COMMISSIONER OF WEALTH TAX vs. GIRISHBHAI P MEHTA

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WTR/105/1995HC GujaratGJHC24022787199527 January 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Income Tax Appellate Tribunal erred in directing the Wealth Tax Officer to apply the yield method for valuing the unquoted shares of private limited companies held by the assessee. This decision is based on the Supreme Court's ruling in Bharat Hari Singhania (reported in 207 ITR page 1). The Supreme Court had upheld the validity of Rule 1D of the Wealth Tax Rules, 1957, and mandated its application for valuing unquoted equity shares of companies (excluding investment or managing agency companies). The Supreme Court further clarified that under Rule 1D, no deductions are permissible for capital gains tax, provision for taxation, provident fund, or gratuity, as the rule is exhaustive. Consequently, the High Court answered the referred question in the negative, in favour of the Revenue and against the assessee. The reference was disposed of accordingly.

What were the facts?

The Commissioner of Wealth Tax filed a reference application before the High Court of Gujarat at Ahmedabad, challenging an order passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad. The ITAT had directed the Wealth Tax Officer to apply the yield method for valuing unquoted shares of private limited companies held by the assessee, Girishbhai P. Mehta. The reference was made under Section 27(1) of the Wealth Tax Act, 1957. The specific assessment year(s) are not mentioned in the provided text. The core of the dispute revolves around the method of valuation for unquoted shares.

What were the issues?

1. Whether the Tribunal is right in law and on facts in directing the Wealth Tax Officer to apply the yield method for valuing the unquoted shares of private limited companies held by the assessee? This question turns on the interpretation and application of Rule 1D of the Wealth Tax Rules, 1957. Assessee's contentions: The judgment does not record any specific contentions made by the assessee before the High Court. It only states that the respondent (assessee) was served. Revenue's contentions: The Revenue, through the Commissioner of Wealth Tax, is implicitly arguing that the ITAT's direction to use the yield method was incorrect. The judgment relies on the Supreme Court's decision in Bharat Hari Singhania to support the Revenue's position.

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 105 of 1995

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 GIRISHBHAI 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 question for our opinion under Section 27(1) of the Wealth Tax Act, 1957:-

"Whether the Tribunal is right in law and on facts in directing the Wealth Tax Officer to apply the yield method for valuing the unquoted shares of private limited companies held by the assessee?"

The provision of Rule 1D of the said Rules came up for consideration before the Hon'ble Supreme Court in Bharat Hari Singhania, reported in 207 ITR page 1, and the Supreme Court up-holding the validity of Rule 1D, held that it was required 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. It was held that all the authorities under the Act including the Valuation Officer were bound by the said Rule. The Hon'ble Supreme Court also held that while valuing the unquoted equity shares of a company under Rule 1D, no deduction on account of capital gains tax which would have been payable in case the shares were sold on the valuation date, can be made. Similarly, no other deductions including provision for taxation, provident fund and gratuity are admissible. Rule 1D is exhaustive on this subject.

In view of the decision of the Supreme Court in Bharat Hari Singhania (supra), we hold that the Tribunal has erred in directing the Wealth Tax Officer to apply the yield method for valuing the unquoted shares of private limited companies held by the assessee. The question referred to us is therefore, 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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