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TMI Blog1980 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner had valued the shares at Rs. 143.39, Rs. 235.59, Rs. 219.8 and Rs. 245.41, respectively, and the valuation was shown as so much per share. The proceedings for the assessment of wealth for each of these four years were going on simultaneously and at the time of hearing before the WTO the representative of the petitioner submitted that the value per share would be Rs. 143.39, Rs. 164.68, Rs. 169.75 and Rs. 176.70 on each of the above valuation dates, respectively, and for the purposes of this valuation which was submitted at the time of hearing before the WTO, reliance was placed on the decision of the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621. However, the WTO rejected the revised valuation and instead chose to follow the Board's Circular No. 2(WT) of 1967, being the circular dated October 31, 1967, and he arrived at the valuation of Rs. 210, Rs. 219.56, Rs. 222.83 and Rs. 240.38, respectively, for these valuation dates. Ultimately, on the footing of these valuations, assessment orders were passed under s. 16(3) of the W.T. Act. In making the wealth-tax assessments, as shown by the assessment orders for the respective years, the WTO made assessment in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date." Under s. 13, sub-s. (1) " All Officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board ", and the " Board " has been defined in s. 2(f) to mean the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963. Under s. 25(2) of the Act: ".. ......... the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by a Wealth-tax Officer is erroneous, in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling it and directing a fresh assessment." But under sub-s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cl. 2. The maintainable profits thus arrived at have to be capitalised by adopting 9% rate of capitalisation. It is thus clear that the circular prescribes in the case of companies which are investment companies other than those which are substantially holding companies, the average of the break-up value of the shares based on the book value of assets and liabilities disclosed in the balance-sheet capitalised at 9% and the maintainable profit would be taken to represent the fair market value of the shares of investment companies. As to what is the effect of the circular issued by the Board of Direct Taxes under the provisions similar to s. 13(1) of the W.T. Act, we have series of cases. The first of those cases was that of the Supreme Court in R. C. Mitter Sons v. CIT [1959] 36 ITR 194. In that case, Hidayatullah J., as he then was, observed in the last paragraph of the judgment at page 205 of the report: I entertain, however, some doubt as to whether the instrument sought to be registered should be in existence in the accounting year, before registration can be claimed. There is nothing in the Act which says this specifically. My brother has reasoned from the contents of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was observed: " We need not reiterate that the position of such benevolent circulars issued under section 119 of the Act for meeting such cases of extreme hardship stands well settled after the decision of their Lordships in Navnit Lal C. Zaveri v. K. K. Sen [1965] 56 ITR 198 (SC), at page 203, and in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC), at page 923. There their Lordships pointed out that the directions in such benevolent circulars, even though they may be deviating from the provisions of the Act, would be binding on the Income-tax Officers." This position is well accepted and there are several decisions of the different High Courts in India, namely, the decisions of the Bombay High Court in Tata Iron Steel Co. Ltd. v. N. C. Upadhyaya [1974] 96 ITR 1 and in Navnitlal Ambalal v. CIT [1976] 105 ITR 735, the decision of a Full Bench of the Kerala High Court in CIT v. B. Al. Edward [1979] 119 ITR 334 and of the Karnataka High Court in M. M. Annaiah v. CIT [1970] 76 ITR 582 (Mys), and in Dr. T. P. Kapadia v. CIT [1973] 87 ITR 511 (Mys). Thus, the legal position is that benevolent circulars are binding on all ITOs and WTOs, as the case may be, and on all the persons em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lised by that process. (6) As in Attorney-General of Ceylon v. Mackie [1952] 2 All ER 775 (PC), a valuation by reference to the assets would be justified where, as in that case, the fluctuations of profits and uncertainty of the conditions at the date of the valuation prevented any reasonable estimation of prospective profits and dividends. In setting out the above principles, we have not tried to lay down any hard and fast rule because ultimately the facts and circumstances of each case, the nature of the business, the prospects of profitability and such other considerations will have to be taken into account as will be applicable to the facts of each case. But, one thing is clear, the market value, unless in exceptional circumstances, to which we have referred, cannot be determined on the hypothesis that because in a private limited company one holder can bring it into liquidation, it should be valued as on liquidation by the break-up method. The yield method is the generally applicable method while the break-up method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation but none the less is one of the methods." Thus, it is clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned had relied upon this very circular of the Board and had valued the shares in accordance with the principles laid down in that circular. The circular is binding on the Commissioner because he is also one of the persons employed in the execution of the W.T. Act. The notice dated January 5, 1980, clearly indicates that the Commissioner, the respondent herein, was valuing the shares of Cloth Traders Pvt. Ltd. on principles different from the principles laid down by the Circular of October 31, 1967. Whereas that circular required that the assets held by a private limited company to which that particular clause applies should be valued on the basis of the book value of the assets held by the company concerned, the respondent proposed to value the shares of Cloth Traders Pvt. Ltd., on the footing of the market value of the shares held by Cloth Traders Pvt. Ltd. Thus the whole basis of the action which he proposed to take under s. 25(2) was based on a violation of the instructions issued by the Board of Direct Taxes on October 31, 1967. Thus, he wanted to do something which it was not open to him to do, namely, to depart from the instructions set out in the circular of October 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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