Wealth-tax valuation of unquoted shares: Rule 1D upheld as valid, and "shall" read as directory in context.

Rule 1D of the Wealth-tax Rules was upheld as a valid valuation method for unquoted equity shares under section 7 of the Wealth-tax Act, and it was not shown to be arbitrary or beyond power. The word "shall" in the rule was read in context and could operate as directory rather than invariably mandatory. Where no other valuation guideline is available apart from section 7(1), the break-up value method based on the company's wealth may validly be adopted depending on the circumstances of each case.

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Issues: Whether rule 1D of the Wealth-tax Rules was invalid as arbitrary or unreasonable, and whether the word "shall" in the rule was mandatory or could be read as directory in applying the rule for valuation of unquoted equity shares under section 7 of the Wealth-tax Act.

Analysis: Section 7 governs valuation of assets for wealth-tax by reference to market value on the valuation date, subject to rules made for that purpose. Rule 1D was treated as an enabling method for determining market value in cases where equity shares are unquoted and the company is not an investment or managing agency company. The Court held that the use of "shall" in the rule was not invariably mandatory and, in context, could operate as "may". It further held that where no other guideline is available apart from section 7(1), the break-up value method based on the company's wealth basis can validly be adopted, depending on the circumstances of each case.

Conclusion: Rule 1D was held valid and not shown to suffer from any vice of arbitrariness or lack of vires, and the writ petition was dismissed.

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