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Issues Involved:
1. Whether the Tribunal was justified in treating certain shares as unquoted shares under rule 1A(1) of the Wealth-tax Rules, 1957. 2. Whether rule 1D of the Wealth-tax Rules must prevail over section 7(1) of the Wealth-tax Act in valuing unquoted equity shares. Issue-wise Detailed Analysis: Issue 1: Treatment of Shares as Unquoted Shares The core issue is whether the shares of Messrs. Moheema Ltd., Messrs. Sonai River Tea Co. Ltd., and Messrs. Numburnadi Tea Co. Ltd. should be treated as unquoted shares under rule 1A(1) of the Wealth-tax Rules, 1957. The relevant valuation date is December 31, 1976. The assessee claimed that these shares were quoted on the Calcutta Stock Exchange and valued them based on the quoted prices. However, the Wealth-tax Officer found that there were no transactions in these shares within a reasonable period before the valuation date. Specifically, the last transactions for Moheema Ltd., Sonai River Tea Co. Ltd., and Numburnadi Tea Co. Ltd. were on April 24, 1974, April 30, 1976, and December 3, 1976, respectively. The Tribunal held that the shares were not "regularly quoted" due to the absence of regular transactions, thus classifying them as "unquoted shares." The court agreed with the Tribunal, emphasizing that "regularly quoted" implies regular transactions within a reasonably proximate time to the valuation date. The court cited previous judgments, including CWT v. Mahadeo Jalan and Smt. Nirmala Birla v. WTO, to support this interpretation. Therefore, the court answered this question in favor of the Revenue, affirming that the shares should be treated as unquoted shares. Issue 2: Prevalence of Rule 1D over Section 7(1) The second issue concerns whether rule 1D of the Wealth-tax Rules, which prescribes a method for valuing unquoted equity shares, should prevail over section 7(1) of the Wealth-tax Act. Rule 1D mandates a specific method for determining the market value of unquoted equity shares, essentially a modified break-up method. The assessee argued that this rule conflicts with section 7(1) of the Act, which requires the valuation to reflect the price the asset would fetch if sold in the open market. The court examined various High Court decisions and noted a split in judicial opinion. High Courts in Andhra Pradesh, Bombay, Delhi, Karnataka, and Madras held rule 1D to be directory, while High Courts in Allahabad, Calcutta, and Kerala considered it mandatory. The court leaned towards the latter view, emphasizing that section 7(1) is "subject to any rules made in this behalf," thus giving rule 1D the same status as the statutory provision. The court cited the Supreme Court's interpretation in Harish Chandra Bajpai v. Triloki Singh, which supports the idea that rules made under a statute should be treated as part of the statute itself. The court concluded that rule 1D is mandatory and must be followed by the Wealth-tax Officer. It rejected the argument that rule 1D conflicts with section 7(1), stating that the rule should be regarded as part of section 7(1) and both provisions must be harmoniously construed. Therefore, the court answered this question in favor of the Revenue, affirming that rule 1D prevails and is mandatory. Conclusion: Both questions were answered in favor of the Revenue. The shares in question were correctly treated as unquoted shares, and rule 1D of the Wealth-tax Rules is mandatory, prevailing over section 7(1) of the Wealth-tax Act. The judgment emphasizes the importance of regular transactions for shares to be considered "regularly quoted" and upholds the mandatory nature of rule 1D for valuing unquoted equity shares.
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