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TMI Blog1977 (7) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment year 1959- 60 : " In the facts and circumstances of the case, was the Income-tax Appellate Tribunal justified in excluding from the net wealth computation the debt represented by the dividend declared by Renwick Co. (P.) Ltd. and not received on the valuation date ?" In the case of Ichbaben Bhogilal Patel: Assessment years 1958-59 and 1959-60: " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the A.A.C.'s decision that the value of shares of Renwick Co. (P.) Ltd. should be taken at face value of' Rs. 10 per share against break-up value of Rs. 23.3 (Rs. 19.53 as per note) of the assessment year 1958-59 and Rs. 27.2 (Rs. 20.47 as per note) for the assessment year 1959-60 ?" In the case of Bhogilal H. Patel: Assessment years 1957-58, 1958-59 and 1959-60: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the A.A.C.'s decision that the value of the shares of Renwick Co. (P.) Ltd. should be taken at face value of Rs. 10 per share against the break-up value of Rs. 21.85 (Rs. 19.08 as per note) for the assessment year 1957-5 8, Rs. 23.3 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees in the said company on the relevant valuation dates, for the assessment years in question, whether the face value of Rs. 10 per share could be taken to be the valuation of the shares as contended for by the assessee or whether the value arrived at by adopting the break-up value method should be taken as contended for by the revenue, and further whether the amounts represented by uncashed dividend warrants issued in the name of each of the assessees should be excluded from the net wealth computation of the assessees in the relevant assessment years inasmuch as no dividends were actually received by any of the assessees in their hands on the respective valuation dates or even thereafter, though the dividends had been declared by the company. On the first question, the Wealth-tax Officer, adopting the break-up value method, fixed the value of these shares at Rs. 21.85, Rs. 23.3 and Rs. 27.2 per share for the three assessment years, viz., 1957-58, 1958-59 and 1959-60, respectively. In arriving at these figures he did not take into account the provision for income-tax in the sum of Rs. 4,44,000. When the matter was carried in appeal, it was contended on behalf of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Assistant Commissioner ought to have taken into consideration the rise in price of Rs. 32.12 for fixing the value. On behalf of the assessee it was urged that the Appellate Assistant Commissioner was justified in taking into account the aspects of restrictions that had been imposed by the Pakistan Government on remittances to be made to India, that on account of these restrictions the company was unable to pay dividends to its shareholders for several years and that therefore, the valuation of the shares at Rs. 10 per share adopted by him was proper. The directors' reports for the years 1957-58, 1958-59 and 1959-60, as well as the correspondence that was entered into by the company with the Pakistan authorities seeking permission to effect remittances to India, which permission was refused, were pressed into service by the assessees before the Tribunal to bring out the fact that to the assessees the yield of the shares in question was almost nil and, therefore, the shares should be nominally valued at the face value of Rs. 10 per share as was done by the Appellate Assistant Commissioner. The Tribunal after taking into account the directors' reports and the correspond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net wealth computation of these two assessees. At the instance of the revenue the questions set out at the commencement of this judgment have been referred to us for our determination. On the first question pertaining to the evaluation of the shares of Renwick Co. Pvt. Ltd. held by the assessees in the respective assessment years in question, Mr. Joshi appearing for the revenue has contended before us that the Appellate Assistant Commissioner as well as the Tribunal ought to have adopted the break-up value method which has been prescribed under the rules framed under the Wealth-tax Act. He pointed out that rule 1-D which had been introduced in the Wealth-tax Rules, 1957, with effect from October 6, 1967, prescribes the method of how market value of unquoted equity shares of companies other than investment companies should be determined, and according to him this rule 1-D prescribes what is known as break-up value method. He also pointed out that the rule has also made a provision as to how the valuation should be made of such unquoted equity shares of non-investment companies in case where dividend has not been paid by such companies for a particular year or a number of yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86 ITR 621 (SC). In particular, he pointed out that the Supreme Court had rendered this decision in connection with a case to which rule 1-D was not applicable. He pointed out that the various aspects of evaluation of shares in a limited company were considered by the Supreme Court and certain propositions have been laid down by that court which have been enumerated at pages 633 and 634 of the report. Mr. Kolah appearing for the assessee, on the other hand, contended that the break-up value method which has been indicated in rule 1-D of the Wealth-tax Rules, 1957, was really not prescribed and was not available in the relevant assessment years for which the question of evaluation of the shares in question was considered by the taxing authorities, in this case, and he urged that the Supreme Court judgment on which reliance was placed by Mr. Joshi itself has indicated that ordinarily the yield method is the generally applicable method while the break-up value method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation and Mr. Kolah urged that if this principle which has been enunciated by the Supreme Court in Mahadeo Jalan's case [1972] 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fetch if sold in the open market on the valuation date. It is true that break-up value method would be one of the methods which could be considered for evaluating any particular aspect, but it will be difficult to accept Mr. Joshi's contention that in each and every case the principle of break-up value method which is to be found in rule 1-D could be or should be applied irrespective of the other relevant factors which may be obtaining on the record. In fact the decision of the Supreme Court in Mahadeo Jalan's case [1972] 86 ITR 621 on which Mr. Joshi strongly relied, itself suggests and the case was decided on the question of valuing particular assets at the time when rule 1-D was not in operation that the yield method would be the generally applicable method, while the break-up method was the one resorted to in exceptional circumstances or where the company was ripe for liquidation. After setting out five or six general principles at page 633 governing the various aspects which may be relevant and will have to be taken into consideration for the purpose of evaluation of shares in a limited company, this is what the Supreme Court observed at page 634 of the report " In setting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original lessee thereof let to the latter by the President of India. Clause 13 of the original agreement of lease provided that " the lessee shall before any assignment or transfer of the said premises ... obtain from the lessor or such officer or body as the lessor may authorise in this behalf approved in writing of the said assignment or transfer and all such assignees and transferees and the heirs of the lessee shall be bound by all the covenants and conditions herein contained and be answerable in all respects therefor: Provided also that the lessor be entitled to claim and recover a portion of the unearned increase (i.e., the difference between the premium already paid and current market value) in the value of the land at the time of transfer ... the amount to be recovered being 50 per cent. of the unearned increase. The lessor shall have a pre-emptive right to the property after deducting 50 per cent. of the unearned increase. The assessee had built a house on the plot of land and the question was whether the 50 per cent. of the unearned increase payable to the lessor was deductible in ascertaining the value of the property for the purposes of wealth-tax. On a referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar assessee in question or which would dissuade a willing purchaser to purchase them in open market, would be relevant factors and are required to be taken into account while valuing the particular assets. It is in the light of these observations made by the Supreme Court in the aforesaid two decisions that Mr. Joshi's contention will have to be considered as to whether the Tribunal was right in upholding the Appellate Assistant Commissioner's method of valuing the shares when he fixed the value of those shares at Rs. 10 per share, which was the face value, particularly having regard to the peculiar circumstances which obtained in the instant case, viz., the restrictions imposed by the Pakistan Government on remittances that could be made from Pakistan to India and the admitted position that the company was not in a position to pay dividend for several years to its shareholders, not only during the relevant years in question but also for a number of years subsequent thereto. That there were restrictions imposed by the Pakistan Government over remittances that could be made from Pakistan to India and the further fact that the company was unable to pay dividend to its shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the shares in the company and in any event would deter any person from offering any price for such shares in the open market. In fact, though dividend had been declared by the company, on account of restrictions on remittance of funds from Pakistan to India the shareholders of the company in India and particularly the assessees in the instant case really received no yield so far as their investments were concerned. Placed in that situation, both the Appellate Assistant Commissioner as well as the Tribunal took the view that the valuation put on these shares by the assessees, viz., Rs. 10 per share which was the face value, could not be regarded as unreasonably low. We do not think there in upholding the Appellate Assistant Commissioner's view on this aspect the Tribunal has gone wrong. In fact, as was pointed out by Mr. Kolah, the yield from all practical purposes being nil to the assessees, even the valuation at the rate of Rs. 10 per share which was the face value, would be on the high side at least in the relevant assessment years in the context of the relevant valuation dates. We find considerable force in this contention of Mr. Kolah. Having regard to this discussion, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect is the decision of the Calcutta High Court in Commissioner of Wealth-tax v. Mrs. Leena Mukherjee reported in [1976] 104 ITR III (Cal), where the Calcutta High Court has taken the view that once the dividend is declared, though the same is payable at a later date, it is liable to be included in the net wealth computation of an assessee. The Calcutta High Court has taken the view that a declaration of dividend by a company in general meeting gives rise to a debt, that the debt in that case could not but be held to be an existing debt resulting in the vesting of an immediate right in favour of the assessee, though the payment of the debt is to take place in future. Relying on these decisions, Mr. Joshi contended that in the instant case also since the company had declared dividends the amounts represented by the dividend warrants that were issued to the assessees in question must be held to be debts which had become receivable by the assessees and the question whether the assessees actually received those amounts or not would not alter the situation and the uncashed dividends should be regarded as properly includible in the net wealth computation of the two assessees. Though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingency occurs, the amount mentioned in the dividend warrants does not even become a debt payable to or receivable by the holder of the dividend warrant. In view of such conditional dividend warrants that were issued to the assessee by Renwick Co. Pvt. Ltd., it is difficult to accept the contention of Mr. Joshi that by reason of mere declaration of dividends, a debt payable to or receivable by the assessee-shareholders had come into existence on the relevant valuation date in the relevant assessment years and if that be the position, it would be difficult to include the amount represented by such uncashed dividend warrants in the net wealth computation of the assessees. In support of the above view a reference may be made to a couple of decisions to which our attention was invited by Mr. Kolah. In the case of Purshottamdas Thakurdas v. Commissioner of Income-tax reported in [1958] 34 ITR 204 (Bom), though the case had arisen under the Income-tax Act, the principle has been clearly enunciated. In that case, the facts were these : A company which carried on business both in India and Pakistan during Samvat year 2007 made profits which accrued to it, both in India and Pakistan. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a debt immediately payable to each shareholder or does not give rise to art enforceable obligation on the company to pay dividend is no declaration of dividend at all and that, therefore, where a company which had its head office in India and its operations in Pakistan declared a dividend " subject to remittance from Pakistan ", the declaration does not give rise to an obligation which a shareholder can enforce until remittances from Pakistan are actually made and such remittances are received by the company in India. It cannot be disputed that in these circumstances in determining the net wealth one has to take into consideration the actual receipt of the dividends in the assessee's hands and since in the instant case on account of restrictions on the remittances from Pakistan to India the assessees could not receive the amounts of the uncashed dividend warrants, the same were not liable to be included in the net wealth computation of the two assessees. In our view, therefore, the Appellate Assistant Commissioner and the Tribunal were right in taking the view that the amounts of the uncashed dividends were liable to be excluded from the net wealth computation of the assessees. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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