COMMISSIONER OF WEALTH-TAX vs. S P MEHTA

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WTR/77/1991HC GujaratGJHC24013739199127 January 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE2 pages
AI SummaryRemanded

What did the High Court hold?

The High Court answered both referred questions in the negative, in favour of the Revenue and against the assessee. The Court relied on the Supreme Court's decision in Bharat Hari Singhania, reported in 207 ITR page 1. In that case, the Supreme Court had construed Rule 1D of the Wealth Tax Rules and held that it must be followed in every case where unquoted equity shares of a company (excluding investment or managing agency companies) are to be valued. The Supreme Court further held that Rule 1D was exhaustive on the subject and that all authorities under the Act were bound by it. Consequently, the High Court found that the Tribunal was not right in holding that Rule 1D was not mandatory and that the shares were required to be valued as per the yield method, as Rule 1D's mandate superseded such a determination. The reference was disposed of accordingly.

What were the facts?

This case involves a Wealth Tax Reference before the High Court of Gujarat at Ahmedabad. The Income Tax Appellate Tribunal (ITAT), Ahmedabad, had referred two questions for the High Court's opinion under Section 27(1) of the Wealth Tax Act, 1957. The reference was made concerning the assessment of S.P. Mehta (the assessee) by the Commissioner of Wealth-Tax (the Revenue). The core of the dispute revolves around the valuation of shares, specifically whether Rule 1D of the Wealth Tax Rules was mandatory and if the shares in question should be valued using the yield method. The Tribunal had previously proceeded on the footing that the yield basis method was the proper method for valuing shares of a going concern.

What were the issues?

1. Whether the Tribunal is right in law and on facts in holding that Rule 1D of the W.T Rules is not mandatory? (Question of law and fact, concerning the interpretation and applicability of Rule 1D of the Wealth Tax Rules). 2. Whether the Tribunal is right in law and on facts in holding that the shares in question are required to be valued as per yield method? (Question of law and fact, concerning the valuation method for shares under the Wealth Tax Act). Assessee's Contentions: The judgment does not record any specific contentions made by the assessee before the High Court. The Tribunal's prior finding that the yield basis method was proper for valuing shares of a going concern is noted. Revenue's Contentions: The judgment does not explicitly detail the Revenue's arguments before the High Court. However, the High Court's decision implies that the Revenue likely argued for the mandatory application of Rule 1D and against the exclusive use of the yield method.

Which sections of the Income-tax Act were involved?

Section 27(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

WEALTH TAX REFERENCE No 77 of 1991

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

-------------------------------------------------------------- COMMISSIONER OF WEALTH-TAX Versus S P MEHTA -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner Respondent served

--------------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE Date of decision: 27/01/98

ORAL JUDGEMENT (Per R.K.Abichandani,J.)

The Income Tax Appellate Tribunal, Ahmedabad has referred the following two questions for our opinion under Section 27(1) of the Wealth Tax Act, 1957:-

1.

"Whether the Tribunal is right in law and on facts in holding that Rule 1D of the W.T Rules is not mandatory?"

2.

"Whether the Tribunal is right in law and on facts in holding that the shares in question are required to be valued as per yield method?"

The Tribunal proceeded on the footing that the proper method for valuing the shares of a going concern is the yield basis method.

The Hon'ble Supreme Court in Bharat Hari Singhania, reported in 207 ITR page 1, has while construing the provisions of Rule 1D of the Wealth Tax Rules, held that Rule 1D has to be followed in every case where unquoted equity shares of a company (other than an investment company or a managing agency company) have to be valued and all the authorities under the Act are bound by the said Rule. It was held that Rule 1D was exhaustive on the subject.

In view of this decision, the aforesaid questions referred to us are answered in the negative in favour of the Revenue and against the assessee. The reference stands disposed of accordingly with no order as to costs.

*/Mohandas

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