than the amount referred to in clause (i) (a)". In other words, the words preceding the words in brackets, namely, "any amount representing provision for taxation" read and understood alongwith the words in brackets make it abundantly clear that the amount paid as advance tax shall not be treated as "assets" within the meaning of the rule. Any other interpretation would make clause (a) otioses.

Counsel for the Revenue, however, argued that sub-caluse (e), in terms, provides that an adjustment must be made, if called for, to the amount appearing as "provision for taxation" in the balance-sheet. He expanded the argument by giving the following illustration. For example, if the tax on the book profits is Rs.200 and the advance tax paid is Rs.70, then the provision for taxation that an assessee could make can be only Rs.200.70. In other words, only the resultant Rs.200.70 alone can be deducted by way of liability. To treat the advance tax paid as a liability as suggested by counsel for the Revenue, the Court necessarily has to stretch the language employed in clause (ii) and, in doing so, shall ignore clause (a). This will result in the erasure of the mandate contained in clause (a). This is not permissible because the Court indirectly will be declaring that Parliament enacted clause (a) without any purpose. It is worthwhile to remember, in this connection, the well established principle of interpretation that parliament, viz., Legislature would legislate only for the purpose of bringing about an effective result. That is why it is always said that as far as possible the Court shall endeavour to make every part of the statute effective, harmonious and sensible. It, therefore, follows that the advance tax paid, under no circumstances, can be treated as a liability within the meaning of clause (ii)(a) of the Explanation. A similar view is expressed by the High Courts of Gujarat, Bombay and Madras (vide CWT v. Arvindbhai Chinublai (1982) 133 TTR 800 (Guj), CWT v. Pratap Bhogilal (1987) 167 ITR 501 (Bom.), Balakrishnan (L.G.) v. CWT (1988) 173 ITR 266 (Mad.) and CWT v. Ashok K. Parikh (1981) 129 ITR 46 (Guj.). The contrary view expressed by the High Courts of Punjab and Haryana, Karnataka and Andhra Pradesh (vide Ashok Kumar Oswal v. CWT (1984) 148 ITR 620 (P & H), CWT v. Krishnan (N) (1980) 162 ITR 309 (Kar.), CWT v. Latha D. Pai (1989) 179 ITR 249 (Kar) and CIT v. M. Lakshmaiah (1988) 174 ITR 4 (AP)) with respect, we cannot agree with.

Counsel for the revenue then argued that the cannons of interpretation that govern contruction of a statute or the provisions thereof cannot provide the guidelines to interpret the rules made under the statute because the-rules cannot be treated on a par with the provisions of a statute. We are not impressed by this argument because Rules made under an Act, cannot be described as, or equated with, administrative directions. "Rules made under a statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act, and are to be judicially noticed for all purposes of construction or obligation" (see Maxwell on the Interpretation of Statutes, 10th edition, pages 50-51, and State of U.P. v. Babu Ram, AIR 1961 SC 751). The Wealth-tax Act and the rules made under section 46 thereof by the Central Board of Direct Taxes Constitute a self-contained code providing for the levy of wealth tax and, therefore, any action taken by the assessing authority must conform to provisions of the Act the Rules. The above argument of Counsel for the Revenue therefore, is rejected.

The question, accordingly, is answered in the affirmative and in favour of the assessee.

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

M.B.A./1641/T