Commissioner of Wealth-Tax vs Yadupat Singhania

The Income Tax Appellate Tribunal, Allahabad, has referred the following questions of law u/s 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act"), for the opinion of this court:

"1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was legally correct in holding that in determining the value of the shares of J.K. Jute Mills Ltd., under rule ID of the Wealth-tax Rules, 1957, deduction was to be allowed in respect of accumulated dividend on cumulative preference shares ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was legally correct in holding that in determining the value of the shares of J.K. Jute Mills Ltd., under rule ID of the Wealth-tax Rules, deduction should be allowed of depreciation as worked out in the Income Tax assessment of the company ?"

Briefly stated the facts giving rise to the present reference are as follows :

The assessee holds 1,860 shares in J.K. Jute Mills Ltd. They were not quoted in the stock exchange. The Wealth-tax Officer referred the matter of their valuation to the Valuation Officer. The Valuation Officer valued them at the rate of Rs. 7.76 per share. In doing so, he applied rule ID of the Wealth-tax Rules, 1957.

The respondent-assessee preferred an appeal before the Commissioner of Wealth-tax (Appeals) who while allowing the appeal directed the Wealth-tax Officer to rework out the value of shares of J.K. Jute Mills Ltd., under rule ID after deducting the accumulated outstanding dividend as per Income Tax assessments in the case of the above company and accordingly modified the value of the shares to that extent.

The appeal filed by the Revenue had been dismissed by the Tribunal.

We have heard Shri Shambhu Chopra, learned counsel for the Revenue, and Shri Vikram Gulati who has put in appearance on behalf of the assessee.

Under rule ID of the Wealth-tax Rules, Explanation II(ii) as it stood during the relevant period had provided that certain liabilities in the balance-sheet shall not be treated as liabilities among which 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 ; and reserves, by whatever name called, other than those set apart towards depreciation were included. It is the admitted case that the depreciation has not been provided for in the Income Tax proceedings. So far as cumulative outstanding dividend on preference shares are concerned there is nothing on record to show that there had been any declaration at a general body meeting of the company before the valuation date. This court in the case of Commissioner of Wealth Tax Vs. Dr. Gaur Hari Singhania, -W.T. Reference No. 343 of 1983 decided on July 26, 2004, had considered the same question in respect of another person of the same group and had held in favour of the Revenue.

Respectfully following the aforesaid decision, we answer both the questions of law in the negative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.