1989 (6) TMI 105 - AT - Income Tax

Issues Involved:
1. Entitlement of the assessee-trust to exemption under Section 5(1)(i) of the Wealth Tax (WT) Act.
2. Interpretation of the term "concern" in Section 13(2)(h) of the Income Tax (IT) Act.
3. Application of previous Tribunal decisions to the current case.
4. Correct valuation of equity shares held by the assessee-trust.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Section 5(1)(i) of the WT Act:
The primary issue in this appeal is whether the assessee-trust is entitled to exemption under Section 5(1)(i) of the WT Act for the assessment year 1980-81. The Revenue contends that the assessee-trust's investment in Sundaram Fasteners Ltd., where the authors and their relatives have substantial interest through Sundaram Roadways, contravenes Section 13(2)(h) read with Section 13(3) of the IT Act. Consequently, the exemption should be denied based on the provisions of Section 21A(i) and the Second proviso under Section 21A of the WT Act.

2. Interpretation of the Term "Concern" in Section 13(2)(h) of the IT Act:
The Revenue argues that the term "concern" in Section 13(2)(h) includes any concern in which the authors or their relatives have substantial interest, which indirectly holds substantial interest in Sundaram Fasteners Ltd. The assessee-trust's counsel, however, contends that the term "concern" should only refer to the concern where the trust directly made the investment, not any other concern in which the authors have indirect substantial interest.

3. Application of Previous Tribunal Decisions:
The Revenue relies on the Tribunal's previous decisions for the assessment years 1975-76 to 1979-80, where it was held that the assessee-trust contravened Section 13(2)(h) of the IT Act, thereby forfeiting the exemption under Section 11. The Tribunal's earlier decision stated that the trust's funds invested in Sundaram Fasteners Ltd., where Sundaram Roadways (in which the authors have substantial interest) held significant shares, violated the provisions of Section 13(2)(h). The Revenue argues that since there has been no change in the facts, the same decision should apply to the current assessment year.

4. Correct Valuation of Equity Shares:
The assessee-trust disputes the valuation of its 4,200 shares in Sundaram Fasteners Ltd. at Rs. 20.78 per share as determined by the Wealth Tax Officer (WTO). The assessee's counsel argues that the valuation should exclude the provision for gratuity, which would reduce the value of each share to Rs. 10.08, and further to Rs. 8.56 for wealth-tax purposes using the yield method. The counsel cites the decision of the Madras High Court in CWT vs. S. Ram & Ors., which held that the provision for gratuity is a deductible liability.

Tribunal's Findings:

1. Entitlement to Exemption:
The Tribunal upheld the Revenue's contention that the assessee-trust's investment in Sundaram Fasteners Ltd. contravened Section 13(2)(h) of the IT Act. The Tribunal noted that Sundaram Roadways, in which the authors have substantial interest, held a significant portion of shares in Sundaram Fasteners Ltd. Thus, the investment of the trust's funds in Sundaram Fasteners Ltd. was deemed to be an investment in a concern where persons referred to in Section 13(3) have substantial interest, leading to the denial of exemption under Section 5(1)(i) of the WT Act.

2. Interpretation of "Concern":
The Tribunal rejected the assessee's interpretation of the term "concern" and agreed with the Revenue's broader interpretation. The Tribunal held that the term "concern" includes any concern in which the authors or their relatives have substantial interest, even if indirectly.

3. Application of Previous Decisions:
The Tribunal followed its previous decisions for the assessment years 1975-76 to 1979-80, as there was no change in the facts. The Tribunal emphasized that the earlier decision correctly applied the provisions of Section 13(2)(h) and Section 21A of the WT Act, leading to the denial of exemption.

4. Valuation of Equity Shares:
The Tribunal remanded the issue of the correct valuation of equity shares to the Deputy Commissioner of Wealth Tax (Dy. CWT) for reconsideration. The Tribunal directed the Dy. CWT to determine the correct value of each equity share, considering the provision for gratuity and applying the break-up value method. The Tribunal cited the Andhra Pradesh High Court's decision in CIT vs. Hyderabad Deccan Liquor Syndicate and the Supreme Court's decision in Kapur Chand Shrimal vs. CIT, emphasizing the duty of appellate authorities to correct errors and issue appropriate directions for fresh consideration.

Conclusion:
The Tribunal allowed the Revenue's appeal, set aside the order of the AAC, and remanded the matter to the Dy. CWT for determining the correct valuation of the equity shares held by the assessee-trust in Sundaram Fasteners Ltd. The Tribunal's decision was based on the interpretation of the term "concern" in Section 13(2)(h) of the IT Act, the application of previous Tribunal decisions, and the need for accurate valuation of the shares.

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