Rule 1D valuation method for unquoted equity shares is mandatory, requiring authorities to follow the prescribed formula.

Rule 1D of the Wealth-tax Rules, 1957 was treated as the binding and exclusive method for valuing unquoted equity shares of a company other than an investment company or managing agency company. The authorities under the Act were required to follow that prescribed method and could not adopt any alternative valuation approach. On that basis, the question was answered in favour of the Revenue and against the assessee, and the matter was remitted to the Tribunal to determine the share value in accordance with rule 1D.

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Issues: Whether rule 1D of the Wealth-tax Rules, 1957, is mandatory or directory in valuing unquoted equity shares.

Analysis: The rule had been upheld by the Supreme Court, which had held that it prescribes the only method for valuing unquoted equity shares of a company other than an investment company or a managing agency company. The authorities under the Act are bound to follow the prescribed method and cannot adopt a different mode of valuation. The question referred was therefore governed by the binding declaration of law already made by the Supreme Court.

Conclusion: Rule 1D is mandatory and not directory. The question was answered in favour of the Revenue and against the assessee, and the matter was remitted to the Tribunal for valuation of the unquoted equity shares in accordance with rule 1D.

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