1996 (7) TMI 191 - AT - Wealth-tax

Assessing Officer, Assessment Year, Factory Building, Firm Assessment, Interest In Firm, Net Wealth, Valuer s Report

Summary

Issues: Valuation of shares in partnership firms for assessment years 1986-87 to 1990-91.

The judgment involves appeals by two assessees regarding the valuation of their shares in partnership firms, namely M/s. Sivaram Tea Industry, M/s. Maniklal Tea Factory, and M/s. Sivaram Plywoods, for assessment years 1986-87 to 1990-91. The Assessing Officer found discrepancies in the valuation of the assessees' interests in the firms and allowed them to get the valuation done by an approved valuer. The assessees revised their returns based on the valuation report but later withdrew the revision related to the valuation. The dispute centered on the application of rules 15 and 16 of Schedule III of the Wealth-tax Act for determining the assessees' interests in the firms, which was challenged before the CWT (Appeals).

The CWT (Appeals) upheld the Assessing Officer's order, stating that valuation of factory buildings owned by the firms should be based on market value and not rent capitalization method. The assessees contended that valuation should be in accordance with Schedule III of the Act, particularly rules 15 and 16. The issue revolved around whether rules 3 to 7 of Schedule III should be applied for valuation or if rule 20, which deals with land and building valuation, was appropriate.

The learned counsel for the assessees argued that Schedule III should be applied for assessments finalized after 1-4-1989, citing relevant legal precedents. They contended that the valuation method should follow rules 15 and 16, starting with determining the net wealth of the firm and then allocating the value among partners based on capital contributions and profit-sharing agreements. The departmental representative supported the use of rule 20 for valuation, emphasizing the valuation of land and buildings as the appropriate method.

The Tribunal considered the arguments and legal principles, noting that procedural laws should apply to assessments completed after an amendment. Referring to legal precedents, the Tribunal agreed with the assessees that Schedule III should be applied for the assessment years in question. The Tribunal analyzed the relevant rules in Schedule III, particularly rules 15, 16, and 14, which outline the methodology for valuing interests in firms and global valuation of business assets. The Tribunal concluded that rules 3 to 7 should be used for valuation unless circumstances under rule 8 exempt their application. As the Assessing Officer had not considered rules 3 to 7, the matter was remanded for proper valuation based on these rules.

In conclusion, the appeals were allowed for statistical purposes, directing the Assessing Officer to reevaluate the assessees' interests in the partnership firms in accordance with rules 3 to 7 of Schedule III.