1982 (3) TMI 36 - HC - Wealth-tax

Summary

Issues:
1. Application under s. 27(3) of the W.T. Act, 1957 seeking a reference on the valuation of shares based on balance-sheet dates.
2. Discrepancy in applying the balance-sheet of M/s. Fedders Lloyd Corporation for valuing shares acquired on March 29, 1975.

Analysis:
The judgment pertains to an application under s. 27(3) of the Wealth Tax Act, 1957, seeking a reference on the valuation of shares. The primary question raised was whether the balance-sheet of M/s. Fedders Lloyd Corporation as of December 31, 1975, should be considered for valuing shares acquired on March 29, 1975, with a valuation date of March 31, 1975. The Tribunal had applied the balance-sheet of December 31, 1975, to determine the share value, leading to a valuation of Rs. 1,29,690. However, the applicant contended that as the shares were issued post the balance-sheet date of December 31, 1974, the rule should have been applied based on the earlier balance-sheet. The Tribunal held that the application of the balance-sheet of December 31, 1974, did not arise, and it was a question of fact rather than law.

The court analyzed the relevant Wealth Tax Rules, particularly rule ID, which outlines the method for determining the market value of unquoted equity shares. The rule specifies that if no balance-sheet exists on the valuation date, the immediately preceding balance-sheet should be considered. In this case, as the shares were issued after the December 31, 1974 balance-sheet, the rule could not be applied based on that balance-sheet. The court emphasized that the rule's purpose is to evaluate shares based on existing financial data, and shares issued after a balance-sheet date would not be reflected accurately in that balance-sheet.

The court highlighted that the rule's application is contingent on the availability of relevant financial information, and in cases where shares are issued post a balance-sheet date, a later balance-sheet or alternative valuation methods must be considered. It illustrated this point with a hypothetical scenario to demonstrate the impact of issuing new shares on the break-up value per share. The judgment concluded that the application of the balance-sheet of December 31, 1974, was not feasible in this case due to the issuance of shares post that date, and therefore, no question of law arose regarding its application.

Ultimately, the court dismissed the application, affirming the Tribunal's decision that the issue concerning the balance-sheet dates was a question of fact rather than law. The judgment underscored the practical application of rules in evaluating share values and the necessity of aligning valuation methods with the financial data available at the relevant time.