1969 (7) TMI 23 - HC - Wealth-tax

Determining the break-up value of the shares held by the assessee - valuation of the depreciable assets of the company concerned should be based on their income-tax written down value in place of their balance-sheet value

Summary

Issues Involved:
1. Determination of the break-up value of shares based on income-tax written down value versus balance-sheet value.
2. Deduction of proposed dividend in computing the break-up value of shares.

Issue-wise Detailed Analysis:

1. Determination of the Break-up Value of Shares:
The primary issue addressed in this judgment is whether the Income-tax Tribunal was justified in using the income-tax written down value of depreciable assets instead of their balance-sheet value for determining the break-up value of shares held by the assessee in Messrs. Hind Mills Ltd. The court noted that the shares in question were not quoted on the stock exchange, necessitating a computation of their break-up value. The Tribunal had accepted the assessee's contention to adopt the written down value of depreciable assets, as the company had not provided adequate depreciation in the balance-sheet due to a paucity of profits.

The court discussed various precedents, including Commissioner of Wealth-tax v. Tungabhadra Industries Ltd., which suggested that while the written down value might not always represent the real value of the assets, it generally provides a fair idea of their value unless the assets are of a rare type or quality. Another relevant case was Commissioner of Wealth-tax v. Bally Jute Co. Ltd., which indicated that the value of depreciable assets should be included after allowing normal depreciation, though not necessarily the same as for income-tax purposes.

The revenue argued that the valuation under the Wealth-tax Act is fundamentally different from that under the Income-tax Act. The Wealth-tax Act focuses on the market value of assets on the valuation date, while the Income-tax Act deals with business profits and gains. The revenue also questioned whether the market value of shares is dependent on the depreciation of the company's physical assets.

The court highlighted the practical difficulties in correlating the depreciation of physical assets to the valuation of shares. It referred to the Gujarat High Court's decision in Commissioner of Wealth-tax v. Raipur Mfg. Co. Ltd., which emphasized that there is no hard and fast rule, and the Wealth-tax Officer is not obligated to consider the written down value as the proper value of an asset. The court agreed with this caution, stating that the valuation of assets under section 7 of the Wealth-tax Act should be based on the price the asset would fetch in the open market, not necessarily the written down value.

Ultimately, the court concluded that the Tribunal's approach was justified in this case, given the lack of alternative procedures suggested by the revenue. The answer to the first question was given in the affirmative, in favor of the assessee, but with significant qualifications regarding the general applicability of written down values.

2. Deduction of Proposed Dividend:
The second issue involved whether the proposed dividend amount of Rs. 1,75,000 should be deducted in computing the break-up value of shares of Messrs. Sri Hanuman Sugar Mills Ltd. The court quickly resolved this issue by referring to a previous decision in Gift-tax Officer, Calcutta v. Kastur Chand Jain, which covered similar circumstances. Following that decision, the court answered the second question in the negative, in favor of the revenue, indicating that the proposed dividend should not be deducted.

Conclusion:
The judgment provided a nuanced analysis of the valuation of shares under the Wealth-tax Act, emphasizing the differences from the Income-tax Act and the importance of market value over written down value. The court affirmed the Tribunal's decision on the first issue with significant qualifications and ruled in favor of the revenue on the second issue. Each party was ordered to bear its own costs.