TaxTMI 
TaxTMI 
1989 (4) TMI 132
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....oportion. The said persons invested the said sale proceeds in the purchase of the shares of Eicher Tractors in their individual names and they declared the said sale proceeds and the investments therefrom in their individual wealth-tax returns. The same were accepted by the WTO in the course of time. The said persons also declared income arising from the aforesaid investments in their individual Income-tax returns and the same were accepted as their incomes by the ITO. On these facts, it was pleaded by the assessee before the learned AAC that there was no justification for including the entire sale proceeds of the land in the total wealth of the family as the partition of the sale proceeds of the land itself was clear evidence of the partition of the original asset, viz., the land. 3. The above plea was accepted by the learned AAC, while passing his order dated29-2-1984in the case of the assessee for asst, year 1975-76. He pointed out inter alia that the aforesaid partition could not be held to be hit by the provisions of section 20 of the WT Act, 1957 for the said section dealt with the cases of complete partition and not with the cases of partial partition, In the case of part....
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....24. The WTO did not accept the above valuation and, instead, valued the said property at Rs. 7,45,640 on the ground that in the immediately preceding year, the value of the property was taken at that figure. The contention of the assessee that Rule 1BB may be applied to the valuation of the said property was rejected by the WTO by observing that Rule 1BB came into force w.e.f.1-4-1979, and as such it was not applicable for the asst. year 1978-79. 8. The assessee appealed against the aforesaid order to the AAC, who observed that Rule 1BB was retrospective in operation and, therefore, it covered the asst. year 1978-79 and, therefore, the value of the property in question should have been worked out by the WTO by applying Rule 1BB. 9. The revenue challenges the correctness of the above direction of the learned AAC and it is submitted that the valuation adopted by the WTO was not excessive and was in keeping with the figure adopted in the immediately preceding asst. year, which was not challenged by the assessee. On behalf of the assessee, order of the learned AAC is supported. 10. It has been pointed out by their Lordships of the Delhi High Court in the case of Sharbati Devi ....
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.... express his opinion as to whether or not, he would admit the additional ground. If he admits it, he would naturally adjudicate upon it. If he does not, he will give reasons for it so that if the assessee is aggrieved of his order, it may be possible for him to file an appeal. For this limited purpose namely to consider the admissibility of the additional ground raised by the assessee before the learned AAC, we restore the matter back to him. 14. The assessee returned the value of the other property owned by him at Hissar, namely, Shanker Niwas at Rs. 33,333. The WTO referred the matter of valuation of the said property to the Valuation Officer with whom the assessee unfortunately did not co-operate. The said Valuation Officer, therefore, estimated the value of the property in question for asst. year 1978-79 at Rs. 2,33,333. On the basis of that valuation, the WTO estimated the value of the said property in the assessee's hands on the valuation date i.e.30 Sept., 1974, corresponding to the asst. year under consideration, at Rs. 1,75,000. The assessee appealed against the aforesaid order to the learned AAC. There is unfortunately no discussion again with regard to this point in t....
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.... have infact been incurred by the assessee, and in case they having been so incurred, they would be allowed, and it would be of no consequence in this regard that the said debts pertain to a closed business. It is not only the capital of the assessee engaged in business which is the subject matter of levy of the wealth-tax. It is the excess of all the assets, business and non-business, over all the debts (business and non-business) which would yield the assessee's net wealth The AAC will, therefore, re-examined the matter and allow the assessee's claim, if it is in accordance with law. 16. In the result, we will treat the assessee's appeals for, statistical purposes, as partly allowed. Per M.C. Agarwal, J.M. - I have gone through the order prepared by my learned brother. I agree that his views and conclusions in so far as WTA Nos. 457/Del/85, 648/Del/84 and WTA No. 750/Del/84 are concerned. 2. As regards WTA No. 456/Del/85, also I agree with him so far as the exclusion of sale proceeds of agricultural land is concerned. However, so far the valuation of the house property is concerned I beg to differ from the order proposed by my learned brother. 3. The property is a hou....
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....g on the Valuation Officer. 4. In my view the ratio laid down by Hon'ble the Delhi High Court in the case of Sharbati Devi Jhalani is limited to a specific rule i.e., Rule 1-D of the Wealth-tax Rules and was given in a case in which Rule 1-D could not be applied because the valuation date of the assessee was different than the date on which the accounts of the company were finalised. The manner of valuation of unquoted equity shares, prescribed in Rule 1-D can be applied only where the two dates aforesaid are common. At page 561 the Hon'ble court observed: "To summarise-The position, therefore, is that when a question arises as to the value of unquoted equity shares, the Wealth-tax Officer has to act according to the provisions of Sec. 7(1) read with Rule 1-D, if applicable. He has to determine the break-up value of the shares in the manner prescribed in Rule I-D." In the case of application of Rule 1BB no problem like the one in the case of Sharbati Devi Jhalani arises, because Rule 1BB would apply whatever be the valuation date. No doubt the Hon'ble High Court has gone to state that where the value determined by applying Rule 1-D exceeds the returned value by more than t....
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....missed and I order accordingly. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is difference of opinion between us on the following question, the same is referred for the valued opinion of the Hon'ble Third Member: "Whether, the ratio of the judgment of the Hon'ble Delhi High Court in the case of Sharbati Devi Jhalani v. CWT [1986] 159 ITR 549, 559 and 561 indicating the scope of the duties and powers of the Valuation Officer u/s 16A read with section 7(3) of the Wealth-tax Act, 1957 applies only to the valuation of shares under Rule 1D or whether it will be applicable to the valuation of any property including that covered under Rule IBB?" The ratio of Sharbati Devi Jhalani's case does not apply to Rule 1BB. "2. If the answer to the above be in the negative, whether, the direction given by the AAC in the present case that the value of property No. 2, Panch Sheel Marg,New Delhibe determined in accordance with Rule 1BB of the Wealth-tax Rules is erroneous?" THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, President - This is a matter that came to me under section 24(1) of the Wealth-tax Act, 1957 read with section 255(4) of the Income-tax A....
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....e Asstt. Commissioner, a second appeal was filed before the Tribunal. The application of Rule 1BB was questioned not on the ground that the conditions laid down for the application of Rule 1BB were not satisfied but on the ground that Rule 1BB had no retrospective effect and therefore did not apply to the assessment year in question. 3. The learned Accountant Member, who wrote the leading order observed that the Delhi High Court in the case of Sharbati Devi Jhalani held that when the Wealth-tax Officer was of the opinion that the value of the property in question was more than 331/2 per cent of the returned value, it was not open to him to value the property himself and in terms of Rule 3B read with section 16A of the Wealth-tax Act, he should refer the matter to the Valuation Officer, who would then find out the market value of the property. Further, according to the learned Accountant Member, the Delhi High Court laid down in that case that when Valuation Officer has to value the property in terms of sub-section (3) of section 7, the Wealth-tax Rules would not govern his valuation and when the matter was brought in appeal before the Appellate Authorities, the Appellate Authori....
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....ct and only then the Valuation Officer would come into the picture and he has to value the unquoted shares by determining the market value of those shares, which they would fetch if sold in the open market and he would not be bound by Rule 1D. Since such a situation would not arise in the case of application of Rule 1BB, the question of applying the rule laid down in Sharbati Devi Jhalani's case would not arise. The learned Judicial Member further pointed out that Rule 1BB has a different setting and it begins by saying "For the purposes of sub-section (1) of section 7," and therefore in determining the fair market value of any asset, particularly of a house, there is no escape other than applying the provisions of Rule 1BB to arrive at the market value of that house. In this context it cannot be said that Rule 1BB was not binding upon the Wealth-tax Officer or on the Valuation Officer to whom the matter might be referred or on the Appellate Courts. The learned Judicial Member further pointed out that there was nothing in Sharbati Devi Jhalani's case which would show that the same principles, as would apply to Rule 1D, would also apply to Rule 1BB. Thus he came to the conclusion th....
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....1BB still would not arise and the Valuation Officer is free to value this property in any manner he likes, the only limitation being that the value estimated by him should reflect the market value. 6. None was present on behalf of the assessee although notice was duly served but instead a letter of adjournment dated 11-4-1989 was received stating that the senior counsel would not be in station on that day and he would not be able to attend the hearing and that the case should be adjourned. Since sufficient notice had been given to the assessee, it was expected of the assessee to make proper arrangements and this being a very old matter, it was considered unnecessary to adjourn the case. The case was therefore disposed of after hearing the Departmental Representative and on perusing the records. 7. I have already mentioned above the sharp controversy that arose in this case over the interpretation of the judgment of the Delhi High Court in the case of Sharbati Devi Jhalani. I have also gone through this judgment both in the Court along with the Departmental Representative and also afterwards with a view to see whether the High Court had made any observations even by way of obi....
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.... particular valuation date, a different date cannot in effect be fixed by a rule. That was what was sought to be done by Rule 1-D in case the balance sheet is not available on the valuation date. It was with reference to this aspect that the High Court held that the rule travelled beyond the scope of the Act and therefore it had to be struck down though it did not strike it down. In order to uphold the validity of Rule 1-D and at the same time not to do violence to the language of the relevant provisions, the High Court held that where the valuation date of the company and that of the assessee happened to be the same, then the application of Rule 1-D is mandatory but in cases where they are not the same, then the applicability of Rule 1-D would be only directory. It is only when the rule is directory that the Wealth-tax Officer would not be bound by the method provided for in Rule 1-D to value the shares. But if by the other method the Wealth-tax Officer comes to the conclusion that the value of the shares was more than the prescribed limits, then by virtue of section 16A read with Rule 3B, the Wealth-tax Officer has to refer the question of valuation of shares to the Valuation Off....
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....Singhania v. CWT [1979] 119 ITR 258 and held disagreeing with the view expressed by the Allahabad High Court that even the Tribunal was bound by Rule 1D and the unquoted equity shares had to be valued according to that rule, the Delhi High Court pointed out that the Appellate Authorities were not bound by the said rule even if the said rule was applicable because under section 7 of the Wealth-tax Act, it was only the opinion of the Wealth-tax Officer as to the market value that was relevant for making the assessment and when the opinion of the Wealth-tax Officer was subject to an appeal to the Appellate Authorities and when the powers of the Appellate Authorities were governed by the other sections, it could not be said that the Appellate Authorities were bound by what was binding upon the Wealth-tax Officer. That would mean that the power of the Appellate Authorities was restricted by the provisions of Rule 1D and if such a construction was to be placed upon Rule 1D, it would amount to overriding, reconstructing or amending the provisions of the substantive Statute, which result could not be countenanced. Dealing with a contention addressed by the Revenue before the High Court tha....
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....nce exceeds the limits prescribed in Rule 3B, a reference has to be made to the Valuation Officer. This according to me would mean that the Wealth-tax Officer should first value the property. When the Wealth-tax Officer values this property and if that property happens to be the residential house, there is no option to him to value that residential house otherwise than in accordance with the provisions of rule 1BB because the High Court had pointed out in this case the mandatory nature of the rules prescribed in the method of valuation. Sub-section (3) of section 7 would come into operation only where a reference has to be made on the Valuation Officer. Otherwise it is sub-section (1) that has to be applied. In sub-section (1) the Wealth-tax Officer has to arrive at the price of the assets as it would fetch if sold in the open market and that has to be done subject to the rules made in that behalf. In this context the Delhi High Court pointed out that the rules would be binding on the Wealth-tax Officer. The binding nature of the rules would cease to have effect only when a reference is made to the Valuation Officer and that too on the Valuation Officer. But so far as the Wealth-ta....