2009 (2) TMI 310 - HC - Wealth-tax

Whether, Tribunal was right in holding that the value of shares held by the assessee in M/s. Krishna Mills Ltd., Beawar, is to be a at on yield basis as against the value under rule 1D of the Wealth-tax Rules ? - The assessee held shares in Krishna Mills and claimed that the shares should be valued as per yield method. The Wealth-tax Officer rejected the claim of the assessee and valued the same as per rule 1D of the Wealth-tax Rules, 1957 Held that Tribunal was not right in holding that the value of shares, is to be a arrived at on yield basis as against the value under rule 1D of the Wealth-tax Rules

Summary

Issues:
1. Valuation of shares held by the assessee in a company.
2. Interpretation of rule 1D of the Wealth-tax Rules.
3. Applicability of the 'break-up method' in rule 1D.
4. Binding nature of rule 1D on Valuation Officer.
5. Deductions permissible while valuing unquoted equity shares.

Issue 1: Valuation of shares held by the assessee
The case involved a dispute regarding the valuation of shares held by the assessee in a company named Krishna Mills. The assessee argued for the valuation of shares using the yield method, while the Wealth-tax Officer valued them as per rule 1D of the Wealth-tax Rules, 1957. The Appellate Assistant Commissioner initially sided with the assessee, leading to an appeal by the Revenue before the Tribunal, which upheld the decision of the Appellate Assistant Commissioner.

Issue 2: Interpretation of rule 1D of the Wealth-tax Rules
The primary contention revolved around the interpretation of rule 1D of the Wealth-tax Rules, specifically concerning the valuation of unquoted equity shares of a company. The Revenue argued that the Valuation Officer is bound by rule 1D when valuing such shares, as established by the Supreme Court in previous cases. The apex court affirmed the validity and mandatory nature of rule 1D, emphasizing that all authorities, including the Valuation Officer, must adhere to its provisions without making deductions for capital gains tax or other expenses.

Issue 3: Applicability of the 'break-up method' in rule 1D
The court addressed the application of the 'break-up method' in rule 1D and clarified that no deductions for capital gains tax or other expenses are permissible when valuing unquoted equity shares under this rule. The court emphasized that rule 1D is exhaustive on the subject, and any conflicting views from other High Courts were overruled.

Issue 4: Binding nature of rule 1D on Valuation Officer
The judgment highlighted that the Valuation Officer is bound by rule 1D and all other rules made under the Wealth-tax Act. The court referenced previous decisions to establish the mandatory nature of rule 1D and rejected any contrary views from other High Courts.

Issue 5: Deductions permissible while valuing unquoted equity shares
The court clarified that while valuing unquoted equity shares under rule 1D, no deductions for capital gains tax, provisions for taxation, provident fund, or gratuity are admissible. The court affirmed the validity of Explanation 1 to rule 1D as delegated legislation that must be followed without exceptions.

In conclusion, the court disposed of the reference in favor of the Revenue and against the assessee, citing previous Supreme Court judgments and affirming the mandatory nature of rule 1D for valuing unquoted equity shares.