1994 (11) TMI 153 - AT - Wealth-tax

Summary

Issues Involved:

1. Applicability and interpretation of Rule 1D of the Wealth Tax Rules.
2. Rectification of the Tribunal's order dated 30th Dec., 1993 in light of the Supreme Court's decision in Singhania's case.
3. Deduction of advance tax payment and provision for liabilities.
4. Validity of Explanation II to Rule 1D.
5. The mandatory nature of Rule 1D.

Issue-wise Detailed Analysis:

1. Applicability and Interpretation of Rule 1D of the Wealth Tax Rules:

The primary issue was whether Rule 1D of the Wealth Tax Rules is mandatory for valuing unquoted equity shares. The Supreme Court in Bharat Hari Singhania vs. CWT (Singhania's case) held that Rule 1D is mandatory and must be followed in every case where unquoted equity shares need to be valued. This rule binds all authorities under the Wealth Tax Act, including the Valuation Officer. The Tribunal noted that the Supreme Court's judgment is a landmark decision on the interpretation and applicability of Rule 1D, emphasizing its mandatory nature.

2. Rectification of the Tribunal's Order Dated 30th Dec., 1993:

The Tribunal's order dated 30th Dec., 1993, which had dismissed the Departmental appeal, needed rectification in light of the Supreme Court's decision in Singhania's case. The Tribunal acknowledged that the law declared by the Supreme Court is the law of the land, as enshrined in Article 141 of the Constitution of India. Therefore, the Tribunal's previous order, which was based on the decision in Kusumben D. Mahadevia's case, required rectification to align with the Supreme Court's ruling that Rule 1D is mandatory.

3. Deduction of Advance Tax Payment and Provision for Liabilities:

The Tribunal discussed disputes regarding the deduction of advance tax payment and the provision for liabilities under Explanation II, clauses (i)(a) and (ii)(e) to Rule 1D. The Gujarat High Court, in CWT vs. Ashok K. Parikh, had ruled that advance tax shown on the assets side of the balance sheet should not be deducted from the tax payable when determining the provision for taxation. The Supreme Court in Singhania's case overruled this interpretation, clarifying that no deductions, including advance tax, are admissible while valuing unquoted equity shares under Rule 1D.

4. Validity of Explanation II to Rule 1D:

The Tribunal also addressed the validity of Explanation II to Rule 1D. The Supreme Court upheld Explanation 1 to Rule 1D as a valid piece of delegated legislation that must be followed. The Tribunal noted that the Supreme Court's judgment clarified that the valuation date of the assessee and the date with reference to which the balance sheet is drawn up need not coincide for Rule 1D to be mandatory.

5. The Mandatory Nature of Rule 1D:

The Tribunal emphasized that the Supreme Court in Singhania's case declared Rule 1D as mandatory, binding on all authorities under the Wealth Tax Act. The Tribunal highlighted that the Supreme Court's judgment resolved any debate on the issue, and all pending appeals and writ petitions related to the interpretation and applicability of Rule 1D were disposed of in terms of the opinion expressed in Singhania's case.

Conclusion:

The Tribunal, after meticulously studying the Supreme Court's judgment in Singhania's case, concluded that its previous order dated 30th Dec., 1993, required rectification under Section 35 of the Wealth Tax Act. The Tribunal acknowledged that the Assessing Officer had correctly applied Rule 1D for valuing unquoted equity shares, and the appellate authorities, including the Tribunal, had erred in their interpretation. Consequently, the Tribunal allowed the Revenue's application, rectified its previous order, and upheld the valuation done by the Assessing Officer in accordance with Rule 1D. The Tribunal's decision aligned with the Supreme Court's ruling, ensuring conformity with the law of the land.