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Sharbati Devi Jhalani Vs. Commissioner of Wealth-tax, Delhi-vii, and Others - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberC.W.P. Nos. 2008 to 2013 of 1984
Judge
Reported in(1986)54CTR(Del)85; ILR1985Delhi651; [1986]159ITR549(Delhi); 1986RLR115
ActsWealth Tax Act, 1957 - Sections 2, 3, 7, 7(1), 7(3), 16(1), 16A, 16A(1), 23, 24, 25(2), and 26; Rules, 1957 - Rules 1D, 3 and 10
AppellantSharbati Devi Jhalani
RespondentCommissioner of Wealth-tax, Delhi-vii, and Others
Cases ReferredGee Vee Enterprises v. Addl.
Excerpt:
(i) wealth-tax act - 1957 (i) section 7 read with rule i.d. of the wealth-tax rules--valuation of un-quoted equity shares of companies, either than investment and managing agency companies--rule is only directory and not mandatory, (ii) section 16a read with rule 3b--where the difference in the value returned and the value estimated of an asset is more than what is prescribed in the rule and if the assessed wants a reference to be made to the valuation officer the wealth-tax officer is bound to make a reference, (iii) powers of the valuation officer are not subject to any rules which may be made in determining the value of an asset, (iv) appellate authorities are not bound by rule i-d.; (ii) constitution of india--when there is a serious challenge to the virus of a provision involving.....kirpal, j.1. the question which arises for consideration in this and in the connected writ petitions is with regard to the manner of valuation of the unquoted equity shares of companies, other than investment companies and managing agency companies, for the purposes of the wealth-tax act, 1957. 2. the petitioner is one of the shareholders of m/s. gedore tools (i) p. ltd. (hereinafter referred to as 'the company'). this company belongs to, what is known as 'jhalani group'. in respect of the assessment year 1979-80, with which the present writ petition is concerned, the petitioner had filed her return of wealth. in the said return, the value of the shares of the company was shown at rs. 232.48, per share, the face value of each share being rs. 100. this valuation had been made in accordance.....
Judgment:

Kirpal, J.

1. The question which arises for consideration in this and in the connected writ petitions is with regard to the manner of valuation of the unquoted equity shares of companies, other than investment companies and managing agency companies, for the purposes of the Wealth-tax Act, 1957.

2. The petitioner is one of the shareholders of M/s. Gedore Tools (I) P. Ltd. (hereinafter referred to as 'the company'). This company belongs to, what is known as 'Jhalani Group'. In respect of the assessment year 1979-80, with which the present writ petition is concerned, the petitioner had filed her return of wealth. In the said return, the Value of the shares of the company was shown at Rs. 232.48, per share, the face value of each share being Rs. 100. This valuation had been made in accordance with rule 1D of the Wealth-tax Rules and a certificate of a registered valuer was enclosed therewith. The petitioner held 9,800 equity shares of the said company and the total value of the shares so disclosed in their return was Rs. 22,78,304.

3. Before the wealth-tax assessment was made, the petitioner filed a revised return. In the said revised return, the petitioner valued the shares of the aforesaid company at Rs. 120 per share. The total value of 9,800 shares of the company which was now disclosed thus came to Rs. 11,76,000. This revised valuation was supported by the valuation done by the registered valuers, M/s B. L. Khandelwal and Co., Chartered Accountants. In their report, the registered valuers stated that the Supreme Court had held in the case of CGT v. Kusumben D. Mahadevia : [1980]122ITR38(SC) , that in the case of a company which is a going concern and whose shares are not quoted on the stock exchange, the profits which the company has been making and should be capable of making or, in other words, the profit earning capacity of the company would ordinarily determine the value of its shares. According to the registered valuers, the proper course to be adopted, thereforee, was to value the shares on the basis of the yield method and not by applying rule 1D which prescribed the method of valuing the shares by what is known as the break-up method.

4. Vide letter dated January 7, 1983, the petitioner explained to the Wealth-tax Officer as to why the mode of valuation of the shares of the aforesaid company had been changed. According to the petitioner, the Supreme Court in Kusumben D. Mahadevia's case : [1980]122ITR38(SC) , as well as in the case of CWT v. Mahadeo Jalan : [1972]86ITR621(SC) , had reviewed the entire field of share valuation and had come to the conclusion that normally the method for determining the market value in the case of unquoted shares was the yield method and it was only in exceptional circumstances that the break-up method could also be utilised.

5. The Wealth-tax Officer, vide his order dated March 31, 1963, accepted the revised valuation of the shares of the aforesaid company at Rs. 120 per share. He accordingly determined the total value of the shares of the said company held by the petitioner at Rs. 11,76,000 and passed an assessment order determining the net worth of the petitioner, after taking other assets and liabilities into consideration, at Rs. 12,97,517.

6. The petitioner then received show-cause notice dated May 18, 1984, issued by the Commissioner of Wealth-tax, Delhi, under section 25(2) of the Wealth-tax Act. It was alleged in the said notice that in the assessment order, the valuation of the aforesaid shares held by the petitioner had been determined at Rs. 11,76,000, against the value of shares being Rs. 22,8,304 arrived at in accordance with rule 1D of the Wealth-tax Rules, 1957. It was further stated that the said order of the Wealth-tax Officer was erroneous and prejudicial to the interest of the Revenue. The petitioner was asked to show cause as to why the said assessment should not be cancelled or amended. The petitioner submitted her reply and contended, while relying upon certain decisions of the High Courts and the Supreme Court, that the valuation of the aforesaid shares had been correctly arrived at. After hearing the representatives of the petitioner, respondent No. I, however, vide his order dated September 29, 1984, came to the conclusion that the aforesaid decisions of the Supreme Court cited by the petitioner had no relevance as the unquoted shares had to be valued according to rule 1D of the Wealth-tax Rules, 1957. According to the respondent the Wealth-tax Officer had no option but to adopt the value of the unquoted shares according to the method prescribed by rule 1D. In view of the fact that the Wealth-tax Officer had not done so, respondent No. 1 came to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue and, thereforee, the assessment order was cancelled and the Wealth-tax Officer was directed to reframe a fresh assessment order in accordance with law and the prescribed rules.

7. The aforesaid order of respondent No. 1, setting aside the assessment order, has been challenged in the present petitions. According to the petitioner, the proper method of valuing the unquoted shares is to adopt the yield method. The contention of the petitioners is that rule 1D of the Wealth-tax Rules, 1957, is directory and not mandatory. It is further alleged that if it is held that rule 1D is mandatory, then the same is ultra virus the Act and should be struck down. In this connection, the contention raised in the petition is that the said rule does not carry out the provisions of the Act and imposes a liability which is not warranted by the statute.

8. The respondents, on the other hand, in their return contended that rule 1D was mandatory. In this connection reliance was placed, inter alia, on the decision in the case of CWT v. Sripat Singhania : [1978]112ITR363(All) and the decision in the case of CWT v. Padampat Singhania : [1979]117ITR443(All) . It was also submitted that rule 1D was valid and had been validly framed in exercise of the powers conferred by the said Act.

9. In order to appreciate the rival contentions, it is necessary to refer to some of the statutory provisions. Section 3 is the charging section. It provides that there shall be a charge for every assessment year commencing on and from the first day of April, 1957, of a tax known as wealth-tax 'in respect of the net wealth on the corresponding valuation date of each individual, Hindu undivided family and company at the rate or rates specified in Schedule I'. The expression 'net wealth' is defined in section 2(m) and it, inter alia, provides that it will be the amount by which the aggregate value, computed in accordance with the provisions of the Act, of all the assets belonging to the assessed on the valuation date is in excess of the aggregate value of all the debts owed by the assessed on the valuation date. The value of the assets is to be determined according to the provisions of section 7. The relevant portion of the said section reads as under :

'7. Value of assets how to be determined. - (1) 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...

(3) Notwithstanding anything contained in sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date or, in the case of an asset being a house referred to in sub-section (4), the valuation date referred to in that sub-section.

(4) Notwithstanding anything contained in sub-section (1), the value of a house belonging to the assessed and exclusively used by him for residential purposes throughout the period of twelve months, immediately preceding the valuation date may, at the option of the assessed, be taken 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 next following the date on which he became the owner of the house, or on the valuation date relevant to the assessment year commencing on the first day of April, 1971, whichever valuation date is later :

Provided that where more than one house belonging to the assessed is exclusively used by him for residential purposes, the provisions of this sub-section shall apply only in respect of one of such houses which the assessed may, at his option, specify in this behalf in the return of net wealth.'

10. Section 16A was incorporated in the Act with effect from January 1, 1973, by virtue of the Taxation Laws (Amendment) Act, 1972. The said section provides for reference to be made to the Valuation Officer. The relevant portion of the said section is as follows :

'16A. Reference to Valuation Officer. - (1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section), under this Act, the Wealth-tax Officer may refer the valuation of any asset to a Valuation Officer -

(a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Wealth-tax Officer is of opinion that the value so returned is less than its fair market value;

(b) in any other case, if the Wealth-tax Officer is of opinion -

(i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf; or

(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do...

(6) On receipt of the order under sub-section (3) or sub-section (5) from the Valuation Officer, the Wealth-tax Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer.'

11. The aforesaid section 16A has to be read with rule 3B which was also inserted with effect from January 1, 1973, which provides for reference to the Valuation Officer. The said rule reads as follows :

'3B. Conditions for reference to Valuation Officers. - The percentage of the value of the asset as returned and the amount referred to in sub-clause (i) of clause (b) of sub-section (1) of section 16A shall, respectively, be 33 1/3 per cent. and Rs. 50,000.'

12. The main arguments in this case pertained to the correct interpretation and the virus of rule 1D, which provides for valuation of unquoted equity shares of companies, other than investment companies and managing agency companies. The relevant portion of the said rule reads as follows :

'1D. Market value of unquoted equity shares of companies other than investment companies and managing agency companies. - The market value of an unquoted equity share of any company, other than an investment company or a managing agency company, shall be determined as follows :

The value of all the liabilities as shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in that balance-sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent. of the break-up value so determined :

Provided that where, in respect of an equity share, no dividend has been paid by such company continuously for not less than three accounting years ending on the valuation date or in a case where the accounting year of that company does not end on the valuation date, for not less than three continuous accounting years ending on a date immediately before the valuation date, the market value of such share shall be as indicated in the table below : ...

Explanationn I. - For the purposes of this rule, 'balance sheet' in relation to any company, means the balance-sheet of such company as drawn up on the valuation date and where there is no such balance-sheet, the balance-sheet drawn up on a date immediately preceding the valuation date and in the absence of both, the balance-sheet drawn up on a date immediately after the valuation date.'

13. The main question which arises for consideration is whether rule 1D is mandatory or not. As already noted, the contention on behalf of the respondents is that the only method by which the unquoted shares, like those held by the petitioner, can be valued is by invoking rule 1D. The petitioner,on the other hand, contends that what has to be arrived at is the value of those shares as on the valuation date and it is submitted that the Supreme Court has held in CWT v. Mahadeo Jalan : [1972]86ITR621(SC) and CWT v. Kusumben D. Mahadevia : [1980]122ITR38(SC) , that the proper method of valuation is to adopt the profit-earning capacity method and not the break-up value method, In this regard, strong reliance is also placed by the petitioner on the decision of the Bombay High Court in Kusumben D. Mahadevia v. CWT : [1980]124ITR799(Bom) , wherein the Bombay High Court had held that the provisions of rule 1D are directory and not mandatory and,therefore,the Wealth-tax Officer should value the unquoted shares by adopting the principle of valuation of shares as has been approved by the aforesaid Supreme Court decisions.

14. In order to find out whether rule 1D is directory or mandatory, let us first analyze the provisions of section 7 and of rule 1D. Section 7(1), as originally enacted, required the value of an asset to be determined on the basis of what it would fetch if sold in the open market on the valuation date. It is only with effect from April 1, 1965, that the words 'subject to any rules made in this behalf' were incorporated in section 7(1). The result of the incorporation of these words would, in our opinion, be that the value of the assets had to be estimated to be the price which they would fetch if sold in the open market on the valuation date, but this would be subject to any rules made in this behalf. The opinion which is to be formed under section 7(1) is to be of the Wealth-tax Officer. The Act itself does not provide for the manner in which unquoted shares of companies, like the one we are concerned with in the present case, are to be valued. Rule 1D was added to the Wealth-tax Rules with effect from November 6, 1967. The said rule contains the method to be adopted in valuing unquoted shares. The method which is provided is that of determining the break-up value of each unquoted equity share and the market value of each share is to be a certain percentage of the break-up value of such share. The break-up value is to be determined on the basis of the balance-sheet of the company whose share is to be valued. Explanationn I to rule 1D defines the expression 'balance-sheet' to mean the balance-sheet as drawn up on the valuation date and where there is no such balance-sheet, then the balance-sheet drawn up on a date immediately preceding the valuation date and in the absence of both, the balance-sheet drawn up on a date immediately after the valuation date.

15. At first glance, thereforee, the language of section 7(1) of the Act would indicate that the Wealth-tax Officer cannot ignore the rules which are framed for the purpose of valuation of any asset. It would appear that it is mandatory for him to follow and apply any rules which have been laid down for the purposes of valuing any asset and that the Wealth-tax Officer would have no option but to invoke the provisions of rule 1D while seeking to value the unquoted shares.

16. A question which immediately arises is whether rule 1-D can be applied in all cases of unquoted shares. According to rule 1-D, the break-up value has to be determined on the valuation date of the company concerned. It is not necessary that the valuation date of the company and the valuation date of the shareholder, who is being assessed to wealth-tax, must always coincide. In the instant case itself, the valuation date for the purpose of wealth-tax of the assessed is 31st March of each year, whereas the valuation date of the company is 30th June of each year. According to section 3, the net wealth of the assessed is to be determined on the assessed's valuation date. The valuation date for the assessment year 1979-80 of the assessed was March 31, 1979. The last valuation date of the company was June 30, 1978. Surely, the break-up value of the shares of the company as on June 30, 1978, cannot be the correct value of those shares as on March 31, 1979. If, for example, the balance-sheet as on June 30, 1978, had not been made up then, according to rule 1D, the balance-sheet of the immediately preceding year had to be made the basis for determining the break-up value. If supposing the balance-sheet immediately preceding that date was made five years earlier, can it be that is to be regarded as the market value of the shares of the assessed as on March 31, 1979 If the contention of the respondents is accepted, who contend that the value has only to be determined by invoking the principle of break-up value of the shares of the last balance-sheet drawn up,then the said rule may, in all probability, be vocative of section 3. As already noticed, section 3 read with section 2(m) and 2(q) requires the net wealth of an assessed to be determined as on the valuation date. No rule can be framed which would provide for a value to be determined on a date other than the valuation date. If we were to hold that rule 1-D would cover all the cases of unquoted shares, irrespective of the date on which the last balance-sheet of the company was drawn up, then the said rule may have to be struck down as being contrary to the provisions of the Act. By a rule, the provisions of the Act cannot be nullified or altered. When the Act enjoins the determination of the net wealth of an assessed on the valuation date, by a rule, a different date cannot in effect be fixed. For an assessed whose valuation date, say, is March 31, 1979, and whose assets consist of unquoted shares of a company, you cannot ignore the actual value of those shares on March 31, 1979, and arrive at his net wealth by taking what may have been the value of those shares much earlier. It can happen that whereas when the last balance-sheet was drawn up, the company may have been prosperous but on the valuation date of the assessed, it might have become commercially insolvent and the actual value of the shares may be nil. If rule 1-D provides such an outcome, then it may have to be held that it is contrary to section 3 of the Act.

17. In order to uphold the validity of rule 1-D and, at the same time, not to do violence to the language of the relevant provisions, we are of the opinion that where the valuation date of the company and of the assessed is the same, then the application of rule 1D is mandatory. Where, however, the two dates do not coincide,then the applicability of rule 1D would be directory and not mandatory. In the latter case, it will be open to the assessed to show to the Wealth-tax Officer that on his valuation date the value of the unquoted shares was different from the value as arrived at by applying rule 1D. In the former case, where the dates of valuation are identical, the Wealth-tax Officer will have to compute the value of the unquoted shares by applying rule 1-D. Where, however, like the present, the valuation dates are not the same, even the Wealth-tax Officer may not be bound to take recourse to the provisions of rule 1D.

18. It was then contended by the petitioner's counsel that even if we hold that the Wealth-tax Officer is bound to compute the value of the unquoted shares by applying rule 1D, but if the value of the shares as determined by the Wealth-tax Officer exceeded the value returned by more than 33-1/3 per cent., then, by virtue of section 16A read with rule 3B, the Wealth Officer has to refer the question of valuation of the shares to the Valuation Officer. The further submission in this behalf is that the Valuation Officer, by virtue of the provisions of section 7(3), is not bound by rules framed under the Act and he can value the assets by determining what it would fetch if sold in the open market on the valuation date. Mr. Wazir Singh, however, contended that the use of the word 'may' in section 16(1) indicated that it was not mandatory on the Wealth-tax Officer to refer the valuation of assets to the Valuation Officer and that the power contained in section 16A(1) was a discretionary power.

19. We are unable to agree with the submission of the learned counsel for the Revenue. Section 16A read with rule 3B clearly lays down the circumstances under which reference is to be made by the Wealth-tax Officer to the Valuation Officer. There can be no doubt that valuation of assets a specialised job. The Wealth-tax Officer cannot be expected to know the correct value of different types of assets. If the Wealth-tax Officer agrees that the value returned by an assessed is correct, then the question of applying section 16A does not arise. If the value proposed by the Wealth-tax Officer is different from the value returned, then the Wealth-tax Officer should intimate to the assessed as to what should be the correct value of the asset. This is implicit in section 16A. If the assessed agrees to the valuation proposed by the Wealth-tax officer, then again the question of making any reference to the Valuation Officer would not arise. Where, however, the difference in the value returned and the value estimated is more than what is prescribed in rule 3B, and if the assessed wants a reference to be made, then, in our opinion, the Wealth-tax Officer would have no option but to make the requisite reference. The Wealth-tax Officer cannot, thereafter, pick and choose cases where he would or would not make such a reference. To read section 16A in the manner in which the learned counsel for the respondents wants us to read, would amount to giving arbitrary powers to the Wealth-tax Officer. Giving of such a power may invite attack on it on the ground of its being arbitrary and thereby being vocative of article 14 of the Constitution. The word 'may' in section 16A(1) has to be read not only with section 16A(1)(a) but also with section 16A(1)(b)(i) and (ii). The present case falls under section 16A(1)(b)(i). If the value as computed according to rule 1D is in excess of what is returned by the assessed, then, at the instance of the assessed, a reference has to be made to the Valuation Officer. It is only in cases under section 16A(1)(b)(ii) that the Wealth-tax Officer has the discretion to refer or not to refer the question of the value of an asset to the Valuation Officer. It is now well-settled that in certain circumstances the word 'may' can mean 'shall'. In the context in which the word 'may' is used in section 16A, we have no doubt that where there is a question of conflict of opinion with regard to the value of a particular asset, then the word 'may' has to mean 'shall' and, on being called to do so, the Wealth-tax Officer has to refer the question of valuation of the asset to the Valuation Officer.

20. In any case, it is not open to the respondents to contend that the provisions of section 16A are not mandatory. After the Taxation Laws (Amendment) Act, 1972, was passed, the Central Board of Direct Taxes issued Circular No. 96, dated November 25, 1972, and paragraph 35 of the said Circular provided for the conditions under which reference can be made to the Valuation Officer. The said para. 35 reads as under (See [1973] 91 ITR (St.) 1, 20) :

'35. A new section 16A has been inserted in the Wealth-tax Act enabling the Wealth-tax Officer to refer the valuation of any capital asset to the Valuation Officer with a view to ascertaining the market value of such asset. Under this provision, the Wealth-tax Officer may refer the valuation of any capital asset to a Valuation Officer in a case where the assessed has got the asset valued by a registered valuer and the value returned is in accordance with the estimate made by the registered valuer if he is of opinion that the value as estimated by the registered valuer is less than the fair market value of the asset. Other cases in which reference may be made to the Valuation Officer would be where the Wealth-tax Officer is of opinion that the fair market value of the asset exceeds the value of the asset as returned by more than 33-1/3 per cent. of the value returned or by more than Rs. 50,000, whichever is less, or where, having regard to the nature of the asset and other relevant considerations, the Wealth-tax Officer considers it necessary to do so. In cases governed by section 16A(1), it will be incumbent on the Wealth-tax Officer to refer the valuation of the asset in question to the Valuation Officer and it will not be open to him to decide the question of valuation on his own.'

21. The aforesaid circular clearly states that the provisions of section 16A are mandatory and not directory as contended by the learned counsel for the respondents. The Wealth-tax Officer is bound by the circular issued by the Central Board of Direct Taxes and, in our opinion, the interpretation of the said provision by the Central Board of Direct Taxes is correct.

22. Once such a reference has been made, the valuation has then to be determined by the Valuation Officer. The value of the asset which has to be determined by the Valuation Officer has to be arrived at according to section 7(3) of the Act. Sub-section (3) of section 7 clearly provides that the asset is to be valued by the Valuation Officer by determining what will be its price if sold in the open market on the valuation date. In case the asset is a house, then the determination is to be of its market value on the valuation date as specified in sub-section (4). Sub-section (3) opens with the words 'notwithstanding anything contained in sub-section (1)'. This will mean that notwithstanding there being anything contrary in sub-section (1), the Valuation Officer is to estimate the value of an asset in the manner specified in sub-section (3). In other words, the powers of the Valuation Officer are not subject to any rules which may be made in determining the value of an asset. The Valuation Officer, thereforee, is not bound to value the unquoted shares by adopting the method prescribed by rule 1D. The Valuation Officer is to value the unquoted shares by estimating what it would fetch if sold in the open market on the valuation date. How such shares are to be valued has been specified by the Supreme Court in CWT v. Mahadeo Jalan : [1972]86ITR621(SC) and CGT v. Smt. Kusumben D. Mahadevia : [1980]122ITR38(SC) .

23. To summarise : the position, thereforee, is that when a question arises as to the value of unquoted shares, the Wealth-tax Officer has to act according to the provisions of section 7(1) read with rule 1D, if applicable. He has to determine the break-up value of the shares in the manner prescribed in rule 1D. If the value so determined is more than the value returned and the provisions of rule 3B are applicable, then the question of valuation of the said shares has to be referred by the Wealth-tax Officer to the Valuation Officer, under section 16A. The Valuation Officer, when a reference has been made to him, has to determine the value of the unquoted shares in accordance with the provisions of section 7(3) of the Act, i.e., he has to determine the price which those shares will fetch if sold in the open market on the valuation date. It is obvious that the Valuation Officer is not to determine the value of the unquoted shares by applying the break-up value method. The correct method in valuing such shares would be the method as approved by the Supreme Court in CWT v. Mahadeo Jalan : [1972]86ITR621(SC) and CGT v. Smt. Kusumben D. Mahadevia : [1980]122ITR38(SC) , which is applying the yield method. The break-up (value) method is to be used only if the company, on the valuation date, is ripe for winding up.

24. Before parting, reference may be made to the case of CWT v. Sripat Singhania : [1978]112ITR363(All) . In that case, the Allahabad High Court held that even the Tribunal was bound by rule 1-D and the unquoted equity shares had to be valued according to the said rule. The said decision was followed by that court in the case of Bharat Hari Singhania v. CWT : [1979]119ITR258(All) .

25. From the body of the judgment we have not been able to ascertain as to whether the valuation made by the assessed in that case was the same as the last date of the accounting year of the company whose shares were sought to be valued. On a construction of the Act and the rules, we have held that if the two dates are the same, then the said rule is mandatory. We are, however, unable to agree that even the appellate authorities are bound by the said rule even if the said rule is applicable. Section 7 expressly refers to the power of the Wealth-tax Officer while arriving at the valuation of the unquoted shares. It is true that in rule 1-D, there is no mention of the same being applicable only to the Wealth-tax Officer but section 7(1) itself refers to the 'opinion of the Wealth-tax Officer' and not the opinion of anyone else. The opinion of the Wealth-tax Officer is to be subject to any rules made under the Act. A taxing statute has to be construed strictly. When section 7(1) refers only to the opinion of the Wealth-tax Officer, the said section cannot be construed so as to include the opinion of the appellate authorities as well. The powers of the appellate authorities are governed by the provisions other than section 7(1). For example, the power of the Appellate Tribunal contained in section 24 of the Act is of the widest amplitude. The said power cannot be restricted by the provisions of rule 1D. It is obvious that a rule cannot be so construed as to override, restrict or amend the provisions of the substantive statute under which the said rule is framed. Even though the appeal to the Appellate Assistant Commissioner and a further appeal to the Tribunal may be parts of an integrated process, nevertheless the jurisdiction of the appellate authorities, as we have already observed, is to be governed by the provisions of sections 23 and 24 of the Act.

26. Although, as already noticed, it was also contended that rule 1D is ultra virus the Act, we do not think it is necessary to consider that contention because section 7(1) and rule 1D have been so construed by us that there is no conflict between the two provisions.

27. It was also contended by the learned counsel for the Revenue that we should not exercise our extraordinary jurisdiction under article 226 of the Constitution inasmuch as the petitioner had an alternative remedy open to her by way of an appeal to the Tribunal under section 26 of the Act. It is true that the normal rule-is that the remedy under the Act should be applied. The courts, however, have departed from the normal rule, time and again, for various reasons. A Division Bench of this court in the case of Gee Vee Enterprises v. Addl. CIT : [1975]99ITR375(Delhi) , after taking into consideration various decisions on this point, summarised the reasons where courts had departed from the normal rule. It was observed by this court as follows (p. 382) :

'Petitioners who have approached the High Court under article 226 bypassing the statutory remedies of appeals, revisions, etc., have advanced various grounds suitable to the individual circumstances of each case. Some of these grounds were as follows :

(1) that the impugned order was passed without jurisdiction;

(2) that it violated rules of natural justice;

(3) that it disclosed an error of law apparent on the face of the record;

(4) that it was based on extraneous or mala fide considerations;

(5) that the statutory remedy was not adequate or was onerous;

(6) that resort to the statutory remedy would cause irreparable injury to the petitioner;

(7) that the impugned order infringes on a fundamental right of the party;

(8) that the provision of law under which the order was passed is itself unconstitutional.'

28. In the present case, there was a serious challenge to the virus of rule 1D of the Wealth-tax Rules. It was conceded, and in our opinion, rightly, that the virus of the rule cannot be agitated before the authorities constituted under the Act. The challenge could only be made by filing a writ petition under article 226 of the Constitution. The case involves questions of general public importance and in view of there being conflict of opinion between the Bombay High Court and the Allahabad High Court, we see no reason as to why this court, on the facts and circumstances of this case, should not exercise its jurisdiction under article 226 of the Constitution.

29. In the instant case, the valuation date of the petitioner and the last date of the accounting year of the company were different. thereforee, the applicability of rule 1D was not mandatory. Moreover, when, as in this case, the petitioner had disputed the valuation proposed to be arrived at by the Wealth-tax Officer, it was incumbent upon him to have referred the question of valuation to the Valuation Officer under section 16A of the Act.

30. For the aforesaid reasons, the petition is allowed. The impugned order dated September 29, 1984, passed under section 25(2) of the Wealth-tax Act, 1957, by the Commissioner of Wealth-tax, Delhi-VII, is quashed. The Commissioner of Wealth-tax will be at liberty to pass a fresh order after notice to the petitioner, in the light of the observations made in this judgment. The petitioner will be entitled to costs. Counsel fee Rs. 500.

31. Petition allowed.


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