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Commissioner of Wealth-tax, (Central), Bombay Vs. Bhogilal H. Patel - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberWealth-tax Reference No. 4 of 1967
Judge
Reported in[1978]112ITR910(Bom)
ActsWealth Tax Act, 1957 - Sections 7 and 27(3)
AppellantCommissioner of Wealth-tax, (Central), Bombay
RespondentBhogilal H. Patel
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateR.J. Kolah, Adv.
Excerpt:
- - the directors' reports for the years 1957-58, 1958-59 and 1959-60, as well as the correspondence that was entered into by the company with the pakistan authorities seeking permission to effect remittances to india, which permission was refused, were pressed into service by the assessee before the tribunal to bring out the fact that to the assessees the yield of the shares in question was almost nil and, therefore, the shares should be nominally value at the face value of rs. joshi appearing for the revenue has contended before us that the appellate assistant commissioner as well as the tribunal ought to have adopted the break-up value method which has been prescribed under the rules framed under the wealth-tax act. he fairly stated that though this rule 1-d was not in force during.....tulzapurkar, j. 1. certain common questions of law arising out of the assessment of three assessees, pranlal b. patel, ichhaben bhogilal patel and bhogilal h. patel under the wealth-tax act, 1957, have been referred to this court in this reference made under section 27(3) of the act. the questions of law in the case of each of the three assessees run as follows : in the case of pranlal b. patel : assessment years 1957-58, 1958-59 & 1959-60 : 'whether, on the facts and in the circumstances of the case, the tribunal was justified in law in confirming the a.a. c.'s decision that the value of shares of renwick & co. (p.) ltd. should be taken at fact value of rs. 10 per share against the break-up value of rs. 21.85 (rs. 19.08 as per the note) for the assessment year 1957-58, rs. 23.3 (rs......
Judgment:

Tulzapurkar, J.

1. Certain common questions of law arising out of the assessment of three assessees, Pranlal B. Patel, Ichhaben Bhogilal Patel and Bhogilal H. Patel under the Wealth-tax Act, 1957, have been referred to this court in this reference made under section 27(3) of the Act. The questions of law in the case of each of the three assessees run as follows :

In the case of Pranlal B. Patel :

Assessment years 1957-58, 1958-59 & 1959-60 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the A.A. C.'s decision that the value of shares of Renwick & Co. (P.) Ltd. should be taken at fact value of Rs. 10 per share against the break-up value of Rs. 21.85 (Rs. 19.08 as per the note) for the assessment year 1957-58, Rs. 23.3 (Rs. 19.53 as per the note) for the assessment year 1958-59, and Rs. 27.2 (Rs. 20.47 as per the note) for the assessment year 1959-60 ?' ASSESSMENT YEAR 1959-60'

'In the facts and circumstances of the case, was the Income-tax Appellate Tribunal justified in excluding from the net wealth computation the debt represented by the dividend declared by Renwick & Co. (P.) Ltd. and not received on the valuation date ?' In the case of Ichhaben Bhogilal Patel :

Assessment years 1958-59 and 1959-60 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the A.A.C.'s decision that the value of shares of Renwick & Co.(P.) Ltd. should be taken at face value of Rs. 10 per share against break-up value of Rs. 23.3 (Rs. 19.53 as per note) of the assessment year 1958-59 and Rs. 27.2 (Rs. 20.47 as per note) for the assessment year 1959-60 ?' In the case of Bhogilal H. Patel :

Assessment years 1957-58, 1958-59 and 1959-60 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the A. A.C's decision that the value of the shares of Renwick & Co. (P.) Ltd. should be taken at face value of Rs. 10 per share against the break-up value of Rs. 21.85 (Rs. 19.08 as per note) for the assessment year 1957-58, Rs. 23.3 (Rs. 19.53 as per note) for the assessment year 1958-59 and Rs. 27.2 (Rs. 20.47 as per note) for the assessment year 1959-60 ?' Assessment year 1959-60 : 'In the facts and circumstances of the case, was the Income-tax Appellate Tribunal justified in excluding from the net wealth computation the debt represented by the dividend declared by Renwick & Co. (P.) Ltd. and not received on the valuation date ?'

2. The note below the questions in the statement of case states that it was pointed out by the assessee's counsel that the figures of Rs. 21.85, Rs. 23.3 and Rs. 27.2 in the questions wherever they occur are to be altered to Rs. 19.08, Rs. 19.53 and Rs. 20.47 and this was in view of the A. A. C's allowance of certain deductions which the department had accepted.

3. It will appear clear that principally two questions have been referred to this court by the Tribunal. One pertains to the valuation of certain shares held by each of the assessees in the respective assessment years 1957-58, 1958-59 and 1959-60, the corresponding valuation dates being December 31, 1956, December 31, 1957, and December 31, 1958. The second question relates to the aspect whether the dividend, though declared by the company, but which has not been received by each of the assessees on account of certain governmental restrictions, has to be excluded from the net wealth computation of each of the assessees in the relevant assessment years.

4. It appears that Bhogilal and Pranlal held certain shares in a private limited company called Renwick & Co (P.) Ltd. Ichhaben Bhogilal patel, it appeals, held shares of I.B. Model Farm Ltd. which in turn held shares in Renwick & Co. (P.) Ltd. The face value of the shares was Rs. 10 per share. Though, the company has its registered office at Calcutta, bulk of its business was in East Pakistan and a major portion of its profits also arose in East Pakistan. It further appears that for the relevant assessment years in question and for many years subsequent thereto the profits which arose in East Pakistan could not be remitted to India on account of restrictions imposed by the Pakistan authorities on such remittances and the company could not pay the declared dividends to its shareholders on account of such restrictions. In the wealth-tax assessment proceedings a question arose as to what would be the proper valuation of the shareholding of each of the assessees in the said company on the relevant valuation dates, for the assessment years in question, whether the face value of Rs. 10 per share could be taken to be the valuation of the shares as contended for by the assessee or whether the value arrived at by adopting the break-up value method should be taken as contended for by the revenue, and further whether the amounts represented by uncashed dividend warrants issued in the name of each of the assessees should be excluded from the net wealth computation of the assessees in the relevant assessment years inasmuch as no dividends were actually received by any of the assessees in their hands on the respective valuation dates or even thereafter, though the dividends had been declared by the company. On the first question, the Wealth-tax Officer, adopting the break-up value method, fixed the value of these shares at Rs. 21.85, Rs. 23.3 and Rs. 27.2 per share for the three assessment years, viz., 1957-58, 1958-59 and 1959-60, respectively. In arriving at these figures he did not take into account the provision for income-tax in the sum of Rs. 4,44,000. When the matter was carried in appeal, it was contended on behalf of the assessee before the Appellate Assistant Commissioner that not only the provision for income-tax should be excluded from the reserves but the fact that there were considerable difficulties in the transfer of profits from Pakistan to India and in the payment of dividends for several years should also be taken into account in the evaluation of these shares, and that if the latter aspect was taken into account, the valuation fixed by the Wealth-tax Officer would be found to be on the high side, and the face value of the shares which was Rs. 10 per shares should be accepted as the basis for the proper evaluation. The Appellate Assistant Commissioner accepted the contentions urged on behalf of the assessee and in the first place directed the exclusion of provision for income-tax and wealth-tax but further directed the addition of the advance tax paid. As a result of this direction even if the break-up value method were to be adopted, the proper valuation to be fixed per share for the three respective years came to Rs. 19.08, Rs. 19.53 and Rs. 20.47 per share in those three years. However, he also accepted the assessees' contentions that the fact that the company was facing difficulties in the transfer of its funds from Pakistan to India and that it had not been able to do so for a number of years due to the restrictions imposed by the Pakistan Government was an important factor to be taken into account while evaluating the shares in question and in view of these facts which emerged clearly from the correspondence which was produced on record during the course of which unsuccessful attempts had been made by the company to obtain permission for remittance of its funds for the purpose of paying dividends to its shareholders, he took the view that the assessee's valuation of Rs. 10 per share would be the proper one. The department preferred appeals to the Tribunal and the department while conceding that adjustment had been properly made in respect of valuation for income-tax and wealth-tax, it was contended that difficulties in transfer of funds from Pakistan to India that were experienced by the company should not be taken into account in the evaluation of shares, that the said aspect was an irrelevant matter and that, therefore, the valuation of the shares at the rate of Rs. 10 per share adopted by the Appellate Assistant Commissioner was not correct. It was also urged that the Appellate Assistant Commissioner ought to have taken into consideration the rise in price of Rs. 32.12 for fixing the value. On behalf of the assessee it was urged that the Appellate Assistant Commissioner was justified in taking into account the aspects of restrictions that had been imposed by the Pakistan Government on remittances to be made to India, that on account of these restrictions the company was unable to pay dividends to its shareholders for several years and that, therefore, the valuation of the shares at Rs. 10 per share adopted by him was proper. The directors' reports for the years 1957-58, 1958-59 and 1959-60, as well as the correspondence that was entered into by the company with the Pakistan authorities seeking permission to effect remittances to India, which permission was refused, were pressed into service by the assessee before the Tribunal to bring out the fact that to the assessees the yield of the shares in question was almost nil and, therefore, the shares should be nominally value at the face value of Rs. 10 per share as was done by the Appellate Assistant Commissioner. The Tribunal after taking into account the directors' reports and the correspondence touching the subject of restrictions on remittances that could not be made from Pakistan to India, held that these aspects were material aspects having regard to which the valuation put on the shares by the Appellate Assistant Commissioner was regarded as just and proper and in any case could not be regarded as unreasonably low as contended by the revenue.

5. On the question of uncashed dividends under the dividend warrants that were received by the assessees from Renwick & Co. Pvt. Ltd. the Wealth-tax Officer included the amounts of those dividend warrants in the net wealth computation of the two assessees, viz., Pranlal and Bhogilal Patel, on the ground that no sooner dividend was declared than it became a debt due to the two assessees though the amounts thereof had not been received by them on the valuation dates. These related to the assessment year 1959-60 and in the case of Pranlal Bhogilal, the uncashed dividend warrants to the tune of Rs. 1,80,933 and in the case of Bhogilal the uncashed dividends to the tune of Rs. 8,954 were included by him in their net wealth computation. the Appellate Assistant Commissioner, however, accepted the contention of the assessees that dividend warrants as such had no intrinsic value especially in the peculiar circumstances of the case when they could not be encashed on account of restrictions imposed on remittances from Pakistan to India. He, therefore, excluded these items from their net wealth computation but gave a direction that if and when the company paid dividend, the dividend so received would form part of the net wealth of the assessee in the year in which it would be realised. The assessees also accepted this direction that was issued by the Appellate Assistant Commissioner. When the matter was carried further by the department in appeal to the Tribunal, the Tribunal took the view that though the dividends were declared for some years by the company, the company could not pay the same and hence the assessee had not received the same and that whatever be the position from the point of view of income-tax in determining the net wealth one has to take into consideration the actual receipt of the dividends in the assessee's hands. The Tribunal, in other words, confirmed the Appellate Assistant Commissioner's view and rejected the revenue's contention that these uncashed dividends should have been included in the net wealth computation of these two assessees. At the instance of the revenue the questions set out at the commencement of this judgment have been referred to us for our determination.

6. On the first question pertaining to the evaluation of the shares of Renwick & Co. Pvt. Ltd. held by the assessees in the respective assessment years in question, Mr. Joshi appearing for the revenue has contended before us that the Appellate Assistant Commissioner as well as the Tribunal ought to have adopted the break-up value method which has been prescribed under the rules framed under the Wealth-tax Act. He pointed out that rule 1-D which had been introduced in the Wealth-tax Rules, 1957, with effect from October 6, 1967, prescribes the method of how market value of unquoted equity shares of companies other than investment companies should be determined, and accounting to him this rule 1-D prescribes what is know as break-up value method. He also pointed out that the rule has also made a provisions as to how the valuation should be made of such unquoted equity shares of non-investment companies in case where dividend has not been paid by such companies for a particularly year or a number of years. He fairly stated that though this rule 1-D was not in force during the relevant years with which we are concerned in this case, the principle underlying this rule 1-D should have been adopted by the Appellate Assistant Commissioner as well as the Tribunal in the evaluation of the shares of Renwick & Co. Pvt. Ltd. held by the assessees in the instant case. He pointed that subject to any rules made in this behalf, the value of any asset, other than cash for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date and according to him since the commodity valuation in respect of which we are concerned in this case happens to be unquoted equity shares of Renwick & Co. Pvt. Ltd. rule 1-D which prescribes the mode of evaluating such shares, or at least the principle underlying the said rule should have been adopted by the Appellate Assistant Commissioner as well as by the Tribunal. Alternatively, he contended that if the break-up value method could not be adopted, at least the yield method should have been adopted by the Appellate Assistant Commissioner or the Tribunal and since in the instant case it could not be said that the company was not making any profits or was not declaring any dividends, the evaluation of the shares should have been made by taking into account the dividends that had been at least declared by the company, though not actually paid to the assessee, and as such the Appellate Assistant Commissioner as well as the Tribunal could be said to have erred in fixing the valuation of the shares held by the assessees in Renwick & Co. Pvt. Ltd. at Rs. 10 per share which was its face value. He contended that the aspect that there were considerable difficulties in making remittances of profits earned by the company from Pakistan to India or difficulties which the company experienced in paying out dividends declared to its shareholders on account of restrictions on remittances were not really germane factors which could have been taken into account while fixing the value of those shares. In support of his contentions strong reliance was placed by him upon a decision of the Supreme court in the case of Commissioner of Wealth-tax v. Mahadeo Jalan reported in : [1972]86ITR621(SC) . In particular, he pointed out that the Supreme court had rendered this decision in connection with a case to which rule 1-D was not applicable. He pointed out that the various aspect of evaluation of shares in a limited company were considered by the Supreme Court and certain propositions have been laid down by that court which have been enumerated at pages 633 and 634 of the report.

7. Mr. Kolah appearing for the assessee, on the other hand, contended that the break-up value method which has been indicated in rule 1-D of the Wealth-tax Rules, 1957, was really not prescribed and was not available in the relevant assessment years for which the question of evaluation of the shares in question was considered by the taking authorities, in this case, and he urged that the Supreme Court judgment on which reliance was placed by Mr. Joshi itself has indicated that ordinarily the yield method is the generally applicable method while the break-up value method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation and Mr. Kolah urged that if this principle which has been enunciated by the Supreme Court in Mahadeo Jalan's case : [1972]86ITR621(SC) were to be applied to the facts of the present case, it will appear clear that both the Appellate Assistant Commissioner as well as the Tribunal were right in not applying the break-up value method for evaluation of the shares in question and had, after adopting the practical approach to the question, taken into consideration the special circumstances which obtained in the instant case, viz., the difficulties introduced by imposition of restrictions on remittances from Pakistan to India, and had really been more fair to the revenue in fixing the value of the shares in question at the face value of Rs. 10 per share, for, according to him, to the assessees concerned the yield of the shares was really nil inasmuch as during the relevant assessment years as well as for a number of years subsequent thereto no profits could be remitted from Pakistan to India and the company was not in a position to pay dividend to its shareholders though dividend had been declared, and the yield being really nil, the Appellate Assistant Commissioner as well as the Tribunal have adopted the valuation of Rs. 10 per share which in no event can be regarded as unreasonably low.

8. He also urged that any factor or aspect which will have the effect of depressing the value of any particular asset or which will dissuade a purchase from purchasing that asset in open market would be a relevant factor for the purpose of arriving at the proper valuation of the asset, and in support of this argument reliance was placed by him on certain observations of the Supreme Court in the case of Commissioner of Wealth-tax v. P. N. Sikand : [1977]107ITR922(SC) .

9. It was not disputed before us by Mr. Joshi that rule 1-D which has prescribed the break-up value method for evaluating unquoted enquiry shares of any company other than investment company or a managing agency company, was not on the statute book and was not in force with reference to the point of time at which the shares in question were required to be valued by the taxing authorities as well as by the Tribunal. In the absence of any statutory rule being in operation, the question was really required to be decided by reference to section 7 of the Act whereunder the value of any asset, other than cash, for the purposes of the Wealth-tax Act, was required to be estimated at the price which in the opinion of the Wealth-tax Act, was required to be estimated at the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. It is true that break-up value method would be one of the methods which could be considered for evaluating any particular aspect, but it will be difficult to accept Mt. Joshi's contention that in each and every case the principle of break-up value method which is to be found in rule 1-D could be or should be applied irrespective of the other relevant factors which may be obtaining on the record. In fact the decision of the Supreme Court in Mahadeo Jalan's case : [1972]86ITR621(SC) on which Mr. Joshi strongly relied, itself suggests and the case was decided on the question of valuing particular assets at the time when rule 1-D was not in operation that the yield method would be the generally applicable method, while the break-up method was the one resorted to in exceptional circumstances or where the company was ripe for liquidation. After setting out five or six general principles at page 633 governing the various aspects which may be relevant and will have to be taken into consideration for the purpose of evaluation of shares in a limited company, this is what the Supreme Court observed at page 634 of the report :

'In setting out the above principles, we have not tried to lay down any hard and fast rule because ultimately the facts and circumstances of each case, the nature of the business, the prospects of profitability and such other consideration will have to be taken into account as will be applicable to the facts of each case. But, one thing is clear, the market value, unless in exceptional circumstances to which we have referred, cannot be determined on the hypothesis that because in a private limited company one holder can bring it into liquidation, it should be valued as on liquidation by the break-up method. The yield method is the generally applicable method while the break-up method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation but none the less is one of the methods.'

10. That being the position, it will be difficult to accept Mr. Joshi's contention that the Appellate Assistant Commissioner or the Tribunal ought to have affirmed the break-up method that had been adopted by the Wealth-tax officer while evaluating the shares of Renwick & Co. Pvt. Ltd., nor would it be possible for us to accept his contention that at least the principle enunciated in rule 1-D of the Wealth-tax Rules, 1957, ought to have been applied to the facts of the present case. As has been pointed out by the Supreme Court, normally the yield method is the generally applicable method and even that method will have to be applied after taking into account the facts and circumstances of each case, the nature of the business, the prospects of profitability and such other relevant considerations as may be applicable to the facts of each case. It is obvious that the enumeration of the circumstances indicated by the Supreme Court in above quotation was merely illustrative and not exhaustive. The next decision of the Supreme Court : [1977]107ITR922(SC) on which reliance was placed by Mr. Kolah, clearly suggests that whatever factors or aspects which may have the effect of depressing the value of an asset, should be and ought to be taken into account. The court was concerned in that case with the question of properly evaluating the leasehold interest which the assessee had obtained under a lease deed which contained certain onerous or disadvantageous clauses. The assessee in that case had acquired the leasehold interest in a plot of land in Delhi from the original lessee thereof let to the latter by the President of India. Clause 13 of the original agreement of lease provided that 'the lessee shall before any assignment or transfer of the said premises.. obtain from the lessor or such officer or body as the lessor may authorise in this behalf approval in writing of the said assignment or transfer and all such assignees and transferees and the heirs of the lessee shall be bound by all the covenants and conditions herein contained and be answerable in all respects therefor : Provided also that the lessor be entitled to claim and recover a portion of the unearned increase (i.e., the difference between the premium already paid and current market value) in the value of the land at the time of transfer... the amount to be recovered being 50 per cent. of the unearned increase. The lessor shall have a pre-emptive right to the property after deducting 50 per cent. of the unearned increase.'

11. The assessee had built a house on the plot of land and the question was whether the 50 per cent. of the unearned increase payable to the lessor was deductible in ascertaining the value of the property for the purposes of wealth-tax. On a reference, the High Court held the the 50 per cent. of the unearned increase in the value of the land payable to the lessor at the time of the transfer had to be deducted in ascertaining the value of the property. On appeal to the Supreme Court, the decision of the High court was affirmed by the Supreme Court by holding that in determining the value of the leasehold interest of the assessee in the land for the purpose of assessment to wealth-tax, the price which the leasehold interest would fetch in the open market were it not encumbered or affected by the burden or restriction contained in clause 13 of the lease deed, would have to be reduced by 50 per cent. of the unearned increase in the value of the land on the basis of the hypothetical sale on the valuation date. The Supreme Court in terms came to the conclusion that the covenant in clause 13 was a convenant running with the land and it would bind whosoever was the holder of the leasehold interest for the time being, that it was a constituent part of the rights and liabilities and advantages and disadvantages which went to make up the leasehold interest and it was an incident which was in the nature of a burden on the leasehold interest; that it had the effect of depressing the value which the leasehold interest would fetch if it were free from the burden disadvantage and, therefore, when the leasehold interest in the land had to be valued, this burden or disadvantage attaching to the leasehold interest had to be duly discounted in estimating the price which the leasehold interest would fetch. The Supreme Court also observed that to value the leasehold interest on the basis that this burden or disadvantage were to be ignored would be to value an asset differently in content and quality for that actually owned by the respondent.

12. It would thus appear clear from the aforesaid two decisions of the Supreme Court, one relied upon by Mr. Joshi and the other relied upon by Mr. Kolah, that in the first place break-up value method is the last resort to be applied in exceptional circumstances or where the company is likely to go into liquidation, while the yield method is the generally applicable method for valuing the shares in a limited company. Secondly, even while applying the yield method several factors indicated by the Supreme Court, and particularly such factors which would to to depress the value of the particular assets in question or which would dissuade a willing purchaser to purchase them in open market, would be relevant factors and are required to be taken into account while valuing the particular assets. It is in the light of these observations made by the Supreme Court in the aforesaid two decisions that Mr. Joshi's contention will have to be considered as to whether the Tribunal was right in upholding the Appellate Assistant Commissioner's method of valuing the shares when the fixed the value of those shares at Rs. 10 per share, which was the face value, particularly having regard to the peculiar circumstances which obtained in the instant case, viz. the restrictions imposed by the Pakistan Government on remittances that could be made from Pakistan to India and the admitted position that the company was not in a position to pay dividend for several years to its shareholders, not only during the relevant years in question but also for a number of years subsequent thereto.

13. That there were restrictions imposed by the Pakistan Government over remittances that could be made from Pakistan to India and the further fact that the company was unable to pay dividend to its shareholders because of such restrictions on remittances, there factors were not seriously disputed by Mr. Joshi before us. In fact, after referring to the directors' report for the relevant years in question and after referring to the correspondence which the company had with the authorities concerned seeking permission to remit its profits to India and the ultimate failure which the company met in its said attempts, the Tribunal has recorded finding that in these circumstances it was very difficult to say that this aspect of the matter will not weigh with the intending purchaser in offering the price for these shares whatever may be intrinsic worth or the declaration of the dividends. The Tribunal has pointed out that for the accounting year ending March 31, 1956, the company applied to the Pakistan authorities on April 26, 1957, for transfer of Rs. 3,15,302, that the Pakistan authorities allowed only on April 9, 1958, transfer of funds of the sum of Rs. 2,19,188 in cash and Rs. 96,113 in securities, and later on even the permission for transfer of funds to the tune of Rs. 96,113 in securities was withdrawn. It was further pointed out that similarly for the years ending 1957 and 1958 applications were made for the transmission of funds but as against the applied for sum of Rs. 6,17,780, the Pakistan authorities allowed only transfer of Rs. 2,36,769-4-1 and for the subsequent year no application could be made for transfer of funds as the income-tax assessments were not completed in Pakistan. The Tribunal has also referred to the other correspondence, especially the letters dated May 21, 1959, January 21, 1959, October 20, 1958, April 9, 1958, April 26, 1957, and June, 1956, all of which made the position clear that though the company for some years declared dividends it could not pay the same because of difficulties in the transfer of funds from Pakistan to India. After referring to this position which emerged from the material on record, the Tribunal came to the conclusion that in view of these circumstance it was difficult to say that this aspect would not weigh with the intending purchaser in offering the price for these shares whatever may be the intrinsic worth of the shares or the fact that there was declaration of dividends by the company. It cannot be disputed that these aspects would be aspects or factors which would have the effect of depressing the value of shares in the company and in any even would deter any person from offering any price for such shares in the open market. In fact, though dividend had been declared by the company, on account of restrictions on remittance of funds from Pakistan to India the shareholders of the company in India and particularly the assessees in the instant case really received no yield so far as their investments were concerned. Placed in that situation, both the Appellate Assistant Commissioner as well as the Tribunal took the view that the valuation put on these shares by the assessees, viz., Rs. 10 per share which was the face value, could not be regarded as unreasonably low. We do not think that in upholding the Appellate Assistant Commissioner's view on this aspect the Tribunal has gone wrong. In fact, as was pointed out by Mr. Kolah, the yield for all practical purposes being nil to the assesses, even the valuation at the rate of Rs. 10 per share which was the face value, would be on the high side at least in the relevant assessment years in the context of the relevant valuation dates. We find considerable force in this contention of Mr. Kolah. Having regard to this discussion, it is not possible to accept Mr. Joshi's contention on the main question involved in this reference, and we are satisfied that the Tribunal was right in accepting the valuation that was put upon the shares by the Appellate Assistant Commissioner, viz., value of Rs. 10 per share which was the face value of each share. The relevant questions bearing on the valuation aspect of the shares in the case of each of the assessees are, therefore, answered in the affirmative and in favour of the assessees.

14. Turning to the next question which deals with uncashed dividend warrants, it may briefly be stated that the Wealth-tax Officer unquestionable included the amounts represented by the uncashed dividend warrants which had been received by both Pranlal and Bhogilal Patel in the net wealth-tax computation for the relevant assessment year 1959-60, and such inclusion was sought to be justified by him on the ground that the company had actually declared dividends and had even issued dividend warrants to its shareholders and that once dividends were thus declared by a company, it became a debt receivable by the assessee liable to be included in the net wealth-tax computation. The Appellate Assistant Commissioner as well as the Tribunal, however, took a contrary view. Having regard to the imposition of the restrictions that existed on remittances to be made from Pakistan to India and having regard to the fact that though dividends had been declared by the company the shareholders including the assessees had not actually received them on account of such restrictions on remittances, the Appellate Assistant Commissioner as well as the Tribunal held that the dividends declared but which had not been received by the assessees on the valuation date were required to be excluded from the net wealth-tax computation.

15. Mr. Joshi for the revenue has placed strong reliance upon the Full Bench decision of the Allahabad High Court in Narendra Lal v. Commissioner of Income-tax reported in : [1974]93ITR534(All) , where a view has been taken that the dividends, once they are declared, are to be properly included in the net wealth on an assessee under the Wealth-tax Act inasmuch as upon declaration the dividends became part of the assets of the assessee and the fact that they had not been actually received would not entitle the assessee to exclude them from his net wealth. To similar effect is the decision of the Calcutta High Court in Commissioner of Wealth-tax v. Mrs. Leena Mukherjee reported in : [1976]104ITR111(Cal) , where the Calcutta High Court has taken the view that once the dividend is declared, though the same is payable at a later date, it is liable to be included in the net wealth computation of an assessee. The Calcutta High Court has taken the view that a declaration of dividend by a company in general meeting gives rise to a debt, that the debt in that case could not but be held to be an existing debt resulting in the vesting of an immediate right in favour of the assessee, though the payment of the debt is to take place in future. Relying on these decisions, Mr. Joshi contended that in the instant case also since the company had declared dividends the amount represented by the dividend warrants that were issued to the assessee in question must be held to be debts which had become receivable by the assessee and the question whether the assessee actually received those amounts or not would not alter the situation and the uncashed dividends should be regarded as properly includible in the net wealth computation of the two assessees. Though the ratio or principle enunciated in the Allahabad High Court decision or the Calcutta High Court would govern a normal situation where a limited company in India would be declaring dividends and the shareholders of that company would in normal course of events receive such dividends, the question is whether that principle or ratio would be applicable to the facts of the present case where though Renwick & Co. Pvt. Ltd. had declared dividends and though it had issued dividend warrants in favour of the assessees, the amounts represented by the uncashed dividend warrants would still be regarded as debts receivable by them especially in view of the admitted position that there were restrictions imposed by the Pakistan Government upon remittances that could be made from Pakistan to India and the difficulties that were experienced by the company in actually paying the dividends to its shareholders including the assessees. But apart from this aspect of the matter on which Mr. Kolah rightly relied, there is yet one more aspect to which our attention was drawn by Mr. Kolah on the basis of which he contended that the declaration of dividends by Renwick & Co. Pvt. Ltd. was itself subject to a condition or contingency or remittances being freely available from East Pakistan into India. One of the specimen dividend warrants which was received by Bhogilal Patel appears at pages 230 to 232 of the record and at the end of the warrant there is a note which is very material. The note runs thus : 'The amount of above dividend is declared subject to the amount of profits transferred from Pakistan to India. The same will be paid within 3 months of such receipt.' Mr. Kolah rightly pointed out that in view of this note which appeared on every dividend warrant that was issued by the company to its Indian shareholders it is clear that even the declaration of the dividends was subject to the condition mentioned in the note and the condition was that the profits must become transferable or remittable from Pakistan to India and that the amount of dividends would be paid within three months after receipt of such remittances from Pakistan. It is clear that when the dividends are declared in the aforesaid fashion, the declaration of dividends will have to be regarded as conditional or contingent upon the happening of even indicated, and till the condition is satisfied or contingency occurs, the amount mentioned in the dividend warrants does not even become a debt payable to or receivable by the holder of the dividend warrant. In view of such conditional dividend warrants that were issued to the assessees by Renwick & Co. Pvt. Ltd., it is difficult to accept the contention of Mr. Joshi that by reason of mere declaration of dividends, a debt payable to or receivable by the assessee-shareholders had come into existence on the relevant valuation date in the relevant assessment years and if that be the position, it would be difficult to include the amount represented by such uncashed dividend warrants in the net wealth computation of the assessees.

16. In support of the above view a reference may be made to couple of decisions to which out attention was invited by Mr. Kolah. In the case of Purshottamdas Thakurdas v. Commissioner of Income-tax reported in [1958] 34 ITR 204 , though the case had arisen under the Income-tax Act, the principle has been clearly enunciated. In that case, the facts were these : A company which carried on business both in India and Pakistan during Samvat year 2007 made profits which accrued to it both in India and Pakistan. On October 14, 1952, the company declared dividend for that year and the resolution provided as follows : 'A moiety of the amount of the dividend be paid to the shareholders on or after October 16, 1952... and the other moiety be postponed for payment within two months from the date on which remittances from Pakistan become free and the moneys are actually received.'

17. This court held that on the facts the liability of the company to pay the other moiety (which depended upon remittances from Pakistan becoming free and moneys being received from Pakistan) as well as the right of the shareholders to receive it was contingent and that the moiety was not 'paid' to the assessee in the account year relevant to the assessment year 1953-54, within the meaning of section 16(2) of the Income-tax Act and that it was not liable to be included in the total income of the assessee for that assessee year. It may be stated that the view taken by this court in the aforesaid case was approved by the Supreme Court in the case of Ramesh R. Saraiya v. Commissioner of Income-tax reported in : [1965]55ITR699(SC) . It is true that both these decision were under the Income-tax Act, but for the purposes of the Wealth-tax Act, the ratio would be clearly applicable inasmuch as in the instant case the declaration of the dividend itself was subject to the condition that the amount of profits should become transferable from Pakistan to India. A mere declaration of dividend by Renwick & Co. Pvt. Ltd. could not be regarded as resulting in a debt arising in favour of the sharesholders. In fact, the amounts represented by the dividend warrants could not be regarded as debts payable to or receivable by the shareholders till the condition or contingency indicated in the note to be found in the dividend warrant was fulfilled and it did not become a debt on the valuation date relevant for the assessment year 1959-60 for which the question has arisen before us, and it appears that it had not become a debt even for a number of years later on, because the amount had not been received by the assessee even till now on account of the restrictions imposed by the East Pakistan Government. The Calcutta High Court in the case of Musst. Jhimi Bajorai v. Commissioner of Income-tax reported in : [1971]80ITR273(Cal) has taken the view that a declaration of dividend by a company which does not create a debt immediately payable to each shareholder or does not give rise to an enforceable obligation on the company to pay dividend is no declaration of dividend at all and that, therefore, where company which had its head office in India and its operations in Pakistan declared a dividend 'subject to remittance from Pakistan'. the declaration does not give rise to an obligation which shareholder can enforce until remittances from Pakistan are actually made and such remittances are received by the company in India. It cannot be disputed that in these circumstances in determining the net wealth one has to take into consideration the actual receipt of the dividends in the assessee's hands and since in the instant case on account of restrictions on the remittances from Pakistan to India the assessees could not receive the amounts of the uncashed dividend warrants, the same were not liable to be included in the net wealth computation of the two assessees. In our view, therefore, the Appellate Assistant Commissioner and the Tribunal were right in taking the view that the amounts of the uncashed dividends were liable to be excluded from the net wealth computation of the assessees. It may be pointed out that the question framed implies that the amounts represented by the dividend warrants declared by Renwick & Co. Pvt. Ltd. had become a debt but the implication or assumption is erroneous.

18. Having regard to the above discussion it is clear that the amounts represented by the uncashed dividends could not be regarded as having become debts payable to or receivable by the assessees. The questions dealing with exclusion from net wealth computation the amounts represented by uncashed dividend warrants in the case of both the assessees, viz., Pranlal and Bhogilal Patel, are answered in the affirmative and in favour of the assessee.

19. The revenue will pay the costs of the reference.


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