1978 (7) TMI 168 - AT - Income Tax

Summary

Issues:
1. Assessment of capital gains for the Asst. yr. 1976-77 based on the cost of shares as on 1st Jan., 1954.
2. Applicability of Wealth Tax Act and Rules to Income Tax proceedings.
3. Interpretation of r. 1D of the W.T. Rules for determining fair market value of unquoted shares.
4. Comparison with previous Tribunal orders regarding valuation of shares.
5. Jurisdiction to enhance assessment based on fair market value.

Analysis:
The case involves an appeal against the assessment of capital gains for the Asst. yr. 1976-77 concerning the sale of shares in a company. The Income Tax Officer (ITO) initially determined the cost of the shares as on 1st Jan., 1954 at 85% of the break-up value, resulting in a specific capital gains amount. However, the Appellate Assistant Commissioner (AAC) directed the ITO to consider the cost as per the balance sheet of the company as on 31st Dec., 1953, which was higher than the ITO's calculation. The main contention revolved around the applicability of the Wealth Tax Act and Rules to Income Tax proceedings, specifically regarding the determination of fair market value of unquoted shares.

The Revenue argued that the Wealth Tax Act was in force for the relevant assessment year, and therefore, r. 1D of the W.T. Rules should be applied to reduce the break-up value by 15% to determine the fair market value of unquoted shares. They sought a uniform procedure for evaluating such shares. On the other hand, the Assessee's counsel contended that the W.T. Rules should not apply to Income Tax proceedings and highlighted that r. 1D of the W.T. Rules was not applicable retrospectively to evaluate the fair market value as on 1st Jan., 1954. The Assessee also argued that the company in question was a managing agency company, making the application of r. 1D irrelevant.

The Tribunal considered the arguments presented by both sides and referred to a previous Tribunal order that rejected a similar contention by the department regarding the deduction from the break-up value. The Tribunal upheld the AAC's order, emphasizing that the department's case for reducing 15% from the break-up value lacked legal justification. It was concluded that r. 1D of the W.T. Rules did not have retrospective application and did not apply to managing agency companies. Therefore, the appeal of the revenue was dismissed, and the order of the AAC was upheld.