High Court rules market value of foreign shares should be considered for wealth tax assessment

The High Court held that for wealth tax assessment, the market value of foreign shares should be considered, not the cost value shown in the balance-sheet. The Court emphasized that the WTO can adjust asset valuation if undervalued, even under the global method of valuation. The circular issued by the CBDT directed global valuation but did not prohibit valuing assets at market value if undervalued. The Court ruled in favor of the assessee, stating that the WTO's valuation based on market value was justified and not in breach of the Act or circular. The revenue was directed to bear the costs of the reference.

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Issues involved: Assessment of wealth-tax based on valuation of foreign shares held by assessee-company u/s 7(2)(a) of the Wealth Tax Act, 1957. Interpretation of Circular No. 3(WT) of 28th September, 1957 issued by the CBDT regarding global valuation method for business assets.

Assessment of Wealth Tax based on valuation of foreign shares:
The assessee-company held shares of foreign companies, valuing them at cost price in the balance-sheet. The WTO adopted the global method of valuation but valued the shares at market value, which was higher. The AAC confirmed this valuation. The Tribunal, however, directed to consider the book value of shares for computing net wealth, as market value was higher. The issue was whether market value or cost value should be considered for wealth tax assessment.

Interpretation of Circular No. 3(WT) of 28th September, 1957:
The assessee relied on Circular No. 3(WT) which directed global valuation for business assets unless fraud or unreliability was suspected. The contention was that the WTO should have accepted global valuation as per the circular. The revenue argued that the circular did not prohibit valuing assets at market value if undervalued in the balance-sheet.

The High Court held that the WTO is entitled to adjust asset valuation if undervalued, even under the global method of valuation. The circular directed global valuation but did not prohibit valuing assets at market value if undervalued. The WTO can ascertain true asset value if undervaluation is suspected, without breaching the circular. In this case, as the market value of shares was higher and indicated by the assessee, the WTO's valuation based on market value was justified and not in breach of the Act or circular.

The Court rejected the revenue's objection regarding the circular being raised for the first time. Citing precedent, the circulars issued by the CBDT are binding and must be given effect to. The Court answered the question by holding that the value of foreign shares for wealth tax assessment should be the market value, not the cost value shown in the balance-sheet. The revenue was directed to bear the costs of the reference.

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