1. The assessee owns certain shares of Nirmal Commercial Ltd. through the Sameer S. Somaiya Trust. The assessee had valued the shares of this company at Rs. 5 starting with a value of fixed assets at Rs. 91,84,875 and deducting liabilities of Rs. 83,51,205 due to the shareholders against premises allotted. Under the break-up method, the break-up value of the share was computed at Rs. 8.65 and since there was no dividend declared on equity shares for six years and more, the market value was worked out at Rs. 6.50 being 75 per cent of the break-up value. Rounding it off, the assessee valued the assets at Rs. 5. The WTO revalued these assets. In so doing he did not accept the assessee's contention that a sum of Rs. 83,51,205 deposits from shareholders were refundable to them. The WTO worked out the break-up value at Rs. 475.20 and having regard to the non-declaration of dividends for six years fixed the market value of the shares at Rs. 356.40. The assessee, who is the owner of 270 shares in this company, had calculated the excess of assets over expenditure in respect of these assets at Rs. 99,070.
The value of the shares themselves was returned at Rs. 1,350. Valuing these shares at Rs. 356.40, the WTO worked out the market value of these shares at Rs. 94,878. He also added the sum of Rs. 1,31,500, the non-refundable fixed deposit due to the Nirmal Commercial Ltd. from the assessee, thus, with a small adjustment arriving at a figure of Rs. 2,26,270 to be added to the net wealth. In effect the WTO revalued the shares of Nirmal Commercial Ltd. by treating the non-refundable fixed deposit at Rs. 1,31,500 as not a liability in the first instance and also added to the value of the shares worked out by him the sum of Rs. 1,31,500, again as a deposit held by the assessee with the company. On appeal, the Commissioner (Appeals) confirmed the computation made by the WTO. In this regard both the valuation of the shares and the addition of Rs. 1,31,500 as an extra asset was confirmed. The present appeal is against the above order of the Commissioner (Appeals).
2. The learned counsel for the assessee has pointed out that even apart from the question of considering the non-refundable deposits as such, there is a double addition in this case, the result of an inconsistent view held by the authorities below. While computing the break-up value of the shares, the WTO and the Commissioner (Appeals) treated the refundable deposit of Rs. 1,31,500 as really non-refundable so as to increase the assets of the company. While computing the net wealth of the assessee himself, they again added the sum of Rs. 1,31,500 as an amount the assessee has to get from Nirmal Commercial Ltd. If the latter proposition was correct, according to the learned counsel, certainly the first proposition was incorrect and vice versa. It is pointed out that though originally the sum of Rs. 1,31,500 was treated as a non-refundable deposit by an appropriate resolution passed by the company, this view was revised and the amount was treated as a refundable deposit. The valuation by the break-up method of the shares given by the assessee should, therefore, be accepted. The assessee has no objection in including the sum of Rs. 1,31,500 as extra amount due to the assessee from the company.
3. For the department stress is laid on the orders of the authorities below.
4. The assessee has been taking, according to the learned counsel for the department, an inconsistent stand that this amount was non-refundable in the first instance and refundable subsequently. This was a purely private limited company confined to a group of persons who could adjust their financial relations the way they liked. In fact even taking an adjustment for non-declaration of dividend for six years and restricting the value of the shares to Rs. 6.50, the assessee returned the actual value only at Rs. 5 which shows the very casual manner in which the valuation has been made.
5. The facts before us read in the background of the Wealth-tax Act, 1957 ('the Act') and the Wealth-tax Rules, 1957 ('the rules') leave us with no doubt that the valuation of these shares and the inclusion of the alleged non-refundable amount have not been done properly either by the assessee or by the department. In the first place the business of the company appears to be at best a single venture for being construction of a set of fiats for which the company form was adopted the would-be flat owners subscribing to the shares. They have also paid certain amounts originally stated to be non-refundable deposits in lieu of the allotment of flats to them. Subsequently a resolution seems to have been passed converting the non-refundable deposits into refundable deposits. Both the parties assumed that Rule 1D of the rules applies to the case and the valuation of shares should be made under the break-up method and adjustment for non-declaration of dividends for some time was also agreed upon by the parties. As validly contended by the learned counsel for the assessee, the WTO, however, adopted an inconsistent view with regard to the alleged deposits. While computing the value of the shares under the break-up method, he treated the deposit as non-refundable, thus, enhancing the assets of the company and increasing the value of the shares. Coming back to the assessment of the individual, he treated the deposits as refundable and included them in the net wealth. Certainly such an inconsistent view cannot be upheld. But a more basic problem in this computation of net wealth is that, in our view, neither the resort to Rule 1D nor the approach of both the parties to the deposit amount seems to be correct. Rule 1D is not applicable to an investment company. It is admitted before us that the assessee, a one time builder of a specific number of flats for its shareholders, has done no business but has only made an investment.
Admittedly, Rule 1D cannot be resorted to in valuing shares of this company. More important than that is the wavering stand both the assessee as well as the WTO have adopted with regard to the deposit with the company. If, as the assessee contended, the original concept was that of a non-refundable deposit, when the assessee converted into a refundable deposit, here was a clear case of a gift which might have been attracted the Gift-tax Act, 1958, in the hands of the company-donor. Be that as it may, a more interesting point is that the company could with no difficulty convert non-refundable deposit of nearly Rs. 1 lakh into a refundable deposit being a private limited company, the ultimate purpose of which is to construct flats for its own members. The company form has been adopted to achieve this end and the cost of the flats to the members have been bifurcated partly into shareholding and partly into a deposit, the nature of which has been wavering from non-refundable to refundable. Evidently here is a case where if tax adjustment or avoidance could be even the remotest intention of the members, the corporate veil must have been pierced to bring proper amount to tax. We particularly emphasise this point because of the case with which large amounts of money are being made refundable or non-refundable at the desire of the interested members.
This group of members through the medium of the company whether by shareholding or by deposits got flats constructed and allotted to themselves and are in effect the owners of these flats. By wrongly sticking on to Rule 1D in a case where it may not apply, obviously these flat-holders are seeking to maintain the prices of their flats at the nominal value of the shares of the company, whereas their market value may be far higher than this. This will be against the valuation provisions of the Act. While, thus, on the one hand, the double consideration of the deposit may show an inconsistency, we have to hold that the very basis of valuation adopted by both the assessee and the department cannot be accepted as correct.
6. It was argued before us that when there is no dispute about the method of valuation or the applicability of Rule 1D between the parties, the Tribunal should not refer to these matters or widen the issue. The problem is not so simple. As the final fact-finding authority, the Tribunal is bound to give a correct view on the correct facts and the applicable law. We cannot be constrained by any agreement between the parties as to the legal position or even a factual analysis of any situation if it is incorrect. It will be neither correct nor fair for the Tribunal to give a decision almost in an abstract sense on a limited point when the basic premises as in the present case agreed between the parties are not considered by the Tribunal to be correct.
We, therefore, think it proper to restore the matter to the file of the WTO with a direction to approach the problem in the light of the above observations and to compute the value of the assets according to the correct facts and law. The WTO should arrive at a correct nature of the asset in the present case whether a mere shareholding or a flat or a share and deposit in a company and then include the proper value of the assets in the net wealth.
7. A doubt was expressed before us as to whether if the above recomputa-tion results in an enhancement of the net wealth of the assessee, the Tribunal could do it. Under the Act the Tribunal has powers of enhancement. It is also imperative that if enhancement is to be made, the Tribunal must give an opportunity to the assessee to present his case before passing orders. Since we are not sure that there will be a real enhancement in this case after the WTO has gone into the details. The stage for giving an enhancement notice, if any, has not, therefore, arrived. If the WTO finds that the value he has to adopt is in excess of the original figure of assessment, he must issue a proper notice to the assessee inviting his attention to the enhancement, hear his representations and then complete the assessment.
The principle of natural justice, which requires a hearing before the enhancement would, in our opinion, be satisfied if the assessee has a bearing on this point even at an earlier stage where the question of increase comes up. If, however, the assessee wants a hearing by us, he may approach us in what will be a mere continuation of these proceedings and not a separate hearing.