1984 (2) TMI 174 - AT - Wealth-tax

Summary

Issues Involved:
1. Validity of reopening assessments under section 17 of the Wealth-tax Act, 1957.
2. Correctness of the valuation of shares in a private limited company for wealth-tax purposes.
3. Applicability of Rule 1D of the Wealth-tax Rules, 1957.
4. Impact of voluntary disclosure of income and wealth by the company on the valuation of shares.
5. Deduction of advance tax from the provision for taxation in the balance sheet.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments Under Section 17 of the Wealth-tax Act, 1957:
The appeals were filed by the revenue concerning reassessments made in the wealth-tax proceedings for the assessment years 1969-70 to 1975-76. The WTO initiated reassessment proceedings under section 17 after noting that the company in which the assessee held shares had made a voluntary disclosure of income and wealth, which was not reflected in the balance sheet. The Commissioner (Appeals) held that the WTO could only reopen assessments if there was a failure on the part of the assessee to disclose material facts. The assessee had disclosed all relevant materials when the original assessments were completed. Thus, there was no omission or failure on the part of the assessee, and the reopening of assessments was invalid.

2. Correctness of the Valuation of Shares in a Private Limited Company for Wealth-tax Purposes:
The assessee had valued the shares based on the balance sheet of the company in accordance with Rule 1D of the Wealth-tax Rules, 1957. The WTO later reassessed the value of the shares by including the value of the stock disclosed under the voluntary disclosure scheme. The Commissioner (Appeals) held that the valuation of shares was correctly done in the original assessments by including only the assets declared in the balance sheet. The WTO was not competent to reopen the assessments based on the voluntary disclosure made by the company.

3. Applicability of Rule 1D of the Wealth-tax Rules, 1957:
Rule 1D prescribes that the market value of unquoted equity shares should be determined based on the assets and liabilities as shown in the balance sheet. The WTO attempted to adjust the balance sheet values by including the disclosed stock. However, the Commissioner (Appeals) and the Tribunal held that Rule 1D did not permit such adjustments. The valuation had to be made strictly in accordance with the balance sheet figures.

4. Impact of Voluntary Disclosure of Income and Wealth by the Company on the Valuation of Shares:
The company made a voluntary disclosure of stock that was not reflected in the balance sheet. The WTO included this disclosed stock value in the reassessment of the shares. The Commissioner (Appeals) and the Tribunal held that the voluntary disclosure did not affect the valuation of shares under Rule 1D. The disclosed stock was not part of the balance sheet on the relevant valuation dates, and thus, could not be considered in the valuation of shares.

5. Deduction of Advance Tax from the Provision for Taxation in the Balance Sheet:
The WTO deducted the advance tax paid from the provision for taxation on the liabilities side of the balance sheet. The Commissioner (Appeals) refrained from giving a finding on this point, as the reassessments were invalid. The Tribunal did not consider the cross-objections on this issue, as it agreed with the Commissioner that the reopening of assessments was invalid.

Conclusion:
The Tribunal dismissed all the revenue's appeals, agreeing with the Commissioner (Appeals) that the reassessments were invalid. The valuation of shares was correctly done in the original assessments under Rule 1D, and the voluntary disclosure by the company did not warrant reopening the assessments. The WTO was bound by the balance sheet figures and could not adjust them based on the voluntary disclosure.