1994 (11) TMI 163 - AT - Wealth-tax

Assessing Officer, Bonus Shares, Industrial Undertaking, Quoted Equity Shares, Unquoted Shares, Valuation Date, Wealth Tax Act

Summary

Issues Involved:
1. Valuation of equity shares of M/s Hero Cycles Pvt. Ltd.
2. Valuation of equity shares of M/s Highway Cycle Industries Ltd.
3. Exemption under section 5(1)(xxa) of the Wealth-tax Act for equity shares of M/s Hero Fibres Ltd.

Detailed Analysis:

1. Valuation of Equity Shares of M/s Hero Cycles Pvt. Ltd.

Facts and Controversy:
The assessee valued shares at Rs. 30.45 per share, while the Assessing Officer valued them at Rs. 326.19 per share. The difference arose due to the method of valuation and the balance-sheet date used.

Assessing Officer's Approach:
- Adopted the balance-sheet as on 30-6-1982.
- Divided the capital by 149331 shares (existing shares as on 30-6-1982).

Assessee's Approach:
- Adopted the balance-sheet as on 30-6-1982.
- Divided the capital by 248885 shares (including 99554 bonus shares issued between 1-7-1982 and 31-3-1983).

CWT (Appeals)'s Approach:
- Adopted the balance-sheet as on 30-6-1983.
- Divided the capital by 248885 shares.

Tribunal's Decision:
- The balance-sheet as on 30-6-1982 should be used, as it immediately precedes the valuation date (31-3-1983).
- The net wealth should be divided by the total number of shares (248885), including bonus shares.
- The value of shares should not exclude advance-tax payment from the assets of the company.

Conclusion:
The Tribunal directed the Assessing Officer to recompute the value of shares by dividing the net wealth as on 30-6-1982 by 248885 shares, rejecting the CWT (Appeals)'s approach of using the balance-sheet as on 30-6-1983.

2. Valuation of Equity Shares of M/s Highway Cycle Industries Ltd.

Facts and Controversy:
The assessee valued shares at Rs. 1,012 each, while the Assessing Officer valued them at Rs. 4,071.23 per share. Similar to M/s Hero Cycles, the valuation date was 31-3-1983, and bonus shares were issued between 1-7-1982 and 31-3-1983.

Tribunal's Decision:
- The balance-sheet as on 30-6-1982 should be used.
- The net wealth should be divided by the total number of shares, including bonus shares.

Conclusion:
The Tribunal directed the Assessing Officer to work out the value of each share by adopting the balance-sheet as on 30-6-1982 and using the total number of shares, including bonus shares.

3. Exemption under Section 5(1)(xxa) of the Wealth-tax Act for Equity Shares of M/s Hero Fibres Ltd.

Facts and Controversy:
The assessee claimed exemption under section 5(1)(xxa) for shares in M/s Hero Fibres Ltd., which the Assessing Officer denied, arguing the company primarily produced synthetic yarn rather than cotton yarn.

CWT (Appeals)'s Decision:
- Agreed that the company was engaged in manufacturing cotton yarn.
- Denied exemption due to higher production of synthetic yarn during the relevant period.

Tribunal's Decision:
- Emphasized the main object of the company, which included the production of cotton yarn.
- Held that exemption should be based on the company's objects rather than the actual production in a specific year.
- Noted that the prospectus and Garg's Ready Reckoner indicated eligibility for exemption under section 5(1)(xxa).

Conclusion:
The Tribunal held that the assessee was entitled to exemption under section 5(1)(xxa) for the shares in M/s Hero Fibres Ltd., irrespective of the higher production of synthetic yarn in the relevant year.

Final Outcome:
- Assessee's Appeal: Allowed.
- Revenue's Appeal: Dismissed.