Wealth tax---

----Reference---Valuation of assets---Application of rule 2B(2), Indian Wealth Tax Rules, 1957---Burden of proof---Rule 2B(2) applicable only where WTO proves that market value of asset exceeds value shown in balance-sheet by more than 20 per cent.---Tribunal justified in holding that rule 2B(2) was not applicable---No question of law arose.

Where the only material available is the gross profit rate and there is no positive material to indicate the extent of deduction which has to be made there-from for the purpose of arriving at a figure which alone can be added to the cost price for determining the market value, there is no definite evidence to determine the market value on the basis of the gross profit rate. Where the balance-sheet value is asserted to be the true value by the assessee, but is assailed by the Revenue, the burden lies on the Revenue to show that the balance-sheet value is not the true value and that the market value is higher and when material is shown by the Revenue that the market value exceeds the balance-sheet value by more than 20 per cent, then alone can the aid of rule 2B(2) of the Indian Wealth Tax Rules, 1957, be taken.

Held, that the Tribunal was justified in holding that rule 2B(2) of the Wealth Tax Rules was not applicable in the assessee's case because the Wealth Tax Officer had applied rule 2B(2) only on the basis of gross profit rate being more than 20 per cent. Moreover, the total tax effect was only Rs.1,000. No question of law arose.

CWT v. Moti Chand Daga (1988)174 ITR 379 (Raj.) applied.

Aluminium Corporation of India Ltd. v. CIT (1972) 86 ITR 11 (SC); CIT v. Mahendra and Co. Ltd. (1987) 163 ITR 316 (Raj.); CWT v. Hindustan Motors Ltd. (1976) 104 ITR 430 (SC); CWT v. Manmohan Lal (1990) 186 ITR 603 (Raj.); CWT v. Tungabhadra Industries Ltd. (1970) 75 ITR 196 (SC); CWT v. Ugar Singh (1990) 184 ITR 255 (Raj.); CWT v. Umrao Mal Dhadda (1990) 183 ITR 637 (Raj.) and Karnani Properties Ltd. v. CIT (1971) 82 ITR 547 (SC) ref.

V.K. Singhal and S.L. Sharma for the Commissioner.

N.M. Ranka for the Assesee.

JUDGMENT

This is a reference application under section 27(3) of the Wealth Tax Act arising out of the following facts:

The respondent, Umraomal Dhadda, is a wealth-tax assessee and deals in precious and semi-precious stones. The assessee filed his return for the assessment year 1975-76 declaring his wealth to the tune of Rs.1,52,330. The assessee declared a profit of 20% in his trading account. The Wealth Tax Officer made the assessment relying upon rule 2B(2) of the Wealth Tax Rules, vide Annexure 1, dated December 27, 1979, but did not grant him exemption under section 5(1)(xxxii) of the Wealth Tax Act. The assessee preferred an appeal and the first appellate Court, vide Annexure 2, dated October 21, 1980. accepted both the contentions of the assessee regarding non-applicability of rule 2B(2) and also with regard to exemption under section 5(1)(xxxii) of the Act. The Department preferred a second appeal before the Income-tax Appellate Tribunal, wherein there was a difference of opinion between the two members and the point of difference was referred to the third member. The Tribunal, while upholding the order of the first appellate authority, rejected the second appeal filed by the Department, vide annexure dated September 29, 1987. The Department, thereafter, submitted a reference application before. the Income-tax Appellate Tribunal under section 27(1) of the Wealth Tax Act for making reference of the questions to the High Court. The said reference application was also dismissed by the Tribunal vide its order dated June 10, 1988, and, hence, the Department has filed the present application under section 27(3) of the Wealth Tax Act for referring the following questions:

"(1) Whether, on the facts and in the circumstances of the case, the gross profit rate taken in the case of the firm constitutes adequate material to come to the conclusion that the market value of the closing stock of the firm exceeds the cost price as adopted by the firm by more than 20% and, whether, on that basis, rule 2B(2) of the Wealth Tax Rules, 1957, could be invoked?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of rule 2B(2) were not applicable to the assessee's case and, consequently, in deleting the addition made by the Wealth-tax Officer?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957, in respect of investment in the firm, M/s. Sardarmal Umraomal, Jaipur?"

Notice was issued and arguments have been heard on behalf of both the parties.

Mr. V.K. Singhal, learned counsel for the Revenue, has submitted that these questions arose in other cases and have already been referred by this Court, on an application under section 27(3) of the Act, directing the Tribunal to refer these questions to this Court for its decision. In this connection, he has placed reliance on CWT v. Smt. Jatan Devi (D.B. Wealth-tax Reference No.88 of 1988), CWT v. V.K. Kasliwal (D.B. Wealth-tax Reference No.86 of 1988) and CWT v. Vimal Kumar Surana (D.B. Wealth-tax Reference Application No.131 of 1988), decided on July 6. 1989---See (1990) 182 ITR 470.

On the other hand, Mr. N.M. Ranka, learned counsel for the assessee, has submitted that, in so far as the question with regard to the applicability of rule 213(2) of the Rules is concerned it stands decided by this Court in CWT v. Moti Chand Daga (1988) 174 ITR 379 and therefore, the said question does not need further consideration by this Court. Moreover, the total tax effect in the present case would hardly be a sum of 9s.1,000 only and, therefore, also, no reference need be made as was done in CWT v. Umraomal Dhadda (1990) 183 ITR 637 (Raj.) (D.B.), Wealth Tax Reference No.138 of 1988, decided on July 6 1989, CWT v. Ugar Singh (1990) 184 ITR 255 (Raj.) (D.B.) Wealth Tax Reference No.136 of 1988, decided on October 17, 1989) and CWT v. Smt. Lad Kanmar (D.B. Wealth Tax Reference No.128 of 1988, decided on October 24, 1989)

He has further submitted that the question with regard to the applicability of rule 213(2) in the instant case is a question of fact. The Tribunal, after appreciation of evidence, came to the conclusion that the fair market value of the stocks was the purchase value and the facts found by the Tribunal have not been disputed and challenged either under an application under section 27(1) before the Tribunal or under the present application and, therefore, this question cannot be referred and in this connection, he has placed reliance on Karnani Properties Ltd. v. CIT (1971) 82 ITR 547 (SC). Aluminium Corporation of India Ltd. v. CIT (1972) 86 ITR 11 (SC) and CIT v. Mahendra and Co. Ltd. (1987) 163 ITR 316 (Raj.)

Mr. N.M. Ranka, learned counsel for the assessee, has also placed reliance on the decision of this Court in D.B. Wealth-tax References Nos. 93 of 1988 and 56 of 1988, CWT v. Manmohan Lal (1990) 186 ITR 603 (Raj.), decided on October 26, 1989, wherein the reference application under section 27(3) of the Wealth Tax Act was dismissed and the High Court refused to call for a reference.

The provisions of rule 213(2) of the Wealth-tax Rules have been considered by this Court in Moti Chand Daga's case (1988) 174 ITR 379 (Raj.). In that case, this Court was considering the question whether the market value of the closing stock could not be determined on the basis of the gross profit rate alone shown by the assessee. This Court has held that where the only material available is the gross profit rate and there is no positive material to indicate the extent of deduction which has to be made there from for the purpose of arriving at a figure which alone can be added to the cost price for determining the market value, there is no definite evidence to determine the market value on the sole basis of the gross profit rate. In that case, this Court has considered the question whether the onus of proof with regard to the valuation of the closing stock lies on the assessee or on the Revenue. After referring to the decisions of the Supreme Court in CWT v. Tangabhadra Industries Ltd. (1970) 75 ITR 196 and CWT v. Hindustan Motors Ltd. (1976) 104 ITR 430, this Court has held that where the balance-sheet value is asserted to be the true value by the assessee, but is assailed by the Revenue, the burden lies on the Revenue to show that the balance-sheet value is not the true value and that the market value is higher, and when material is shown by the Revenue that the market value exceeds the balance-sheet value by more than 20%, then only the aid of rule 213(2) can be invoked.

In view of the aforesaid decision of this Court in Moti Chand Daga's case (1988) 174 ITR 379, it cannot be said that the Tribunal was not justified in upholding the finding of the Appellate Assistant Commissioner that rule 213(2) of the Wealth Tax Rules was not applicable in the assessee's case because the Wealth Tax Officer had applied rule 213(2) only on the basis of the gross profit rate being more than 20%. Similarly, in view of the aforesaid decision, the question with regard to onus of proof also stands concluded because this Court has held that the onus is on the Department. In other words, the questions which are sought to be raised by the Revenue in the instant case stand fully covered by the decision of this Court in Moti Chand Daga's case (1988) 174 ITR 379.

Keeping in view the facts and circumstances of the case, that the total tax effect will be around a sum of Rs.1,000 only, that the questions have already been considered and decided in Moti Chand Daga's case (1988) 174 ITR 379 (Raj.) and further that these questions have already been referred to the Tribunal for making a reference, no useful purpose will be served in multiplying the references on the same questions of law.

In this view of the matter, we do not rind any force in this application. The application under section 27(3) of the Wealth Tax Act is dismissed.

M.BA./1656/T Application dismissed.