COMMISSIONER OF WEALTH-TAX vs. MEHUL K PATEL

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WTR/87/1994HC GujaratGJHC24020512199404 August 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI4 pages
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What did the High Court hold?

The High Court held that the Tribunal was not right in law in its findings. The Court relied on the Supreme Court's decision in Bharat Hari Singhania v. C.W.T. (1994) 207 ITR 1. The Apex Court had clearly held that Rule 1-D of the Wealth Tax Rules, 1957, is mandatory and must be followed for valuing unquoted equity shares of a company (excluding investment or managing agency companies). All authorities under the Act, including the Valuation Officer, are bound by this rule. Therefore, the question of Rule 1-D being directory does not arise. Applying this ratio, the High Court concluded that the Tribunal erred in holding that the unquoted equity shares should be valued on the yield method and that Rule 1-D was directory. The question referred to the court was answered in the negative, in favour of the revenue and against the assessee.

What were the facts?

The Commissioner of Wealth-tax, Baroda, referred a question of law to the Gujarat High Court concerning the valuation of unquoted equity shares for the assessment year 1985-86, with the valuation date being March 31, 1985. The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'C', had held that these shares should be valued using the yield method and that Rule 1-D of the Wealth Tax Rules, 1957, was directory. The revenue challenged this decision. The assessee did not appear before the High Court despite service of notice. The High Court noted that the issue was concluded by a Supreme Court decision.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the unquoted equity shares of a limited company should be valued on the yield method under Rule 1-D of the W.T. Rules, 1957? (Question of law) 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that Rule 1-D of the W.T. Rules, 1957, is directory? (Question of mixed law and fact, concerning the interpretation and applicability of Rule 1-D of the Wealth Tax Rules, 1957). Assessee's Contention: The Tribunal held that unquoted equity shares should be valued on the yield method and that Rule 1-D of the Wealth Tax Rules, 1957, was directory. (No specific arguments recorded for the assessee before the High Court). Revenue's Contention: The revenue argued that the issue was concluded in its favour by the Supreme Court's decision in Bharat Hari Singhania v. C.W.T. (1994) 207 ITR 1, which held that Rule 1-D of the Wealth Tax Rules, 1957, must be followed in every case where unquoted equity shares (other than of investment or managing agency companies) are to be valued, and that the question of the rule being mandatory or directory does not arise.

Which sections of the Income-tax Act were involved?

Section 27,Section 1-D

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
WTR/87/1994 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD WEALTH TAX REFERENCE No. 87 of 1994 For Approval and Signature:  HON'BLE MR.JUSTICE D.A.MEHTA  HON'BLE MS.JUSTICE H.N.DEVANI  ==============================================================  1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ==============================================================  COMMISSIONER OF WEALTH-TAX - Applicant(s) Versus MEHUL K PATEL - Respondent(s) ==============================================================  Appearance :  MR MANISH R BHATT for Petitioner No(s).: 1. SERVED BY RPAD - (N) for Respondent No(s).: 1. ================================================================== CORAM :  HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI Date : 01/08/2005

ORAL JUDGMENT (Per : HON'BLE MS.JUSTICE H.N.DEVANI) 1.The Income Tax Appellate Tribunal, Ahmedabad Bench

WTR/87/1994 2/4 JUDGMENT “C” has referred the following question under Section 27(1) of the Wealth Tax Act, 1957 (the Act) for the opinion of this Court at the instance of the Commissioner of Wealth-tax, Baroda: “Whether, on the facts and in the circumstances of the case, Tribunal is right in law in holding that the unquoted equity shares of Limited Company should be valued on yield method under Rule 1-D of the W.T. Rules, 1957?” 2.The question as framed by the Tribunal does not reflect the controversy in a proper manner and hence, the same is re-framed as under : “Whether, on the facts and in the circumstances of the case, Tribunal is right in law in holding that the unquoted equity shares of Limited Company should be valued on yield method and Rule 1-D of the W.T.

WTR/87/1994 3/4 JUDGMENT Rules, 1957 is directory?” 3.The assessment year is 1985-86 and the relevant valuation date is 31/3/1985. 4.Heard Mr.M.R.Bhatt, the learned senior standing counsel on behalf of applicant revenue. Despite service of notice, there is no appearance on behalf of the respondent assessee. 5.Mr.Bhatt has invited the attention of this Court to the decision of the Apex Court in the case of Bharat Hari Singhania v. C.W.T., (1994) 207 ITR 1, to point out that the issue involved in the present reference stands concluded in favour of the revenue by the said decision. In the circumstances, it is not necessary to set out the facts in detail. 6.In the aforesaid case, the Apex Court has held that Rule 1-D of the Wealth Tax Rules, 1957 has to be followed in every case where unquoted equity shares of a company (other than investment company or a managing agency company) have to be valued. All WTR/87/1994 4/4 JUDGMENT the authorities under the Act including the Valuation Officer are bound by the said rule. That, the question of the rule being mandatory or directory does not arise. Applying the ratio of the said decision, it is held that the Tribunal was not right in law in holding that the unquoted equity shares of Limited Company should be valued on yield method and Rule 1-D of the Wealth Tax Rules, 1957 is directory. 7.Accordingly, the question referred to this court is answered in the negative i.e. in favour of the revenue and against the assessee. The Reference stands disposed of accordingly. [D.A.MEHTA, J.] [HARSHA DEVANI, J.] parmar*

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