1989 (11) TMI 74 - AT - Wealth-tax

Summary

Issues: Valuation of unquoted equity shares of private limited companies for wealth tax purposes.

The judgment by the Appellate Tribunal ITAT BOMBAY-B dealt with the issue of valuation of unquoted equity shares of private limited companies for wealth tax purposes. The main question was whether the shares should be valued using the yield method or as per Rule 1D. The first appellate authority relied on Supreme Court and Bombay High Court decisions to support valuing the shares by capitalizing the yield due to the absence of Stock Exchange quotations. The department argued for the application of Schedule III to the Wealth-tax Act, making Rule 1D mandatory for valuation. The Tribunal analyzed the retrospective application of Schedule III and the amended section 7(1) introduced by the Direct Tax Laws (Amendment) Act, 1989. It concluded that the amended provisions should not apply retrospectively to pending proceedings, including those before the Tribunal. The Tribunal emphasized the significant change in the concept of asset valuation introduced by the amendment and rejected the argument for retrospective application of Schedule III and amended section 7(1).

Furthermore, the Tribunal addressed the argument regarding the mandatory nature of Rule 1D. It discussed various High Court decisions on whether Rule 1D is mandatory or directory. The Tribunal highlighted the conflicting views among different High Courts on this issue. It gave weight to the decision of the Bombay High Court in a recent case, which held that the profit-earning method should be applied for valuing shares of unquoted companies. The Tribunal also cited the Supreme Court's principles on share valuation and upheld the view taken by the first appellate authority based on relevant precedents. Ultimately, the Tribunal confirmed the orders of the first appellate authority, following the established authorities and dismissed the appeals.