ONKARJIT SINGH KANWAR VS COMNUSSIONER OF WEALTH TAX
2001 P T D 1922
[246 I T R 104]
[Delhi High Court (India)]
Before Arijit Pasayat, C. J. and D. K. Jain, J
ONKARJIT SINGH KANWAR
Versus
COMMISSIONER OF WEALTH TAX
Wealth Tax Reference No. 149 of 1985, decided on 04/07/2000.
(a) Wealth tax‑‑‑
‑‑‑‑ Valuation of assets‑‑‑Valuation of unquoted shares‑‑‑Rule 1D has to be applied‑‑‑Wealth Tax Act, 1957‑‑‑Indian Wealth Tax Rules, 1957, R. 1D.
The provisions of rule 1D of the Wealth Tax Rules, 1957, are mandatory and the valuation of unquoted shares should be made in accordance with that rule.
Bharat Hari Singhania v. CWT (1994) 207 ITR 1 (SC) fol.
(b) Wealth tax‑‑‑
‑‑‑‑Net wealth‑‑‑Deductions‑‑‑Debt‑‑‑Debts incurred in relation to properties which are exempt from wealth tax‑‑‑Not deductible‑‑‑Indian Wealth Tax Act, 1957, S.2(m)(ii).
Section 2(m)(ii) of the Wealth Tax Act, 1957, on a bare reading shows that deduction is not to be permitted where it relates to debts which have been incurred in relation to any property in respect of which wealth tax is not chargeable under the Act:
Held, that there was a positive finding recorded by the lower forums that the sum of Rs.1,33,327 had been incurred in relation to certain shares whose values were not includible in the net wealth as per the provisions contained in section. 5. Hence, the debt amounting to Rs.1,33,327 was not deductible from the net wealth.
CWT v. Sint. Pushpawati Devi Singhania (1991) 188 ITR 364 (All.) ref.
Nemo for the Assessee.
R.D. Jolly with Ms. Prendata Bansal for the Commissioner.
JUDGMENT
ARIJIT PASAYAT, C.J.‑‑‑At the instance of the assessee, the following questions have been referred by the Income‑tax Appellate Tribunal, Delhi Bench "E" (in short the "Tribunal"), under section 27(1) of the Wealth Tax Act, 1957 (in short the "Act"), for the opinion of this Court:
"(i)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the provisions of rule 1D of the Wealth Tax Rules, 1957, were mandatory and the valuation of unquoted shares should be made in accordance with that rule and not on yield basis as contended by the assessee?
(ii)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the debt amounting to Rs.1,33,327 was not deductible from net wealth in accordance with the provisions of section 2(m)(ii) of the Wealth Tax Act, 1957?"
Brief reference to the factual aspects would suffice.
For the assessment year 1977‑78, the assessee had, while filing its return of wealth, declared the value of unquoted shares in two companies at their face value. Subsequently, a revised return was filed and the value of assets was shown at a lower value on the basis of valuation made by an approved valuer on "yield" basis. The Assessing Officer held that the value of the shares had to be determined in accordance with rule I D of the Wealth Tax Rules, 1957 (in short the "Rules"). The valuation of shares as returned by the assessee was thus, rejected and the valuation was determined in terms of rule 1D. The assessee had further claimed several liabilities as deductible from its net wealth. These included a sum of Rs.1,33,327 which had been incurred as debt by the assessee in relation to certain shares, the value whereof was not includible in the net wealth in terms of section 5 of the Act. The Assessing Officer applied the provisions of section 2(m)(ii) and held that the debt to the extent of Rs.1,33,327 was not deductible. The matter was carried in appeal by the assessee before the first appellate authority.
The stand of the assessee was upheld and the findings of the Assessing Officer on both the points were reversed. The matter was carried in appeal before the Tribunal by the Revenue. The Tribunal held that the provisions of rule 1D were mandatory and, therefore, the valuation as made by the Assessing Officer was upheld. In respect of other dispute, after examining the provisions of section 2(m)(ii) of the Act, it was held that the debts to the extent of Rs.1,33,327 which had been incurred in relation to the acquisition of certain shares, the value of which was not chargeable to wealth tax under the provisions of section 5, had rightly not been deducted from the net wealth. At the instance of the assessee, as indicated, the above references have been made.
There is no appearance on behalf of the petitioner in spite of service. Learned counsel for the Revenue submitted that the Tribunal was justified in its conclusion on both the questions.
So far as the first question is concerned, the matter is squarely covered by the decision of the apex Court in the case of Bharat Hari Singhania v. CWT (1994) 20 ITR 1. It was, inter alia, observed by the apex Court as follows (page 34):
"In view of our opinion that the Valuation Officer is also bound by the rules under the Act, the question of any conflict between rule 1 D and subsection (6) of section 24 cannot and does not arise. This aspect has been dealt with by the Allahabad High Court in Smt. Pushpawati Devi Singhania's case (1991) 188 ITR 364,. We agree with it.
We summarise our conclusions thus:
(1) Rule 1D is perfectly valid and effective. The rule has to be followed in every case where unquoted equity shares of a company (other than an investment company or a managing agency company) have to be valued. All the authorities under the Act including the Valuation Officer are bound by the said rule. The question of the rule being mandatory or directory does not arise.
(2)While valuing the unquoted equity shares under rule 1D, no deductions on account of capital gains tax which would have been payable in case the said shares were sold on the valuation date can be made. Similarly, no other deductions including provision for taxation, provident fund and gratuity are admissible. Rule 1D is exhaustive on the subject.
(3)Explanation 1 to rule 1D is a perfectly valid piece of delegated legislation and has to be followed. Merely because the valuation date of the assessee and the date with reference to which the balance‑sheet of the company is drawn up do not coincide, it cannot be said that rule I D is not mandatory or that it need not be followed.
(4)Sub‑clause (a) of clause (i) and sub‑clause (e) of clause (ii) have to be read and understood in the manner indicated in this judgment hereinabove.
(5)An assessee holding shares in a company whose assets comprise wholly or partly of agricultural land, is not entitled to exclude such shares from his wealth."
The first conclusion by the apex Court quoted above puts the matter beyond a shadow of doubt that rule I D has to be followed in every case and, therefore, the question of the rule being mandatory or directory does not arise.
Our answer to the first question, therefore, is that rule 1D was to be followed by the Assessing Officer and in that context the further question whether it is mandatory or directory really loses its significance. The Tribunal was justified in its conclusion that the Assessing Officer was bound to follow the rules.
So far as the second point relating to the applicability of section 2(m)(ii) of the Act is concerned, it is to be noted that there is a positive finding recorded by the lower forums that the sum of Rs.1,33,327 had been incurred in relation to certain shares whose values were not includible in the net wealth as per the provisions contained in section 5 of the Act. Section 2(m)(ii) reads as follows:
"2(m)(ii) debts which are secured on or which have been incurred in relation to, any property in respect of which wealth tax is not chargeable under this Act; and"
The language of two provisions when read conjointly makes it clear about the non‑deductibility of the aforesaid due from the net wealth. The undisputed factual position is that the debt amount of Rs.1,33,327 was in relation to assets whose values were not includible in the net wealth. Section 2(m)(ii) on a bare reading shows that deduction is not to be permitted where it relates to debts which have been incurred in relation to any property in respect of which wealth tax is not chargeable under the Act. The Tribunal, therefore, was justified in its conclusion that the debt amounting to Rs.1,33,327 was not deductible from the net wealth. In view of the factual position set out above we do not think it necessary to go into the broader question whether there should be proportionate deduction or full deduction in a given case. Our answer to the second question is in the affirmative, in favour of the Revenue and against the assessee.
Reference is accordingly disposed of.
M.B.A./507/FC Order accordingly.