BEFORE MUHAMMAD SHARIF CHAUDHRY, ACCOUNTANT MEMBER AND MUHAMMAD TAUQIR AFZAL MALIK, JUDICIAL MEMBER VS BEFORE MUHAMMAD SHARIF CHAUDHRY, ACCOUNTANT MEMBER AND MUHAMMAD TAUQIR AFZAL MALIK, JUDICIAL MEMBER
2002 P T D (Trib.) 81
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Sharif Chaudhry, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member
W.T.As.993/LB and 992/LB of 1996, decided on 27/06/2001.
Wealth Tax Rules, 1963---
----R. 8(2)(c)(i)(ii)---Valuation of bonus shares---Method---Cost of bonus shares in general parlance may he zero but such shares have a definite value for the purpose of wealth tax---Law does not differentiate between ordinary shares and bonus shares---Method of valuation of ordinary shares as prescribed by R.8(2)(c)(i)(ii) of Wealth Tax Rules, 1963 is applicable to the valuation of bonus shares as well---Assessing Officer was directed by the Appellate Tribunal to obtain details of bonus shares and balance sheets of the companies in which such bonus shares were being held and then determined the value of bonus shares of the assessee strictly in accordance with R.8(2)(c)(i)(ii) of the Wealth Tax Rules, 1963.
1992 SCMR 1935 distinguished.
Shahid Zaheer, D.R. for Appellant.
Kh. Muhammad Iqbal and Faisal Iqbal for Respondent.
Date Of hearing: 14th June, 2001.
ORDER
MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER). ---These two appeals have been filed by Revenue against appellate order, dated 16-6-1996 passed by Commissioner Income Tax/Wealth Tax Appeal Zone-I. Faisalabad under section 23 of the Wealth Tax Act for the years 1993-94 and 1994-95. It has been contended in the grounds of appeal that the value of assessee's share in Goldberg property has wrongly been reduced by the Commissioner. It has been further contended that the value of bonus shares has wrongly been set aside with the directions to calculate the same on the ratio of case reported as 1992 SCMR 1935. It has also been contended in these grounds that the learned CIT has fallen in error to direct the WTO to accept the transfer of shares without transfer deed. Appellant's DR and assessee-respondent's AR have been heard. Available records have been perused.
2. The grounds of appeal have been prepared carelessly and in stereotyped manner. The issues raised in Grounds Nos. 2, 5 and 6 in the year 1993-94 and in Grounds Nos. 4 and 5 in the year 1994-95 are irrelevant as the same do not arise from the impugned appellate order of the Commissioner and even from the assessment orders of the Wealth Tax Officer. Hence these grounds are dismissed. This leaves only one issue in the field for our decision and that pertains to valuation of bonus shares held by the assessee in various companies. This issue is decided in the light of the facts available or, record and in the light of the pleadings made at the bar by the authorized representatives of contending parties as under.
3. It has been contended by Revenue that the learned Commissioner in his appellate order referred to above has seriously fallen in error by directing the Assessing Officer to calculate the value of bonus shares on the ratio of case reported as 1992 SCMR 1935. According to Revenue, this case is not relevant to the wealth tax proceedings since it related to determination of capital gain under the income-tax law. Supporting the contentions of Revenue, it has been pleaded by the learned DR that the Wealth Tax Officer had properly made the valuation of assessee's shares including bonus shares held in various public and private companies but the learned Commissioner arbitrarily vacated the assessment order and relying on an income-tax case decided by Supreme Court in the matter of capital gains issued wrong directions to the Assessing Officer to calculate value of assessee's bonus shares. Therefore, according to the DR the order of the Commissioner is unjustified which may be vacated and that of the Assessing Officer should be restored.
4. The abovementioned contentions of Revenue and the arguments of the learned DR have been strongly opposed by the AR of the assessee. According to him, cost of bonus shares is nil and if at all there is some value of bonus shares for the purpose of wealth tax the same should be calculated as directed by the Commissioner (Appeals) on the basis of decision of the Supreme Court referred to above. The AR, therefore, supports the decisions of Commissioner (Appeals) and pleads that the same should be maintained.
5. From the perusal of the assessment orders it transpires that the Wealth Tax Officer has adopted value of immovable assets as declared including value of bonus shares (as his remarks given on last page of these orders show) and has added to this amount the difference which was worked out by him between the break-up value and face value of assessee's shares held in various companies. In this way the Assessing Officer has computed the value of assessee's immovable assets including value of bonus shares. 'He has not given any separate treatment to the bonus shares at the time of computation of value of shares neither he obtained the detail of bonus shares held by the assessee in various companies. Thus the issue of bonus shares has not been properly dealt with by the Assessing Officer at the time of assessment. In appeal the learned CIT has quoted some extracts from a judgment of an Indian High Court and from a judgment of the honourable Supreme Court of Pakistan reported as 1992 SCMR 1935. In this judgment the honourable Supreme Court of Pakistan after confirming the judgment of the Sindh High Court, has held:
"The only reasonable and rational method to calculate the cost of the bonus shares is as held by the High Court in the impugned judgment namely that the cost of the share held by the shareholder on the basis of which bonus shares have been allotted be spread over on all such shares taken together if they rank pari passu and then average price per share be calculated on that basis. A shareholder acquires a bonus share in the stock, if he holds a certain number of shares in the company."
Relying upon the above judgment of the honourable Supreme Court the learned Commissioner accepted assessee's appeals and directed the Assessing Officer to calculate the value of bonus shares in the manner indicated in the above-quoted judgment. Thus the learned Commissioner has given direction in a vague manner without applying his mind and without indicating how the value of shares should be calculated by the Assessing Officer in the light of the judgment of the apex Court.
From the assessment orders and the impugned appellate order it is now clear that both the officers below have not written any speaking orders and have not properly addressed the issue of valuation of bonus shares under the Wealth Tax Act of 1963. In this situation their respective orders cannot be maintained.
6. We have considered the issue under question in the light of contentions of the parties, arguments of their authorized representatives, the judgment of the honourable Supreme Court cited supra, and the mode of valuation of shares as prescribed under Wealth Tax Law.
In our view the judgment of the honourable Supreme Court of Pakistan, cited supra, is not applicable to the issue under-consideration, as the case before the Supreme Court related to the determination of cost of bonus shares for the purpose of computation of capital gains under sections 27 to 29 of the Income Tax Ordinance, 1979. For the purpose of wealth tax, the mode of determination of the value of shares has been prescribed under Wealth Tax Law in section 7 of the Wealth Tax Act of 1963 read with Rule 8(2)(c)(i)(ii) of the Wealth Tax Rules of 1963. Wealth Tax Law is a special law and when the method of valuation of shares has been prescribed under this law for purpose of levy of wealth tax, then in our humble opinion, the decision given by the apex Court in a judgment under another enactment would not be applicable.
7. Section 7 of the Wealth Tax Act of 1963 states that the value of any asset, other than cash, for the purpose of this Act, shall be estimated by the Deputy Commissioner in accordance with Rules made under section 46 of the Act. Under section 46 of the Act, Rules have been made and Rule 8(2) deals with the valuation of shares and securities. Sub-clause (i) and sub-clause (ii) of clause (c) of this Rule deal with the mode of valuation of shares held by the taxpayers in private limited I companies and public limited companies. According to Rule 8(2)(c)(i):
"The value of the shares of joint stock companies registered in Pakistan which are quoted on a recognized Stock Exchange shall be taken to be the face value, or the break-up value as determined in the manner provided in sub-clause (ii), whichever is lower and the value of shares 'of joint stock companies registered in Pakistan which are not quoted on a recognized Stock Exchange shall be taken to be the face value; or the break- up value so determined, whichever is higher."
The mode of determining break-up value of shares has been prescribed in section 8(2)(c)(ii). According to this Rule, as briefly stated, the total wealth of the company shall first be determined and then it shall be divided by the amount of paid-up ordinary shares capital to arrive at the value of each rupee of paid-up capital. The value of shares held by the assessee shall then be determined by multiplying the sum so arrived at by the paid-up value of such shares.
8. From the above Wealth Tax Rule, it is clear that no separate treatments have been prescribed for the valuation of bonus shares and for the valuation of the ordinary shares. It is because of the fact that the bonus shares fall under the category of ordinary shares and so no distinction has been made. Had the bonus shares belonged to a separate category or class of shares like preference shares, the Wealth Tax Rules would have prescribed some separate method for the valuation of such shares as the Rules have prescribed a separate method for valuation of preference shares. In fact the bonus shares issued to shareholders by a company are ordinary shares with the only difference that normally no price is charged for bonus shares, rather the company converts its profits into paid-up capital and issues such shares to the shareholders instead of distributing the profits to them in the form of dividend.
The cost of bonus shares in general parlance may be zero but such shares have a definite value for the purpose of wealth tax. The Wealth Tax Law does not differentiate between ordinary shares and bonus shares. Thus, the method of valuation of ordinary shares as prescribed by Wealth Tax Rules quoted supra would be applicable to the valuation of bonus shares as well.
9. In view of the foregoing discussion we are unable to subscribe to the view of the AR of the assessee that the value of bonus share is nil or the value of such shares should be determined in the light of the said judgment of the Supreme Court.
10. It would be, therefore, fair and proper if the orders passed by the Wealth Tax Officer as well as by the First Appellate Authority are vacated and the matter is sent back to the Wealth Tax Officer for de novo action. The Wealth Tax Officer is directed to hear the assessee, to obtain details of bonus shares held by the assessee and also obtain balance-sheets of the companies in which such bonus shares are being held. He would determine the value of bonus shares of the assessee strictly in accordance with sub-clause (i) and sub-clause (ii) to clause (c) of sub-Rule (2) of Rule 8 of the Wealth Tax Rules of 1963.
C.M.A./M.A.K./143/Tax (Trib.)Case remanded.