1968 (9) TMI 24 - HC - Wealth-tax

Valuation of shares in stock - officer valued the shares in stock at the prevalent market price as on the relevant valuation date - held that it was not obligatory for the Wealth-tax Officer to determine the net value of the businesses of the two assessees u/s 7(2)(a) of the Act and that he had the option to proceed u/s 7(1) to value each asset separately

Summary

Issues Involved:
1. Interpretation of Section 7(1) and Section 7(2)(a) of the Wealth-tax Act, 1957.
2. Whether the Wealth-tax Officer is obligated to determine the net value of the appellant's businesses as a whole in shares based on the balance-sheets as per Section 7(2)(a).

Issue-wise Detailed Analysis:

1. Interpretation of Section 7(1) and Section 7(2)(a) of the Wealth-tax Act, 1957:

Section 7(1) of the Wealth-tax Act mandates that the value of any asset, other than cash, should be estimated based on the price it would fetch if sold in the open market on the valuation date. This implies that the Wealth-tax Officer must estimate the market value of each asset. However, Section 7(2)(a) provides an alternative method where the Wealth-tax Officer may, instead of valuing each asset separately, determine the net value of the assets of the business as a whole, considering the balance-sheet and making necessary adjustments. This section gives the Wealth-tax Officer the discretion to choose between the two methods.

2. Obligation of Wealth-tax Officer under Section 7(2)(a):

The assessees, both dealers in shares, argued that the shares in stock should be valued based on their books of account and balance-sheet, relying on Section 7(2)(a). However, the Wealth-tax Officer valued the shares at the market price on the relevant valuation dates, a decision upheld by the Appellate Assistant Commissioner and the Tribunal. The Tribunal concluded that the Wealth-tax Officer had the authority to compute the valuation of the assets under Section 7(1).

The High Court examined whether the Wealth-tax Officer was obligated to use the balance-sheet method under Section 7(2)(a). It was determined that Section 7(2)(a) provides an option, not an obligation, for the Wealth-tax Officer to adopt the balance-sheet method. The use of the word "may" in Section 7(2)(a) indicates that the Wealth-tax Officer has the discretion to choose either method. This interpretation is supported by several High Court decisions, including those from Allahabad, Bombay, Calcutta, Mysore, and Andhra Pradesh, which consistently held that the Wealth-tax Officer has the discretion to use either the market value method under Section 7(1) or the balance-sheet method under Section 7(2)(a).

Conclusion:

The High Court concluded that it was not obligatory for the Wealth-tax Officer to determine the net value of the businesses of the assessees under Section 7(2)(a) and that he had the option to proceed under Section 7(1) to value each asset separately. The question referred to the court was answered in the negative, favoring the department and against the assessees. The court also noted that the practice of making joint references for different assessees by the Tribunal was not justified and recommended separate references for each case.

In summary, the judgment clarifies that the Wealth-tax Officer has the discretion to choose between valuing each asset separately at market value or determining the net value of the business as a whole based on the balance-sheet, and is not obligated to follow the latter method.