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Issues: Valuation of unquoted shares for wealth-tax assessment; applicability of rule 1D for valuation; mandatory vs. directory nature of rule 1D; interpretation of rule 1D by the Delhi High Court; relevance of yield method in valuation; binding nature of rule 1D on Tribunal.
In this case, the assessee held unquoted shares in a company for wealth-tax assessment. Initially, the assessee valued the shares using the yield method, but later revised the valuation to a lower amount. The Wealth Tax Officer (WTO) revalued the shares using rule 1D, resulting in a higher valuation than the assessee's revised value. The assessee contended that the yield method should be used for valuing shares in a going concern, contrary to the WTO's application of rule 1D. The Appellate Tribunal upheld the WTO's valuation, considering rule 1D as mandatory for valuing unquoted shares. The assessee then appealed to the Appellate Tribunal challenging the valuation method. The Delhi High Court, in a separate case, held that the provisions of rule 1D are not mandatory but directory. The High Court reasoned that if the valuation date of the company and the assessee do not coincide, rule 1D should be considered directory, allowing the assessee to demonstrate a different value on their valuation date. The High Court emphasized the use of the yield method for valuing unquoted shares in a going concern, as approved by the Supreme Court in previous cases. The High Court clarified that even when a Valuation Officer values shares under section 16A, the yield method should be applied, not the break-up value method. The High Court distinguished the Tribunal's role, stating that the Tribunal is not bound by rule 1D, unlike the WTO. The Tribunal has the discretion to assess the applicability of rule 1D and determine the valuation method based on the specific case facts. Following the Delhi High Court's judgment, the Appellate Tribunal ruled that shares should not be valued using rule 1D unless the balance sheet date aligns with the assessee's valuation date. Otherwise, the yield method should be used for valuation. Consequently, the Tribunal vacated the previous valuation orders and directed a revaluation of the shares in line with the Delhi High Court's interpretation. Ultimately, the appeal was allowed, emphasizing the importance of considering the valuation method based on the specific circumstances and aligning with the Delhi High Court's guidance on the valuation of unquoted shares for wealth-tax assessment.
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