Wealth tax...

----Valuation of assets---Valuation of unquoted ordinary, deferred and preference shares---Valuation must be in accordance with Rr. 1-C & 1-D-- Indian Wealth Tax Rules, 1957, Rr.1-C & 1-D.

Rules 1-C and 1-D of the Indian Wealth Tax Rules, 1957, are mandatory hence, the assessee's unquoted ordinary, deferred and preference shares have to be valued in accordance with Rules 1-C and 1-D.

C.W.T. v. India Exchange Traders' Association (1992) 197 ITR 356 (Cal.) applied.

C.W.T. v. Mahadeo Jalan (1972) 86 ITR 621 (SC); C.W.T. v. Mamman Varghese (1983) 139 ITR 351 (Ker.) and C.W.T. v. Sripat Singhania (1978) 112 ITR 363 (All.) ref.

JUDGMENT

AJIT K. SENGUPTA, J.---In this reference under section 27(1) of the Wealth Tax Act, 1957, for the assessment years 1980-81 and 1981-82, the following question of law has been referred to this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that rules 1-C and 1-D of the Wealth Tax Rules are not mandatory and in directing the Wealth Tax Officer to value the assessee's ordinary, deferred and preference shares on yield basis?"

The facts relating to this reference are that the assessee acquired shares of M/s. Bengal Water Proof Works (1940) Ltd.,, the value of which was declared in the return at face value. The above company was not listed in any stock exchange and was not an investment company. The Wealth Tax Officer, therefore, held that rules 1-C and 1-D of the Wealth Tax Rules were applicable in the matter of determination of the value of these shares and completed the assessment taking the value of the assessee's ordinary, deferred and preference shares in the above company under the provision of the said rules. The Wealth Tax Officer, while doing so, mentioned in his order that the, decision of the Supreme Court in the case of CWT v. Mahadeo Jalan (1972) 86 ITR 621 which pertained to the 'assessment years 1957-58 and 1A-59 was given at a time when rule 1-C was not an issue.

On appeal, the Commissioner of Income-tax (Appeals) observed that although the Calcutta Bench of the Tribunal has held in a recent judgment that rule 1-D was directory, the Kerala High Court in CWT v. Mamman Varghese (1983) 139 ITR 351 and the Allahabad High Court in CWT v. Sripat Singhania [1978] 112 ITR 363 are in favour of treating the rule as mandatory. The Commissioner of Income-tax (Appeals) as such confirmed the action of the Wealth Tax Officer.

Before the Tribunal, the assessee contended that the Commissioner of Income Tax (Appeals) was wrong in sustaining the orders of the Wealth Tax Officer inasmuch as he failed to appreciate the fact that the yield basis was the correct method of valuation of unquoted shares. The assessee relied on a Special Bench decision of the Tribunal. The Departmental Representative, on the other hand, relied on the orders of the authorities below.

The Tribunal concluded the matter as hereunder:

"We have considered the matter and the Special Bench decision of the Tribunal in the case of Anik Pal Chowdhury. Respectfully following the reason given therein, we hold that rule 1-C and rule 1-D are not mandatory. We direct the Wealth Tax Officer to value the unquoted ordinary shares and preference shares of the assessee in Bengal Water Proof Works (1940) Ltd. on yield basis."

The question whether rule 1-D of the Wealth Tax Rules is, mandatory or directory came up for consideration before this Bench in Matter No. 149 of 1987 (CWT v. India Exchange Traders' Association (1992) 197 ITR 356) where judgment was delivered on March 21, 1991. In that case, it was held that rule 1-D was mandatory. In -our opinion, the reasoning therein will equally apply to the construction of rule 1-C which relates to the valuation of unquoted preference shares.

For the reasons aforesaid and having regard to the principles laid down in the aforesaid judgment, we answer the question in this reference in the negative and in favour of the Revenue.

There will be no order as to costs.

SHYAMAL KUMAR SEN, J: --I agree.

M.BA./2436/TReference answered.