COMMISSIONER OF WEALTH-TAX vs. G P MEHTA

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WTR/79/1991HC GujaratGJHC24013741199127 January 1998Bench: 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. This precedent held that Rule 1D of the Wealth Tax Rules must be followed in every case where unquoted equity shares of a company (excluding investment or managing agency companies) are to be valued, and all authorities under the Act are bound by this rule. The Supreme Court further held that Rule 1D was exhaustive on the subject. 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 dictated the valuation method. The reference stands disposed of accordingly.

What were the facts?

This case involves a reference made by the Income Tax Appellate Tribunal (ITAT), Ahmedabad, to the High Court of Gujarat concerning the Wealth Tax Act, 1957. The reference pertains to the assessment of shares held by the assessee, G.P. Mehta. The core of the dispute revolves around the method of valuing unquoted equity shares of a company. The ITAT had previously held that the shares in question were required to be valued using the yield method and that Rule 1D of the Wealth Tax Rules was not mandatory. The Commissioner of Wealth-Tax is the petitioner, and the assessee is the respondent. The assessment years are not explicitly stated.

What were the issues?

The Tribunal had to decide two questions of law and fact: 1. Whether Rule 1D of the Wealth Tax Rules is mandatory. 2. Whether the shares in question are required to be valued as per the yield method. The assessee's contentions, as inferred from the Tribunal's previous holding, were that Rule 1D was not mandatory and that the yield method was the appropriate valuation method for the shares. The revenue's contentions are not explicitly recorded in the judgment, but their appeal to the High Court suggests they disagreed with the Tribunal's findings on both issues. The Tribunal proceeded on the footing that the yield basis method was the proper method for valuing shares of a going concern.

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 79 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 G 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 Appellate 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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