COMMISSIONER OF WEALTH-TAX vs. LALITBHAI HARIBHAI PATEL

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WTR/72/1991HC GujaratGJHC24013735199127 January 1998Bench: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE2 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal erred in directing the Wealth Tax Officer to apply the yield method for valuing unquoted shares instead of Rule 1D of the Wealth Tax Rules. The Court relied on the Supreme Court's decision in Bharat Hari Singhania (reported in 207 ITR page 1), which upheld the validity of Rule 1D. The Supreme Court held that Rule 1D is mandatory for valuing unquoted equity shares of companies (other than investment or managing agency companies) and that all authorities under the Act are bound by it. The Supreme Court also clarified that no deductions for capital gains tax, provision for taxation, provident fund, or gratuity are admissible when valuing shares under Rule 1D, as the rule is exhaustive. Therefore, the question referred to the High Court was answered in the negative, in favor of the Revenue and against the assessee. The reference was disposed of accordingly.

What were the facts?

The Commissioner of Wealth-Tax referred a question of law to the High Court of Gujarat at Ahmedabad concerning the valuation of unquoted shares. The Income Tax Appellate Tribunal (ITAT) had directed the Wealth Tax Officer to apply the 'yield method' for valuing these shares instead of Rule 1D of the Wealth Tax Rules. The assessee is Lalitbhai Haribhai Patel, and the revenue is the Commissioner of Wealth-Tax. The specific assessment year(s) are not mentioned in the provided text. The dispute centers on the method of valuation for unquoted shares under the Wealth Tax Act, 1957.

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 instead of applying Rule 1D of the W.T. Rules? (Question of law and fact, concerning the interpretation and application of Rule 1D of the Wealth Tax Rules). Assessee's contentions: The judgment does not record any specific contentions made by the assessee. The Tribunal had directed the application of the yield method. Revenue's contentions: The revenue, through the Commissioner of Wealth-Tax, sought a reference to the High Court, implying disagreement with the Tribunal's direction. The revenue would contend that Rule 1D of the Wealth Tax Rules is the mandatory method for valuing unquoted shares, as upheld by the Supreme Court.

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 72 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 LALITBHAI HARIBHAI PATEL -------------------------------------------------------------- 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 instead of applying Rule 1D of the W.T Rules?"

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 instead of applying Rule 1D of the said Rules. 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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