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Shyamsukh Garg Vs. Controller of Estate Duty - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 7 of 1981
Judge
Reported in[1984]145ITR238(MP)
ActsWealth Tax Rules, 1957 - Rule 1D; Estate Duty Act, 1953 - Sections 33(1), 34, 34(1) and 39; Wealth Tax Act
AppellantShyamsukh Garg
RespondentController of Estate Duty
Appellant AdvocateG.M. Chaphekar and ;Samvatsar, Advs.
Respondent AdvocateR.C. Mukati, Adv.
Excerpt:
.....against appellant can be raised, it cannot be said that onus shifts exclusively and heavily on him to prove his innocence. conviction of appellant is liable to be set aside. - the accountable person as well as the department applied to the tribunal to refer questions of law arising out of the order of the tribunal. this contention is not well founded. ..in accordance with the well-recognized methods of valuation is followed in india......law for the opinion of this court:' (i) whether, on the facts and circumstances of the case, the appellate tribunal was justified in holding that there was goodwill of the firm ? (2) if the answer to the above question is in the affirmative, whether the basis adopted for the valuation of the goodwill of the trading firm, m/s. premsukh shyamsukh, is in accordance with the law ? (3) whether, on the facts and in the circumstances of the case, there was any material for the appellate tribunal to hold that the value of the goodwill of the trading firm, m/s. premsukh shyamsukh, was two years' purchase of average of three years' profits ? (4) whether, in view of the provisions of rule id of the wealth-tax rules, 1957, there was material for the appellate tribunal to determine the value of.....
Judgment:

Vijayvargiya, J.

1. By this reference under Section 64(1) of the E.D. Act (for short 'the Act'), the Income-tax Appellate Tribunal, Indore Bench,Indore, has referred the following questions of law for the opinion of this court:

' (I) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that there was goodwill of the firm ?

(2) If the answer to the above question is in the affirmative, whether the basis adopted for the valuation of the goodwill of the trading firm, M/s. Premsukh Shyamsukh, is in accordance with the law ?

(3) Whether, on the facts and in the circumstances of the case, there was any material for the Appellate Tribunal to hold that the value of the goodwill of the trading firm, M/s. Premsukh Shyamsukh, was two years' purchase of average of three years' profits ?

(4) Whether, in view of the provisions of Rule ID of the Wealth-tax Rules, 1957, there was material for the Appellate Tribunal to determine the value of unquoted equity shares at the value of Rs. 73,265 ?

(5) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that in computing the shares of three lineal descendants of the deceased for rate purposes, the value of their shares in the house property known as Parvati Bhawan, Mandsaur, should be excluded in view of the provision of Section 33(l)(n) read with Sections 34 and 39 of the E.D. Act '

2. The material facts giving rise to this reference as set out in the statement of the case are as follows: The deceased, Shyamsukha Garg, was a resident of Neemuch, He had Ms individual assets. He was also a partner in a trading firm, namely, M/s. Premsukh Shyamsukh, carrying on business in foodgrains and kirana goods on wholesale basis. The deceased had 1/3rd share in the said firm. The accountable person in the estate duty return of the deceased did not value the goodwill of the firm of which the deceased was a partner on the ground that the firm had no goodwill. The Asst. Controller of Estate Duty did not accept the contention of the accountable person and held that the firm had a goodwill. As regards the basis for valuation of the goodwill the Asst. Controller estimated the profits of the firm for the last three years. He then estimated the average capital and calculated interest at 12% and allowed deduction of the interest so calculated. He gave a further deduction of Rs. 18,000 as remuneration of the three partners and estimated the super profits. He calculated the share of the deceased in the goodwill at Rs. 92,245.

3. The Asst. Controller estimated the value of 640 equity shares of Hanuman Industries (Pvt.) Ltd. at Rs. 73,265 as against the value claimed by the accountable person at Rs. 100 per share totalling Rs. 64,000. The Asst. Controller also valued the property known as Parvati Bhavan at Rs. 97,051 in place of Rs. 78,000 declared by the accountable person.

4. On appeal by the accountable person the Appellate Controller confirmed the finding that there was a goodwill of the firm. He, however, held that the income-tax payable by the firm should be first deducted from the total profits and the remuneration of the partners should be allowed at 20% and interest should also be allowed. He reduced the value of the share of the deceased in the goodwill of the firm to Rs. 66,557 The Appellate Controller reduced the value of the 640 equity shares to Rs. 36,480. He also gave a relief of Rs. 19,051 in respect of the value of Parvati Bhavan thereby reducing the value to Rs. 78,000.

5. On appeals by the accountable person and the Department, the Appellate Tribunal held that two years' purchase in the present case would be a fair estimate of the goodwill of the firm. The Tribunal, therefore, directed that the goodwill be recomputed after adding back the tax payable by the firm, but treating the two average years' super profits as the goodwill of the firm. As regards the value of 640 equity shares, the Tribunal held that there appeared no reason why the valuation given by the accountable person in the return should have been disturbed by the Appellate Controller.

6. In regard to Parvati Bhavan, the Tribunal excluded the share of the three lineal descendants of the deceased from the total computation under the provisions of Section 33(1)(n) read with Section 34 of the Act. The accountable person as well as the Department applied to the Tribunal to refer questions of law arising out of the order of the Tribunal. Thus, questions Nos. 1 to 4 have been referred at the instance of the accountable person while question No. 5 has been referred at the instance of the Department.

7. We have heard the learned counsel for the parties.

Questions Nos. 1 to 3 :

8. The learned counsel for the accountable person contended that the firm was carrying on wholesale business of the sale and purchase of food-grains and other kirana goods and the nature of the business was such that it had no goodwill. However, it does not appear from the order of the Tribunal that the contention in this form was raised before the Tribunal. The Tribunal took into account the relevant facts and found as a fact that the firm had a goodwill. As regards the basis of the valuation, the Tribunal considered the contention raised by the accountable person that some of the articles in which the firm dealt also resulted in loss and that there was a downward trend in the profits of the firm which had dwindled from Rs. 2,56,472 to only Rs. 42,723. The Tribunal takingall these facts into consideration held that two years' purchase in the present case would be a fair estimate of the goodwill of the firm.

9. In our opinion, the Tribunal did not commit any error of law in doing so. Our answer to questions Nos. 1, 2 and 3, therefore, is in the affirmative and against the accountable person.

Question No. 4:

10. This is in regard to the value of the 640 unquoted equity shares of Shri Hanuman Industries Pvt. Ltd. held by the deceased. The Asst. Controller valued the shares at Rs. 73,265, on the basis that it was the valuation put by the assessee. Before the Appellate Controller the accountable person contended that the valuation put by him was wrong. He placed materials before the Appellate Controller, on a consideration of which he held that the value of each equity share was Rs. 57. Computing the valuation of the shares on this basis the Appellate Controller valued the shares at Rs. 36,480. The Appellate Controller valued the shares keeping in view the principles laid down in Rule 1D of the W.T. Rules. The Appellate Tribunal held as follows :

' The Department is in appeal before us and it has been contended that the A.P. himself had disclosed the valuation of these shares at Rs. 73,265 which was adopted by the Assistant Controller. This fact was not seriously disputed by the representative of the A.P., but his contention was that even if the A.P. had shown wrong valuation the same should have been computed correctly by the Assistant Controller. Whether there has been actually non-declaration of dividends in the past six years as claimed by the A.P. and whether the firm had suffered any losses, these are facts which required verification. The Appellate Controller had also not stated that he had verified these facts. He has simply accepted the calculation of the A.P. which, according to him, appeared to be quite reasonable and because there was no contrary material in the assessment order. However, since the A.P. himself gave a different valuation in the return, there is apparently no reason why the same should have been disturbed and should be disturbed by us at this stage.'

11. Now it is not disputed that the accountable person can show that the valuation put by him in the return was not correct. If he produces material for this purpose it has to be considered by the authorities concerned. In the present case, the Appellate Controller considered the material placed by the accountable person before him. This material was in the form of balance-sheets of the company. The Appellate Controller on a consideration of the said material computed the value of each share at Rs. 57 after deducting the loss from the share capital and makinga further deduction of 25% for non-declaration of dividends for six years as per Rule 1 D of the W-T. Rules. No evidence to rebut the material placed by the accountable person was produced by the Department before the Appellate Controller. In the circumstances, it could not be said that the Appellate Controller committed any error of law in determining the value of the unquoted equity shares.

12. The learned counsel for the Department contended that the Appellate Controller committed an error of law in applying the principles of Rule 1D of the W.T. Rules in valuing the equity shares. According to him the rules framed under another Act should not have been considered by the Appellate Controller in computing the valuation of the shares under the provisions of the E.D. Act. This contention is not well founded.

13. It is not disputed that no rules have been framed for valuing the unquoted equity shares under the E.D. Act. In the circumstances, in the absence of any contrary provision, the principles laid down by the statutory Rules framed under another taxing statute, viz., the W.T. Act can be taken into consideration in valuing the unquoted equity shares for purposes of estate duty. In CED v. J. Krishna Murthy : [1974]96ITR87(KAR) , the Mysore High Court held that (p. 95):

' In the absence of rules, valuation...in accordance with the well-recognized methods of valuation is followed in India. The method of valuation prescribed by Rule 1D of the W.T. Rules, 1957, being the only statutorily recognized method of valuation of unquoted equity shares in this country, it would not be wrong to adopt that method of valuation for purposes of estate duty also....The rule can be looked into for the purposes of knowing the manner of break-up method of valuation which is one of the recognized methods of valuation. '

14. We are in respectful agreement with the view taken by the Mysore High Court in the said decision.

15. The Appellate Controller has valued the equity shares keeping in view the provisions of Rule 1D of the W.T. Rules, 1957. In our opinion, he did not commit any error of law in doing so.

16. There was no material before the Tribunal on the basis of which it can be held that the valuation made by the Appellate Controller was wrong. The only basis on which the Tribunal set aside the valuation made by the Appellate Controller is that the accountable person himself gave a different valuation in the return. In our opinion, the Tribunal was not justified in setting aside the valuation made by the Appellate Controller on that ground. If the Tribunal was of the opinion that the material produced by the accountable person before the Appellate Controller required verification it could have got it done.

17. On the record as it exists we are of the opinion that there was no material for the Appellate Tribunal to determine the value of the unquoted equity shares at Rs. 73,265. Question No. 4, is, therefore, answered in the negative and in favour of the assessee.

Question No. 3 :

18. The Appellate Tribunal held that the share of the three lineal descendants of the deceased shall be excluded from the total computation in view of Section 33(l)(n) read with Section 34 of the Act. The discussion of the Tribunal in this respect is as follows :

' However, there is some force in the other argument of the A.P.'s counsel that in computing the share of three lineal descendants of the deceased, no addition should be made on account of the value of the house because the whole of it does not exceed Rs. 1 lakh. In fact the value of this house is material only for the purpose of determining the share of the lineal descendants of the deceased, because otherwise the share of the deceased is altogether exempt. This part of his contention is correct. Therefore, the share of three lineal descendants of the deceased in this behalf shall also be excluded from the total computation in view of Section 33(1)(n) read with Section 34 of theE.D. Act.'

19. The reasoning employed by the Appellate Tribunal is not intelligible and is contrary to the provisions of Section 33(1)(n) read with Section 34(1)(c) of the Act.

20. As per Section 33(1)(n) of the Act no estate duty is payable on the share of the deceased in one house or part thereof exclusively used by the deceased for his residence to the extent the principal value thereof does not exceed rupees one lakh if such house is situate in a place with a population exceeding ten thousand, and the full principal value thereof, in any other case.

21. Section 34 of the Act provides for aggregation for the purpose of determining the rate of estate duty to be paid on any property passing on the death of the deceased. Under Sub-section (l)(a) of that section all property so passing other than property exempted from estate duty under the various clauses of Section 33(1) including Clause (n) has to be aggregated. It means that the property on which estate duty is not payable under Section 33(1)(n) has to be excluded from aggregation. Section 34(1)(c) provides that in the case of property so passing, which consists of a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara law also, the interest in the joint family property of all the lineal descendants of the deceased member shall be aggregated so as to form one estate, and estate duty shall be levied thereon at the rate or rates applicable in respect of the principal value thereof. Thus, Section 34(1)(c)of the Act specifically provides that the share of the lineal descendants of the deceased in the joint family property has to be aggregated for purposes of determining the rate of estate duty.

22. This view is suported by a decision of the Karnataka High Court in CED v. K. Nataraja : [1979]119ITR769(KAR) . In the aforesaid decision the Mysore High Court, after examining the scheme of the Act and various decisions of the High Court, held that (headnote):

' Where the residential house belongs to an HUF governed by the Mitakshara law, only the share of the deceased in such house is exempt from estate duty under Section 33(1)(n). For the purpose of determining the rate of estate duty the value of the share of the deceased in such house has to be excluded from the value of the property passing on his death under Section 34(1)(a), but the value of the shares of all the lineal descendants of the deceased in the coparcenary property including the residential house has to be aggregated under Section 34(1)(c) without any reference to any exemption under Section 33(1)(n) of the Act. '

23. The aforesaid decision of the Mysore High Court was cited with approval by a Division Bench of this court in Smt. Gunvantibai v. CED : [1981]130ITR122(MP) . We are in respectful agreement with the view taken by the Mysore High Court in the aforesaid decision,

24. We are, therefore, of the opinion that on the facts and in the circumstances of the case, the Tribunal was not right in law in holding that in computing the shares of the three lineal descendants of the deceased for rate purposes, the value of their shares in the house property known as Parvati Bhawan, Mandsaur, should be excluded in view of the provisions of Section 33(1)(n) read with Sections 34 and 39 of the Act. Our answer to question No. 5, therefore, is in the negative and in favour of the Department.

25. The reference is answered accordingly. In the circumstances, the parties shall bear their own costs of this reference.


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