Onkarjit Singh Kanwar vs Commissioner Of Wealth-Tax, Delhi

Arijit Pasayat, C.J.—At the instance of the assessed following questions have been referred by the Income Tax Appellate Tribunal Delhi Bench ''E'' (in short the "Tribunal") u/s 27(1) of the Wealth Tax Act 1957 (in short the "Act") for opinion of this Court:-

(i) "Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the provisions of Rule 1D of the Wealth-tax Rules. 1958 were mandatory and the valuation of unquoted shares should be made in accordance with that rule and not on yield basis as contended by the assessee?

(ii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the debt amounting to Rs.1,33,327/- was not deductible from net wealth in accordance with the provisions of section 2(m)(ii) of the Wealth-tax Act. 1957?"

Brief reference to the factual aspects would suffice.

For the assessment year 1977-78 assessed had, while filing its return of wealth declared the value of unquoted shares in two companies at their face value. Subsequently a revised return was filed and the value of assets was shown at a lesser value on the basis of valuation made by an approved valuer on ''yield'' basis. The Assessing officer held that the value of the shares had to be determined in accordance with Rule 1D of the Wealth Tax Rules. 1958 (in short the "Rules"). The valuation of shares as returned by the assessed was thus rejected and the valuation was determined in terms of Rule 1D. assessed had further claimed several liabilities as deductible from its net wealth. These included a sum of Rs. 1,33,327/- which had been incurred as debt by the assessed in relation to certain shares, value whereof was not includible in the net wealth in terms of Section 5 of the Act. The Assessing Officer applied Provisions of Section 2(m)(ii) and held that the debt to the extent of Rs.1,33,327/- was not deductible. The matter was carried in appeal by the assessed before the first Appellate Authority.

Stand of the assessed was upheld, and the findings of the Assessing Officer on both the points were reversed. The matter was carried in Appeal before the Tribunal by the Revenue. The Tribunal held that the Provisions of Rule 1D were mandatory and Therefore the valuation as made by the Assessing Officer was upheld. In respect of other dispute. after examining the provisions of Section 2 of the Act, it was held that the debts to the extent of Rs. 1,33,327/- which had been incurred in relation to the acquisition of certain shares, value of which was not chargeable to wealth tax under the provisions of Section 5 had rightly not been deducted from net wealth. At the instance of the Assessee, as indicated above references have been made.

There is no appearance on behalf of the petitioner inspire of service. Learned counsel for the Revenue submitted that the Tribunal was justified in conclusion on both the questions.

So far as first question is concerned, the matter is squarely covered by decision of the Apex Court in the case of Bharat Hari Singhania and others Vs. Commissioner of Wealth Tax (Central) and others, . It was inter alias observed by the Apex Court as follows:-

"In view of our opinion that the valuation officer is also bound by the rules under the Act, the question of any conflict between rule 1D and sub-section (6) of Section 24 cannot and does not arise. This aspect has been dealt with by the Allahabad High Court in Commissioner of Wealth-tax Vs. Smt. Pushpawati Devi Singhania, . We agree with it.

We summarise our conclusions thus:

(1) Rule 1D is perfectly valid and effective. The rule has to be followed in every case where unquoted equity shares of a company (other than an investment company or a managing agency company) have to be valued. All the authorities under the Act including the Valuation Officer are bound by the said rule. The question of the rule being mandatory or directory does not arise.

(2) While valuing the unquoted equity shares under rule 1D, no deductions on account of capital gains tax which would have been payable in case the said shares were sold on the valuation date can be made. Similarly, no other deductions including provision for taxation, provident fund and gratuity are admissible. Rule 1D is exhaustive on the subject.

(3) Explanation 1 to Rule 1D is a perfectly valid piece of dele gated legislation and has to be followed. Merely because the valuation date of the assessed and the date with reference to which the balance-sheet of the company is drawn up do not coincide, it cannot be said that rule 1D is not mandatory or that it need not be followed.

(4) sub-clause (a) of clause (i) and sub-clause (e) of clause (ii) have to be read and under stood in the manner indicated in this judgment hereinabove.

(5) An assessed holding shares in a company whose assets comprise wholly or partly of agricultural land, is not entitled to exclude such shares from his wealth."

First conclusion by the Apex Court quoted above puts the matter beyond shadow of doubt that Rule 1D has to be followed in every case and Therefore the question of Rule being mandatory or directory does not arise.

Our answer to the 1st question Therefore is that rule 1D was to be followed by the Assessing Officer and in that context the further question whether it is mandatory or directory is really loses significance. Tribunal was justified in its conclusion that the Assessing Officer was bound to follow the Rules.

So far as the second point relating to applicability of section 2(m)(ii) of the Act is concerned, it is to be noted that there is a positive finding recorded by the lower forums that the sum of Rs. 1,33,327/- had been incurred in relation to certain shares whose values were not includible in the net wealth as per provisions contained in Section 5 of the Act. Section 2(m)(ii) reads as follows:-

"2(m)(ii) debts which are secured on or which have been incurred in relation to, any property in respect of which wealth-tax is not chargeable under this Act; and"

Language of two provisions when read conjointly makes it clear about the non-deductibility of the aforesaid due from the net wealth. Undisputed factual position is that the debt amount to Rs.1,33,327/- was in relation to assets whose values were not includible in the net wealth. Section 2 on a bare reading shows that deduction is not to be permitted where it relates to debts which have been incurred in relation to any property in respect of which wealth-tax is not chargeable under the Act. The Tribunal, Therefore, was justified in its conclusion that the debt amounting to Rs.1,33,327/- was not deductible from the not wealth. In view of the factual position set out above we do not think it necessary to go into the broader question whether there should be proportionate deduction or full deduction in a given case. Our answer to the second question is in the affirmative, in favor of the Revenue and against the Assessee.

Reference is accordingly disposed of.