TaxTMI 
TaxTMI 
1994 (8) TMI 3
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....stified in law in upholding the order of the Commissioner of Wealth-tax (Appeals) to the effect that the tax deducted at source appearing on the assets side of the balance-sheet should be deducted from the total value of the assets in computing the value of unquoted shares of Paharpur Cooling Towers Pvt. Ltd. on break-up value method in accordance with the provisions of rule 1D of the Wealth-tax Rules, 1957 ? " The reference relates to the valuation of shares corresponding to the assessment years 1979-80 and 1983-84. The question involved in this case relates to the valuation of unquoted equity shares held by the assessee in Paharpur Cooling Towers Pvt. Ltd. Rule 1-D of the Wealth-tax Rules reads as follows: " 1D. The market value of an unquoted equity share of any company, other than an investment company or a managing agency company, shall be determined as follows : The value of all the liabilities as shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in that balance-sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultan....
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.... or under section 210 of the Income-tax Act, 1961 (43 of 1961) ;.... (ii) the following amount shown as liabilities in the balance-sheet shall not be treated as liabilities, namely :------ (a) the paid-up capital in respect of equity shares ; (b) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the valuation date at a general body meeting of the company ; (c) reserves, by whatever name called other than those set apart towards depreciation ; (d) credit balance of the profit and loss account ; (e) any amount representing provision for taxation other than the amount referred to in clause (i)(a) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto ; (f) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares. " Rule 1D had been incorporated in Schedule III to the Act by the Direct Tax Laws (Amendment) Act, 1989. The assessee raised before us its entitlement to claim deduction in respect of liabilities provided and appearing ....
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....onsider the various relevant arguments for negating the claim of gratuity, he contended that the decision of the Supreme Court was a law declared under article 141 of the Constitution and that the correctness of decision could not be challenged on the ground on which the petitioner wants to assail it. In Ambika Prasad Mishra v. State of U. P. reported in, AIR 1980 SC 1762, the Supreme Court observed (headnote) : " Every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. It is fundamental that the nation's Constitution is not kept in constant uncertainty by judicial review every season because it paralyses, by perennial suspense, all legislative and administrative action on vital issues deterred by the brooding threat of forensic blow-up. This, if permitted, may well be a kind of judicial destabilisation of State action too dangerous to be indulged in save where national crisis of great moment to the life, liberty and safety of this country and its millions are at stake, or the basic direction of the nation itself is in peril of a shake-up. It is wise to remember, that fatal flaws silenced by earlier rulings cannot survive a....
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.... cannot be ignored by referring to the decisions appealed against and holding that the real question that must be considered to have been answered was something else. What the judges expressly decided or what they must be considered to have decided by necessary implication by reference to the facts stated by the judges themselves are what constitute precedents. " The assessee contended that as the facts of the case before the Supreme Court which arise for decision in the present reference had not been a subject-matter of analysis, the Supreme Court decision was not binding. We are unable to accept the submission. The authority of the Supreme Court being at the apex of the entire judiciary in the country, is laid down in the Constitution. Any law declared by the Supreme Court shall be binding on all courts within its territory. Once a point is decided by the Supreme Court, it becomes law declared and cannot be reopened on the ground that some arguments have not been raised or considered by the court. Kesho Ram and Co. v. Union of India [1989] 3 SCC 151. The controversy that if some argument has not been made and the decision given by the Supreme Court will still be consider....
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....are not applicable to the point in controversy. Hence, reference of these cases is not necessary to be made. What we have said above is that even at a point the argument was not made and the decision of the Supreme court was given. It is that decision which will constitute the ratio decidendi or the law declared within the meaning of article 141 of the Constitution and that would be binding on all the parties. The Supreme Court had considered all aspects relevant to the controversy in question and found that rule 1D was valid and mandatory. It has interpreted as to what had to be taken into account for the purpose of ascertaining the liabilities and assets. In view of the language of section 7(1) of the Wealth-tax Act and rule 1D of the Rules being plain and unambiguous not admitting two meanings of the same, the construction could be no other than what had been found. It is admitted on all hands that the judgments of the Supreme Court are binding on persons not even parties to the proceedings (see Dr. Jagannath Mishra v. State of Bihar, AIR 1990 Pat 11 [FB]). It is the duty of High Courts to obey the Supreme Court order without finding fault with it. In Shenoy and Co. v. CTO [1....
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....e applicability of rule 1D was the question considered and decided. The decision of Rajpur Ruda Meha v. State of Gujarat, AIR 1980 SC 1707, relied on by counsel for the assessee, does not apply to the controversy before us. In a different context, the observations quoted above were made. In Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 ; AIR 1990 SC 781, the controversy was different. That interpretation of a statute should be given which harmonizes with the object of the statute. It is a recognised rule of construction or interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute, and which effectuate the object of the Legislature. A statute is an edict of the Legislature and the conventional way of interpreting or construing a statute is to seek the intention of its maker. A statute is to be construed according "to the intent of them that make it" and "the duty of judicature is to act upon the true intention of the Legislature---the mens or sententia legis". We are of the opinion that the interpretation sought to be placed by the assessee's counsel is not ....
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....s and what is in issue before us is a question of law as to whether gratuity was a contingent liability within the meaning of clause (f) of Explanation II to rule 1D of the Wealth-tax Rules. That was so found after taking into consideration various judgments referred to before it. The strength of the law laid down in that case is not weakened by the submission made by the assessee's counsel. For what we have said above, we find that the Supreme Court judgment of Bharat Hari Singhania's case [1994] 207 ITR 1 covers the controversy squarely. That is the law declared. Merely because of the fact that the Payment of Gratuity Act has been passed under which there is a liability to pay the amount, that does not in any way whittle down the interpretation placed by the Supreme Court on rule 1D. Counsel for the assessee made a submission to the following effect : Section 2(m) of the Wealth-tax Act, 1957, provides : " (m) 'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth a....
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.... it. Whether this decision is binding on the parties or not, is a separate and distinct question, not to be confused by asking the court to treat it as binding. What appears in this case is that a reference had been made to this court under section 27(3) of the Wealth-tax Act, in respect of the years 1979-80 and 1983-84. The decision of that case has since not been challenged by the Revenue in the Supreme Court, it has become final and binding on the parties. This would be binding only in respect of the year 1979-80. Having found the decision to have become final, we decline to answer question No. 1 regarding this year. In Kesoram Industries and Cotton Mills's case [1966] 59 ITR 767 (SC) at page 780 it defined the meaning of the clause "debt owed" appearing in "net wealth" within the meaning of section 2(m) of the Act that "a liability to pay in praesenti or in futuro an ascertainable sum of money". A sum payable upon a contingency, however, is not a debt or it does not become a debt until the contingency has happened. Their Lordships of the Supreme Court in Standard Mills Co. Ltd.'s case [1967] 63 ITR 470 while considering the issue, whether in computing the "net wealth" ....