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Wealth-tax Officer Vs. Seth Sudhir Kumar Modi - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)14ITD194(Delhi)
AppellantWealth-tax Officer
RespondentSeth Sudhir Kumar Modi
Excerpt:
1. these three departmental appeals related to three different assessees, seth sudhir kumar modi, seth mahesh kumar modi and seth manmohan modi and they all relate to their wealth-tax assessments for the assessment year 1975-76. these three persons were partners in the firm synfibre sales corporation. this firm was having some shares of indofil chemicals ltd. while valuing the interest of the partners in the firm synfibre sales corporation, the wto following his order for the assessment year 1973-74 valued the shares in indofil chemicals ltd. under rule 1d of the wealth-tax rules, 1957 ('the rules') as against the value shown in the balance sheet at cost. the wto, thus made an adjustment to the net wealth of the firm and ascertained the partners' interest in the partnership on the above.....
Judgment:
1. These three departmental appeals related to three different assessees, Seth Sudhir Kumar Modi, Seth Mahesh Kumar Modi and Seth Manmohan Modi and they all relate to their wealth-tax assessments for the assessment year 1975-76. These three persons were partners in the firm Synfibre Sales Corporation. This firm was having some shares of Indofil Chemicals Ltd. While valuing the interest of the partners in the firm Synfibre Sales Corporation, the WTO following his order for the assessment year 1973-74 valued the shares in Indofil Chemicals Ltd. under Rule 1D of the Wealth-tax Rules, 1957 ('the Rules') as against the value shown in the balance sheet at cost. The WTO, thus made an adjustment to the net wealth of the firm and ascertained the partners' interest in the partnership on the above basis. The working of the value of partners' interest in the firm is given in Annexure 'B' to the assessment orders in the case of the above three assessees.

2. In the first appeal before the AAC, the assessee challenged the determination of the value of partners' interest in the firm on the basis adopted by the WTO and it was pointed out that in the case of Seth Rakesh Kumar Modi, who also was a partner in the above firm, the Commissioner (Appeals) had decided this issue and had deleted the addition made by the WTO. The AAC following the same order, deleted the additions made by the WTO.3. Now the department has filed these appeals and in all the three appeals the common question is : Whether while determining the value of partners' interest in the firm it was open to the Wealth-tax Officer to value the shares in Indofil Chemicals Ltd. by adopting their market value and for this purpose apply Rule 1D of the Wealth-tax Rules, 1957 4. The matter had come up earlier before the Division Bench and at that time a reference was made to the decision of the Allahabad High Court in the case of Seth Satish Kumar Modi v. WTO [1983] 139 ITR 373 as well as another decision of the same High Court in the case of Juggilal Kamlapat Bankers v. WTO [1979] 116 ITR 646. While the revenue relied on the observations in the later case, the assessee contended on the basis of a judgment in the case of Seth Satish Kumar Modi (supra). The attention of the Division Bench was also drawn to the fact that in some of the cases of this group the matters had already been decided by the Tribunal also. The decision in the case of Juggilal Kamlapat Bankers v.WTO [1979] 116 ITR 646 (All.) had been upheld by the Supreme Court in Juggilal Kamlapat Bankers v. WTO [1984] 145 ITR 485. In order to reconcile the position, the Special Bench has been constituted by the President and that is how the matter is before us.

5. We have heard the departmental representative as well as the learned counsel for the assessees at length and we proceed to give the arguments of the two sides without going into those arguments which are not directly related to the point under consideration and confining to the relevant case laws which are relied upon by the parties. The departmental representative, Shri J.S. Rao, submitted that the orders passed by the AAC and the earlier orders passed by the Commissioner (Appeals) in the case of Rakesh Kumar Modi had proceeded on the basis of the decision of the Allahabad High Court in the case of Seth Satish Kumar Modi (supra). It was pointed out that the case of Seth Satish Kumar Modi (supra) was delivered in a writ proceeding challenging the reopening of the wealth-tax assessment for the assessment year 1971-72.

Shri Satish Kumar Modi was also a partner in the firm Synfibre Sales Corporation and in the original proceedings the value of the interest of the assessee in the above firm was taken on the basis disclosed in the balance sheet of the firm. Later on, the assessment proceedings were reopened on the ground that Synifibre Sales Corporation owned shares of Indofil Chemicals Ltd. and which had been shown at the face value of such shares whereas they ought to be taken at market value.

The market value was determined in accordance with Rule 1D and the notice under Section 17 of the Wealth-tax Act, 1957 ('the Act') was issued by the WTO. When this notice was issued the High Court referred to Rule 2 of the Rules, which provides for the valuation of interest of a partner in the firm and observed as under: This rule lays down that to begin with the net wealth of the firm should be calculated, and thereafter the interest of the partners worked out as set out therein. Neither the Act nor the Rules lay down any particular procedure for calculation of the net wealth of the firm. This Court, however, has considered the matter in two cases, CWT v. Padampat Singhania [1973] 90 ITR 418 (All.) and CWT v. Laxmipat Singhania [1974] 97 ITR 188 (All.). In Padampat Singhania's case, the assessee, as karta of a Hindu undivided family, had l/3rd share in a partnership firm and his interest in the firm had to be calculated for purposes of computing his net wealth. In computing the net wealth of the firm, the ITO ignored the arrears of income-tax due against the firm, in view of Section 2(m) of the Wealth-tax Act. It was held that as the net wealth of the firm was being determined and not of the assessee, the provisions of Section 2(m) of the Act could not be relied upon for excluding the income-tax liabilities. It was also laid down that the net wealth of a firm had to be calculated under Rule 2 in accordance with commercial principles, and the special provision in the Act for the computation of net wealth cannot be applied for purposes of computing the net wealth of a firm under Rule 2. Same is the position in the other case. In Advanced Accountancy by Batliboi, it has been stated on page 574, that fixed assets are to be valued at cost. There is nothing on the record in the case, that 'the firm, while preparing its balance sheet did not value the shares held by it in Indofil Chemicals Ltd. on this basis. Thus, the firm had valued its shares in accordance with the settled principles of accountancy, as prevailing in commercial circles. Rule 1D is a special rule for calculating the market value of unquoted shares of a company. However, inasmuch as Rule 2 does not require the net wealth of a firm to be calculated as laid down in the Act or the Rules, the market value of the shares could not have been calculated in accordance with rule ID. The shares had to be valued at their cost price in accordance with settled commercial principles. This being so, the firm could value the shares in Indofil Chemicals Ltd. at their cost price. The assessee had shown the value of his interest in the firm on the basis of valuation adopted by the firm, which was based on the commercial method of accountancy. The only ground given by the WTO for forming the belief that net wealth had escaped assessment is that the valuation of the shares of Indofil Chemicals Ltd. held by the firm, of which the assessee was a partner, had not been calculated in accordance with rule ID, with the result that they have been undervalued. But on the view expressed earlier that the net wealth of the firm has to be calculated not in accordance with the Act or Rules, but on the principles of commercial accountancy, the belief which the WTO entertained that the net wealth has escaped assessment was based on no relevant material and was arbitrary, as the shares had been correctly valued and the earlier order determining the valuation of the assessee's interest in the firm was correct. The notice as such has to be quashed.... (p. 379) 6. It was submitted by the departmental representative that it was on the basis of this judgment the earlier orders of the Commissioner (Appeals) and the AACs were passed. The Tribunal also in the case of some of the other partners of the firm has followed the above decision and it has been held that the value of interest of a partner in the firm has to be determined on commercial principles and net wealth of the firm could not be determined on the basis of the Act or the Rules.

The learned departmental representative pointed out that in an earlier judgment in the case of Juggilal Kamlapat Bankers (supra), the Allahabad High Court had considered the question whether while determining the value of interest of the partner in a firm, a building belonging to the firm could be separately valued at its market value and not at cost as shown in the balance sheet of the firm. The High Court held that the value of such a building or any other asset can be separately determined at market value as Rule 2 and Section 7 of the Act have to be read harmoniously. The High Court had also held that for the purposes of valuing such a separate asset along with the firm, the WTO can make a reference to the Valuation Officer.

7. According to the departmental representative, the decision in the case of Seth Satish Kumar Modi (supra) was only in respect of reopening the assessment and, therefore, this earlier judgment should be followed. He submitted that the decision in the case of Juggilal Kamlapat Bankers (supra) has been considered by the Supreme Court and they have upheld the decision of the Allahabad High Court in Juggilal Kamlapat Bankers' case (supra). It was pointed out that the Supreme Court held that the interest of a partner in a firm belongs to a partner and no legal fiction was required for treating it as belonging to him. The Court further held that the deeming provision in Section 4(1)(b) of the Act is referable only to the quantification of the interest in the firm and such quantification has to be determined in prescribed manner and it is includible in the wealth of an assessee. It was further pointed out that the value of the interest in partnership has to be determined in accordance with Rule 2. The Supreme Court made the following observations about the above rule : The aforesaid rule clearly says that in order to determine the valuation of a partner's interest in the firm, first the net wealth of the firm has to be determined, which determination, of course, is governed by Section 7 of the Act and the rule goes on to provide as to how the net wealth of the firm so determined shall be allocated among the partners of the firm, which allocated amount will be regarded as the value of the interest of each partner in the firm.... (p. 494) 8. In the context of adjustments which have to be made in accordance with the Rules, our attention was drawn to the following observations of the Supreme Court : On a fair reading of the aforesaid provisions it will appear clear that the primary method of determining the value of assets for the purposes of the Act is the one indicated in Section 7(1), inasmuch as it provides that the value of any assets, other than cash, for the purposes of this Act shall be estimated to be its market price on the valuation date. Then comes Sub-section (2) which provides that in the case of a business for which accounts are maintained by the assessee regularly the WTO may, instead of determining separately the valuation of each asset held by the assessee in such business, determine the net value of the business as a whole having regard to the balance sheet of such business as on the valuation date and making such adjustment therein as may be prescribed. It is true that Sub-section (2) commences with a non obstante clause, but even so, the provision itself is an enabling one conferring discretion on the WTO to determine the net value of the assets of the business as a whole having regard to its balance sheets as on the valuation date, instead of proceeding under Sub-section (1). In other words, it is optional for the WTO to resort to either of the methods even in the case where the net value of the business carried on by the assessee is to be determined. Thirdly, even when he proceeds under Sub-section (2) he has to determine the net value of the business as a whole having regard to the balance sheet of such business as on the valuation date ; the phrase 'having regard to the balance sheet of such business' as judicially interpreted means that the WTO has to take into consideration or account the balance sheet of such business for such valuation and not that such balance sheet is conclusive or binding or decisive of the values of assets appearing therein. Fourthly, the said sub-section also says that the WTO has to 'make such adjustments therein as may be prescribed' and in this behalf rules 2A and 2B already quoted above indicate what adjustments the WTO has to make while determining the net value of the business as a whole. Particularly Sub-rule (2) of Rule 2B clearly provides that where the market value of an asset exceeds its written down value or book value by more than 20 per cent, the value of that asset for the purposes of Rule 2A shall be taken to be its market value. In other words, it is clear that even where the WTO has resorted to Section 7(2) for determining the value of assets of a business as a whole the written down values or book values of specific assets as appearing in the balance sheet are not sacrosanct and when the market value exceeds the written down value or book value by more than 20 per cent, the WTO has to adopt the market value of such assets for the purposes of this Act. This is apart from the position that the resort to Section 7(2) itself is discretionary and optional, the provision being an enabling one.(p.

495) The departmental representative submitted that in view of the very clear and categorical decision of the Supreme Court, it follows that the interest of the partner in the firm has to be determined in accordance with Rule 2 and while determining the net wealth of the firm for that purpose, the market value of any asset can be determined and the difference can be added to the net wealth shown on the basis of the figures appearing in the balance sheet. In this connection, the departmental representative pointed out that when Rule 2 refers to 'net wealth' of a firm the expression 'net wealth' will have the same meaning as in the Act. He pointed out that Rule 1 Mm) of the Rules provides that the terms used in the Rules have the same meaning as in the Act. It was, therefore, argued by the departmental representative that while determining the net wealth of the firm, the definition given in the Act should be followed. It was, therefore, submitted by him that the shares belonging to a firm had to be valued at their market value as Section 7 provides for market value to be taken for the purpose of wealth-tax.

9. It was further submitted that for determining the market value of the shares belonging to the firm, Rule 1D should be applied. It was contended that it was a case to which the decisions of the Allahabad High Court are binding and the Allahabad High Court held that Rule 1D was mandatory and has to be followed. In this connection, he relied on the decisions of the Allahabad High Court in the case of CWT v. Sripat Singhania [1978] 112 ITR 363, in the case of CWT v. Padampat Singhania [1979] 117 ITR 443 and the decision in the case of Bharat Han Singhania v. CWT [1979] 119 ITR 258. He pointed out that the decision of the Bombay High Court in the case of Smt. Kummben D. Mahadevia v. N.C.Upadhya [1980] 124 ITR 799 holding Rule 1D to be directory and not mandatory should not be followed in view of the decisions of the Allahabad High Court which are binding. He also pointed out that the decision of the Supreme Court in the case of CWT v. Mahadeo Jalan [1972] 86 ITR 621 related to a period when no rules had been framed and the Court hold that the yield method was the correct method for valuing the unquoted shares.

10. The learned counsel for the assessee, Dr. Debi Pal, first placed before us the decision of the Allahabad High Court in the case of Seth Satish Kumar Modi (supra) and pointed out that it was the case of the same group and the question related to the valuation of the interest in the same firm in which the present assessees were partners. He contended that the basis of the judgment in the case of Seth Satish Kumar Modi (supra) was that the net wealth of the .firm could not be determined according to the provisions of the Act and the Rules but in accordance with the commercial principles. The learned counsel pointed out that the High Court had further held that taking the value at cost price was in accordance with commercial principles, The learned counsel argued that the definition of net wealth as given in the Act could not be applied to Rule 2 as the firm was not an 'assessee' under the Act.

He submitted that the wealth-tax was payable only by an individual, the HUF or a company and, thus, a firm cannot be considered to be an asses-see only for the purpose of applying Rule 2. The learned counsel for the assessee further submitted that Section 7 could not be applied to a firm as the firm was not an assessee under the Act. The learned counsel pointed out that there was no legal fiction in the Act or the Rules to deem the firm as an assessee for any specific purpose.

11. Referring to the decisions of the Allahabad High Court and of the Supreme Court in the case of Juggilal Kamlapat Bankers (supra), Dr.

Debi Pal submitted that the decision of the High Court as well as the Supreme Court was confined to the facts of that case and it did not apply to the issue before us. He submitted that in the case before the High Court the question was whether interest of a karta partner in a firm could be included in the hands of the HUF, and it was decided that it could be so included. He further submitted that the case of Juggilal Kamlapat Bankers (supra) related to a writ proceeding for a notice to the Valuation Officer. He, therefore, argued that the decision of the High Court as well as the Supreme Court in the case of Juggilal Kamlapat Bankers (supra) should not be applied and the net wealth of the firm should be determined on the basis of 'net worth' to be determined on commercial principles and not in accordance with any rule. The learned counsel for the assessee, therefore, submitted that the Supreme Court decision being not applicable the decision of the Allahabad High Court in the case of Seth Satish Kumar Modi (supra) should be applied and the value of interest in the firm should be determined on the basis of the balance sheet and not by adopting the value of one asset in accordance with any rule. The learned counsel advanced an alternative contention that even if it was decided to adopt market value of the shares, the only proper method of valuing it was of profit yielding method as Rule 1D is directory and not mandatory. For this he relied on the decision in the case of CGT v. Smt. Kusumben D.Mahadevia [1980] 122 ITR 38 (SC) and Smt. Kusumben D. Mahadevia v. N.C.Upadhya [1980] 124 ITR 799 (Bom.). The learned counsel submitted that if the rule is held to be mandatory, it will become ultra vires. It was further submitted by the learned counsel for the assessee that the Allahabad High Court has not held Rule 1D to be mandatory and what has been held in the case of Sripat Singhania (supra) is that if Rule 1D was binding on the ITO it was binding on the Tribunal as well. He also pointed out that in the case of Padampat Singhania (supra), the High Court did not decide the vires of the rule as it was a reference proceeding. According to the learned counsel, if the market value of the assets of the firm was to be taken as per rules, Rule 2 itself becomes ultra vires. He pointed out that the correct method was pointed out by the Supreme Court in the case of Mahadeo Jalan (supra) where it was held that the yield method was the correct method for valuing shares. Thus, the learned counsel for the assessee submitted that the following decision of the Allahabad High Court in the case of Seth Satish Kumar Modi (supra), it should be held that the value of the interest in partnership should be determined on the basis of the balance sheet of the firm and not on the basis of valuing any individual assets in accordance with any rules.

12. The learned counsel for the assessee also made another submission that in the case of several of the partners of the firm the assessee's plea has been accepted on the basis of the decision in the case of Seth Satish Kumar Modi (supra) and in certain years there had been no reference against the order passed by the Tribunal following the decision in the case of Seth Satish Kumar Modi (supra). In the case of these three assessees before us and a few others in the years 1973-74 and 1974-75 the value was determined on the basis adopted by the WTO and the appeals before the AAC were not pressed. For earlier years, the matter was pending before the High Court and for the years 1976-77 to 1978-79 the WTO himself did not make any addition. The learned counsel submitted that as in the later years the department has accepted the position and in the case of certain other partners of the same firm the basis pleaded by the assessee has been adopted, the same should be adopted here and no departure should be made from those cases. In this connection, he relied on the decision of the Punjab and Haryana High Court in the case of Jaswantrai v. CWT [1911] 107 ITR 477. In this case it was held that the value adopted in the case of a sharer should be adopted as in the case of other co-sharers and no departure should be made from that.

13. On the last point the departmental representative submitted that the question which was being raised was a question of principle and of law and it was not a case of mere factual adoption of a value but determination of the value in accordance with the provision of the Act and the Rules. He, therefore, contended that the legal questions raised before the Tribunal have to be decided in accordance with the provisions of law and the decisions of the Courts, and not on the basis of the value which might have been adopted in the case of another co-partner.

14. After hearing the learned departmental representative and the learned counsel for the assessee, we find that the following issues arise for our determination in this case : 1. Whether while determining interest of a partner, in a firm for the purposes of wealth-tax assessment, it was open to the WTO to value any specific asset belonging to the firm at market value in place of its cost as shown in the firm's balance sheet 2. Whether the shares in Indofil Chemicals Co. Ltd., belonging to Synfibre Sales Corporation could be valued under Rule 1D for determining the market value of the shares for the purpose of ascertaining the net wealth of the firm 3. Whether the market value of the shares should be adopted on the yield basis and not in accordance with Rule 1D 4. Whether in the present cases value of the interest of the assessee in the firm could be adopted on the basis other than what has been adopted in the cases of some of the other co-partners 15. Taking the first issue first, we find that there is some conflict between the observations made by the Allahabad High Court in the case of Seth & Satish Kumar Modi (supra) and their observations and decision in the case of Juggilal Kamlapat Bankers (supra). In the case of Seth Satish Kumar Modi (supra), it is observed by the High Court that the Act or the Rules do not lay down any particular provision for calculation of net wealth of a firm. The High Court has further referred to their decision in the case of CWT v. Padampat Singhania [1973] 90 ITR 418 (All.) and held that the net wealth of a firm had to be calculated under Rule 2 in accordance with commercial principles and the special provisions of the Act for the computation of the net wealth cannot be applied for the purposes of computing the net wealth of the firm under Rule 2. This decision though reported in 1983 had been given in October 1979. The other decision was given in October 1977 and it was reported in 1979. However, in this decision the question of interest of an HUF in a partnership was considered. The High Court considered the question of application of Rule 2 and its relationship with Section 7 and Section 16A of the Act. The High Court observed that Rule 2 refers to the manner in which the value of the interest of a partner in a partnership is to be computed after ascertaining the net wealth of the firm, i.e., its assets minus its liabilities. It was also observed that when the value of such assets is to be determined, Section 7 comes into play and market value has to be determined. Thus, the High Court held that Rule 2 does not exclude the application of Section 7 for valuing an asset of a partner in a partnership firm. The Court further held that when Section 7(2) refers to the determination of value of a business having regard to the balance sheet, it does not mean that the determination should be on the basis of the balance sheet. It only requires the balance sheet to be taken into consideration. The High Court, therefore, held that any asset can be valued separately at its market value as may be determined. Thus, according to this decision of the Allahabad High Court in applying Rule 2 for valuing the interest of a partner in a firm net wealth has to be determined by taking assets and deducting liabilities and for their value Section 7 should be taken into consideration. The High Court further held that for determining the value of an assessable asset the assistance of the Valuation Officer can also be obtained.

16. The divergence between the two views as taken in the two judgments is very clear. Whatever may have been the occasion for the High Court to pronounce the above judgments, certain ratios have been laid down.

It is at this stage that we have to take note of the decision of the Supreme Court in the case of Juggilal Kamlapat Bankers (supra). We have already referred to this judgment earlier while narrating the arguments placed on behalf of the revenue. Two questions had been substantially raised before the Supreme Court. One related to the karta's interest in partnership firm to be included in HUF's hands for wealth-tax purposes and the second was the valuation of such interest under Section 7(2)(a) read with rules 2 and 2A. The question was whether it was open to the WTO to refer the question of valuation <5f one asset to the Valuation Officer. This could be possible only if one asset could be separately valued by the WTO. The Supreme Court while considering the second question referred to the various provisions in the Act and pointed out that the substance of the argument was that Section 7 which enabled the WTO to determine the value of any asset at market price thereof on the valuation date was inapplicable in the case of a partner's interest in the firm. The Supreme Court held that this contention proceeded on an entire misconception of relevant provisions of the Act themselves. The Supreme Court proceeded to hold that Rule 2(1) comes into picture for valuing the interest of a partner in a firm and for that the net wealth of the firm has to be determined and for this Section 7 again becomes important. The Court held that the primary method of determining the value of an asset was to determine its market value on the valuation date. As far as the provisions of Section 7(2) were concerned, the Supreme Court has held that even one separate asset could be valued and in this connection the Supreme Court referred to Rule 2B(2). Under this rule, if the market value of an asset was more by 20 per cent as compared to the value shown in the balance sheet the WTO can make appreciate adjustment. The Supreme Court also held that Section 7(2) itself was discretionary and optional.

17. In view of the very clear and categorical decision of the Supreme Court, we do not find it possible to accept the contention of the learned counsel for the assessee that this decision or the earlier decision in the case of the same assessee by the Allahabad High Court was not relevant for determining the issue before us. The Supreme Court has very clearly said that in determining the value of a partner's interest in the firm the net wealth of the firm was to be determined, which determination of course is governed by Section 7 and the rule goes to provide as to how the net wealth of the firm so determined shall be allocated among the partners. In view of this decision of the Supreme Court, the earlier decision of the Allahabad High Court in the case of Juggilal Kamlapat Bankers (supra) has to be held to be laying down the correct law. The first issue, is, therefore, decided by holding that while applying Rule 2 for valuing partner's interest in a firm the net wealth of the firm has to be determined as if it was being determined in the case of an assessee under the Act. For this purpose Section 7 and the relevant rule have to be applied.

18. In view of the decision of the Allahabad High Court in the case of Juggilal Kamlapat Bankers (supra) and the decision of the Supreme Court also in the same case of Juggilal Kamlapat Bankers (supra), a single asset belonging to the firm can also be valued at market price for the purpose of determining the value of the partner's interest in the firm.

The question which arises in the present case is whether the valuation of the shares in Indofil Chemicals Ltd. has to be determined under Rule 1D or it can be determined on any other basis. The market value of any equity share can be determined in various manners of which the two methods are generally applied. In the case of Mahadeo Jalan (supra), the Supreme Court held that the yield method is generally applicable method while the break-up method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation. As against this there is the break-up method and the rules relating to the valuation of unquoted shares have been framed on the break-up method.

The case of Mahadeo Jalan (supra) was decided when the Rules were not in existence and we, therefore, do not find any observation of the Supreme Court on the applicability of valuation on yield basis as against valuation on the break-up method as adopted 'in the Rules. Here we are concerned with the year 1975-76 when the Rules were in operation. There is a difference of opinion between the High Courts on the question whether Rule 1D is directory or mandatory. In the case of Smt. Kusumben D. Mahadevia (supra), the Bombay High Court has held that the rule is directory and not mandatory. We have to consider this matter in the light of the decisions of the Allahabad High Court as in this case we are bound by the decision of that Court. In the case of CWT v. Laxmipat Singhania [1978] 111 ITR 272, the Allahabad High Court held that these rules were applicable to the pending proceedings as well. In the case of Sripat Singhania (supra), the question which was referred to the Allahabad High Court was whether the Tribunal was justified in approving the assessee's method of valuation in respect of unquoted shares in preference to the valuation adopted by the wealth-tax authorities as per provision of rule ID. It may be mentioned that the assessee had worked out the value on yield basis. Considering the scope of Rule 1D the High Court observed that after the framing of the Rules in 1957 the valuation of unquoted equity shares has to be determined under Section 7(1), read with rub ID. The High Court, therefore, held that the Tribunal was not justified in approving the assessee's method of valuation which was not in accordance with rule ID. This matter was again considered by the Allahabad High Court in the case of Padampat Singhania (supra) and the decision in the case of Sripat Singhania (supra) was followed. Here again the Tribunal had accepted the assessee's statement of valuation of unquoted shares and the High Court held that the Tribunal was not justified in accepting that valuation. In this case the High Court has observed that when any higher authority like the AAC or the Tribunal deals with the market value of unquoted shares Rule 1D being valid law was equally available to them and they could not ignore it. Again in the case of Bharat Han Singhania (supra) the question was again considered by the Allahabad High Court and they approved the application of Rule 1D in preference to the method adopted by the assessee which was on the basis of the mean of the values obtained on the break-up basis and the yield basis.

The question referred to the High Court was whether Rule 1D was binding on the WTO as well as the Appellate authorities while valuing the unquoted equity shares and the High Court has answered the question in the affirmative.

19. In view of the above review of the decisions of the Allahabad High Court, it is clear that in all these decisions it has been held that Rule 1D was mandatory and binding wherever the question of valuation of shares arises for the purposes of Section 7. We have, therefore, to hold that the shares of Indofil Chemicals Ltd. have rightly been valued under Rule 1D and the plea of the assessees for valuing these shares on yield basis cannot be accepted. In this connection we may mention that the market value of these shares would be in excess of 20 per cent from the value shown in the balance sheet even if the yield method was to be adopted (as is apparent from the figures given by the assessee) and, thus, under the Rules, the WTO would be justified in adopting the market value in place of the value shown in the balance sheet. The second and third issues are, thus, decided in favour of the department and the action of the revenue in valuing the shares under Rule 1D is upheld.20. We now come to the last issue which arises from the different modes of valuation adopted in the cases of different partners of the firm Synfibre Sales Corporation. We find that there has been no uniformity in the method of valuation adopted by the department or shown by the different assessees in their returns. In the case of one set of persons who are also partners in the same firm, the WTO himself or the Tribunal had applied the decision in the case of Seth Satish Kumar Modi (supra) and had determined the value of the shares at the figures shown in the balance sheet of the firm. In the case of the three assessees before us, however, the position is different. Whereas the matters for the years 1970-71 to 1972-73 have been reopened and the question of reopening is pending before the Delhi High Court for the years 1973-74 and 1974-75, those three assessees filed their returns on the basis adopted by the WTO, that is on the basis of rule ID. In some cases the WTO had made additions on the basis of value under Rule 1D but the appeals were not pressed before the AAC.In the case of Gayatri Devi Modi also the same position was there in these two years as well as in the assessment year 1975-76. In the later years, however, no additions have been made by the WTO. Thus, no uniform practice has been followed and the value has been adopted on different basis in different years. In those circumstances it cannot be said that in the case of the other co-partners the yield method was being unformly followed. In fact, here we are concerned with a matter of principle and a question of law and not merely a factual valuation of a property or an asset. In such circumstances, the decision of the Punjab and Haryana High Court in the case of Jaswant Rai (supra) does not help the assessee. When a question of law is raised before the Tribunal in a particular case in a particular year, it has to be decided in accordance with the legal provisions and the decision of the Court and any earlier decision given by the tax authorities cannot be the guideline for this purpose. The fourth issue is also, therefore, decided, accordingly.

21. We, therefore, uphold the orders of the WTO in all the three cases and allow the departmental appeals.


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