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TMI Blog1989 (4) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... Eicher Tractors in their individual names and they declared the said sale proceeds and the investments therefrom in their individual WT returns. The same were accepted by the WTO in the course of time. The said persons also declared income arising from the aforesaid investments in their individual income-tax returns and the same were accepted as their incomes by the ITO. On these facts, it was pleaded by the assessee before the learned AAC that there was no justification for including the entire sale proceeds of the land in the total wealth of the family, as the partition of the sale proceeds of the land itself was clear evidence of the partition of the original asset by the land. 3. The above plea was accepted by the learned AAC while passing his order dt.29th Feb., 1984, in the case of the assessee for asst. yr. 1975-76. He pointed out inter alia that the aforesaid partition could not be held to be hit by the provisions of s. 20 of the WT Act, 1957, for the said section dealt with the case of complete partition and not with the cases of partial partition. In the case of partial partition whatever property was partitioned amongst the coparceners went out of the family fold and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee that r. 1BB may be applied. To the valuation of the said property was rejected by the WTO by observing that r. 1BB came into force w.e.f.1st April, 1979, and as such it was not applicable for the asst. yr. 1978-79. 8. The assessee appealed against the aforesaid order to the AAC who observed that r. 1BB was retrospective in operation and, therefore, it covered the asst. yr. 1978-79 and, therefore, the value of the property in question should have been worked out by the WTO by applying r. 1BB. 9. The revenue challenges the correctness of the above direction of the learned AAC and it is submitted that the valuation adopted by the WTO was not excessive and was in keeping with the figure adopted in the immediately preceding assessment year which was not challenged by the assessee. On behalf of the assessee, order of the learned AAC is supported. 10. It has been pointed out by their Lordships of the Delhi High Court in the case of SHARBATI DEVI JHALLANI vs. CWT ORS. (1986) 54 CTR (Del) 85 : (1986) 159 ITR 549 (Del) that when the WTO is of the opinion that the value of the property in question was in his opinion more than 33-1/3 per cent of the returned value, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If he does not, he will give reasons for it so that if the assessee is aggrieved of his order, it may be possible for him to file an appeal. For this limited purpose, namely, to consider the admissibility of the additional ground raised by the assessee before the learned AAC, we restore the matter back to him. 14. The assessee returned the value of the other property owned by him at Hissar namely Shanker Niwas at Rs. 23,333. The WTO referred the matter of valuation of the said property to the Valuation Officer with whom the assessee unfortunately did not co-operate. The said Valuation Officer, therefore, estimated the value of the property in question for asst. yr. 1978-79 at Rs. 2,53,333. on the basis of that valuation, the WTO estimated the value of the said property in the assessee s hands on the valuation date30th Sept., 1974, corresponding to the asst. yr. under consideration at Rs. 1,75,000. the assessee appealed against the aforesaid order to the learned AAC. There is unfortunately no discussion again with regard to this point in the order of the learned AAC. The ground was specifically taken before him but apparently has been left out due to inadvertance. In all fairness, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the assessee s claim if it is in accordance with law. 16. In the result, we will treat the assessee s appeals, for statistical purposes, as partly allowed. 15th June,1987 M.C. AGARWAL, J.M.: I have gone through the order prepared by my learned brother. I agree with his views and conclusions in so for as WTA Nos. 457/Del/85,648/Del/84 and WTA No. 750/Del/84 are concerned. 2. As regards WTA No. 456/Del/85 also I agree with him so far as the exclusion of sale proceeds of agricultural land is concerned. However, so for as the valuation of the house property is concerned, I beg to differ from the order proposed by my learned brother. 3. The property is a house property no. 2, Panchsheel Marg,New Delhi. The assessee had returned its value at Rs. 5,50,624. in the proceeding asst. yr. 1977-76, this property had been valued by the WTO at Rs. 7,45,640. During the assessment proceedings the assessee claimed that the property be valued in terms of r. 1-BB of the WT rules. The WTO declined to apply r.1-BB on the ground that the said rule came into force w.e.f.1st April, 1979, and as such was not applicable for asst. yr. 1978-79. The WTO, therefore, had adopted the value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summarise-The position, therefore, is that when a question arises as to the value of unquoted equity shares, the WTO has to Act according to the provisions of s. 71 read with r. 1-D can be applied only where the two dates aforesaid are common. At page 561 the Hon ble court observed: if applicable. He has to determine the break-up value of the shares in the manner prescribed in r. 1-D." In the case of application or r. 1BB no problem like the one in the case of SARBATI DEVI JALANI arises, because r.1-BB would apply whatever be the valuation date. No doubt the Hon ble High Court has gone to state that where the value determined by applying r. 1-D exceeds the returned value by more than the prescribed limit, then the question of valuation of shares has to be referred to the Valuation Officer, who will not be bound by r.1-D. the Hon ble High Court has taken up this position because of sub-s. (3)of s.7, which is in the nature of a proviso to s. 7(1) as it begins with the words- Notwithstanding any thing contained in sub-s. (1) . Under sub-s. (3) the Valuation Officer has to determine the price which an asset would fetch if sold in the open market on the valuation date. Rule 1-D of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation of shares under r. 1D or whether it will be applicable to the valuation of any property including that covered under r. 1BB? 2. If the answer to the above be in the negative, i.e., the ratio of Sharbati Devi s case does not apply to r. 1BB, whether, the direction given by the AAC in the present case that the value of property No. 2, Panch Sheel Marg, New Delhi be determined in accordance with r. 1BB of the WT Rules is erroneous? In order to appreciate the controversy, I shall briefly refer to the facts that gave rise to this appeal and the refer to the Delhi High Court decision on the interpretation of which the above difference appears to have arisen. 2. The assessee, inter alia, owned a property at No. 2, Panch Sheel Marg,New Delhi. Upto the wealth-tax asst. yr. 1977-78, the value of this property was fixed at Rs. 7,45,640 to which the assessee had agreed and there was no controversy about that. But in the assessment year under dispute (1978-79), the assessee returned the value of this property at Rs. 5,50,624 on the ground that this property was used as a residential house and that the value of this property should be arrived at on the basis of the method of valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Judicial Member understood the Delhi High Court decision in a different way. He first pointed out that it was not the contention of the Department before the Tribunal that in the light of the judgment of the Delhi High Court in SHARBATI DEVI JHALANI s case, the property could not be valued in terms of r. 1-BB or that the WTO should have made a reference to the Valuation Officer. In the direction that was given by the learned Accountant Member, the learned Judicial Member saw a possibility of the Valuation Officer not applying r. 1-BB for the valuation of this property on the view that it would not bind him and that result should not and was not to flow from the decision of the Delhi High Court. According to his understanding the Delhi High Court only laid down the principle as to how the value of unquoted shares should be made according to r. 1-D. The High Court was concerned in that case to find out as to whether r. 1-D is mandatory or directory. By analysing r. 1-D the High Court held that r. 1-D was not mandatory but in certain circumstances it is directory and those situations are that when the valuation date of the assessee and the balance sheet date of the shares happened t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It therefore follows that r. 1BB could have no application to a situation of this nature. Further reading sub-s. (3) of s. 7 and s. 16A together, it would mean that whenever the WTO arrives at the conclusion that the market value of the property was more than 33-1/3 per cent than the returned value, he has no option but to refer the matter to the Valuation Officer. The Valuation Officer would then enter upon the valuation process and in doing so, as held by the Delhi High Court, he was not bound by any rules because under the express provisions of sub-s. (2) of s. 7, he has to arrive at the price the property would fetch if sold in the open market on the valuation date. The value arrived at as per r. 1BB being a concessional value would not reflect the market value and the market value as estimated by the Valuation Officer should, therefore, prevail and that was how the Delhi High Court interpreted the provisions of s. 7(3) in the above case. Such being the position, the AAC was not justified in directing the WTO to value this property as per the provisions of r. 1BB. She further pointed out that under sub-s. (1) of s. 7 the WTO has to estimate the market value of the property s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed by the CWT under s. 25(9) of the WT Act. There the petitioner filed the return of wealth putting upon certain unquoted shares held in a private limited company of the particular value and later on a revised return was filed valuing those shares at a much less value. The original value was as per r. 1D of the WT Rules but the revised value was on the basis of yield method. The WTO accepted this revised valuation and completed the assessment but the CWT acting under s. 55(2) cancelled this assessment and directed the WTO to revise the value of the unquoted shares as per the method prescribed in r. 1D. The petitioner thereafter moved the High Court by way of a writ and contended that r. 1D of the WT Rules was not mandatory. The High Court after noticing and analysing s. 7, and s. 16A of the WT Act and rr. 3B and 1D of the WT Rules came to the conclusion that r. 1D as it stood could not be applied in all situations and after pointing out the anomalies that would result in applying the rule as if it is mandatory, the High Court pointed out that the rule may have to be struck down as being contrary to the provisions of the Act. The High Court pointed out that by a rule, the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable. He has to determine the break-up value of the shares in the manner prescribed in r. 1D. If the value so determined is more than the value returned and the provisions of r. 3B are applicable, then the question of valuation of the said shares has to be referred by the WTO to the Valuation Officer, under s. 16A. The Valuation Officer, when a reference has been made to him, has to determine the value of the unquoted shares in accordance with the provisions of s. 7(3) of the Act, i.e., he has to determine the price which those shares will fetch if sold in the open market on the valuation date. It is obvious that the Valuation Officer is not to determine the value of the unquoted shares by applying the break-up value method. The correct method in valuing such shares would be the method as approved by the Supreme Court in CWT vs. MAHADEO JALAN (1972) CTR (SC) 395 : (1972) 86 ITR 621 (SC) and CGT vs. KUSUMBEN D. MAHADEVIA (1980) 14 CTR (SC) 366 : (1980) 122 ITR 38, which is applying the yield method. The break-up(value) method is to be used only if the company, on the valuation date, is ripe for winding up." 8. Then the High Court referred to the judgments of the Allahabad High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of different types of assets. If the WTO agrees that the value returned by an assessee is correct, then the question of applying s. 16A does not arise. If the value proposed by the WTO is different from the value returned, the WTO should intimate to the assessee as to what should be the correct value of the asset. This is implicit in s. 16A. If the assessee agrees to the valuation proposed by the WTO, then again the question of making any reference to the Valuation Officer would not arise. Where, however, the difference in the value returned and the value estimated is more than what is prescribed in r. 3B, and if the assessee wants a reference to be made, then, in our opinion, the WTO would have no option but to make the requisite reference". The enunciation of law of the circumstances under which s. 16A would be applicable by the Delhi High Court would clearly show that the WTO should first intimate to the assessee as to what should be the correct value of the asset and only when the assessee disagrees with that valuation and if the difference exceeds the limits prescribed in r. 3B, a reference has to be made to the Valuation Officer. This according to me would mean that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature, the question of discarding that value and arriving at a different value and calling it market value and then adopting it would be certainly against the specific provisions of the Act. Therefore, the WTO has to ignore the market value and proceed to determine only the value as per r. 1BB. Thus when the WTO has to determine the value of the residential house as per r. 1BB, the question of the value thus arrived at being different from the market value and the question of there being a difference between the market value and its value as per r. 1BB does not simply arise. The question of therefore referring the valuation of this residential house to the Valuation Officer does not and cannot arise. 10. The learned Departmental Representative at this state pointed out that if that is the interpretation to be placed upon s. 16A, sub-s. (3) of s. 7 would become redundant. In my opinion this argument is not tenable because in so far as the valuation of residential house is concerned, the Legislature deliberately wanted that they should not be valued as per market value and thus an exception is carved out for the application of s. 16A. Otherwise the purpose of enacting r. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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