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TMI Blog1986 (10) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... C has further erred in reducing the value of house property from Rs. 32,000 to Rs. 26,563 ignoring the appreciation in prices, since the last valuation date." Assessment year 1977-78 : "On the facts and in the circumstances of the case, the learned AAC has erred in determining the value of shares of Oswal Woollen Mills held by the assessee at Rs. 25 per share as against Rs. 90.04 per share adopted by the WTO." The common ground taken by the assessee in the cross-objections reads as under : "Without prejudice to your humble appellant's other objections regarding maintainability of the appeal, it is submitted that the learned AAC erred in law and on facts by evolving a new method for valuing the share alleged to be the earning yield method and also by rejecting the valuation report of a recognised registered valuer. Without prejudice, if the value fixed by learned AAC is disturbed it is prayed that the value of the equity share fixed by Mr. S.K. Mittal registered valuer vide his valuation report dated 27-9-1982 already on record may kindly be directed to be adopted." 3. Before considering the issues involved, we consider it worthwhile to state in brief the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld the rule as not mandatory and fixed the value on yield basis. In support of the above contentions, he referred to section 7(1) of the Wealth-tax Act, 1957 ('the Act') and pointed out that it was subject to rules and, therefore, any rules framed in the matter of valuation under section 7(1) will prevail over the main provisions in the section. According to him, this section opens with the words 'subject to any rules made in this behalf' which postulated that the rules were paramount. Then he referred to rule 1D and stated that even the rule uses the imperative language and directs that the value of unquoted equity shares shall be determined in accordance with its provisions. He further urged that the language of the section and rule 1D clearly points out that the same are mandatory and there was no justification for construing the expression 'shall' in the section and the rule as 'may'. He also referred to section 46 of the Act, i.e., rule-making power of the Board referring to sub-section (1) thereof he stated that it provided that the Board may by notification in the Official Gazette make rules for the carrying out of the purposes of this Act. He pointed out that the word 'may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance sheets of the companies where shares are held by the assessee, are on dates different from the valuation dates of the assessee. According to him, the judgment of the Delhi High Court in Sharbati Devi Jhalani's case had the effect of declaring the Explanation 1 below rule 1D as ultra vires section 7(1). He urged that the Tribunal was not competent to go into the vires of the rules and, therefore, it was bound to follow the rule unless the said rule was held to be ultra vires by the Hon'ble High Court of jurisdiction. He further urged that there was no such judgment of the Hon'ble Punjab and Haryana High Court and, therefore, the judgment of the Delhi High Court to that extent was not binding on Chandigarh Bench of the Tribunal. He also referred to the order of the Calcutta Bench 'B' of the Tribunal in the case of WTO v. Sheo Prasad Nopany [1986] Tax. 82(4)-13 where the rule has been held to be mandatory. Then he referred to the order of the Special Bench of the Tribunal in the case of Biju Patnaik v. WTO [1982] 1 SOT 623 (Delhi). He pointed out that by the above order, the Special Bench of the Tribunal has held rule 1BB of the Rules for purposes of giving effect to provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified circumstances existed. He, therefore, urged that it was incorrect to hold that the principles of valuation laid down in Mahadeo Jalan's case were meant only up to the assessment year 1967-68 because thereafter rule 1D was put on the statute book with effect from 6-10-1967. Had it been so, the Supreme Court would have mentioned it specifically in its decision given on 13-9-1972 when rule 1D was on the statute book. In the case of Smt. Kusumben D. Mahadevia he pointed out that the Bombay High Court had referred to a number of judgments of the Supreme Court before arriving at the conclusion that rule 1D was directory and not mandatory. He also pointed out that if rule 1D was held to be mandatory then it would be violative of section 46 and ultra vires. Since the Bombay High Court has held rule 1D to be directory, therefore, it was held by that Court that section 46(2)(a) was not violated. He also emphasised that it was the duty of the Tribunal particularly when the Tribunal was not competent to go into the vires of any section or rule to accept the finding of the High Court and hold that rule was only of directory nature. If the Tribunal held rule 1D as mandatory, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore considering the various authorities relied upon by the rival parties, it would, in our opinion, be necessary to refer to the provisions relating to the valuation in the Act and the Rules. Section 7(1) provides how to determine the value of assets. Section 7(1) which is relevant for our purpose reads as under : "7(1) Subject 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. Explanation : For the removal of doubts, it is hereby declared that the price or other consideration for which any property may be acquired by or transferred to any person under the terms of a deed of trust or through or under any restrictive covenant in any instrument of transfer shall be ignored for the purpose of determining the price such property would fetch if sold in the open market on the valuation date." Sub-sections (2), (3) and (4) of section 7 which also deal with valuation are exception to the general rules. Neither of the parties put up their claims under these sub-sections. The same are, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the shares. On the top of it, the industrial policy of the Government and the management running it are also responsible for the valuation of shares. While yield method may be one of the recognised methods for valuing the shares by a company, but it is not fool-proof. So many other factors as enumerated above enter into the valuation of shares. In the absence of any guidelines, the assessees were free to value the shares taking the above factors into consideration. This gave, different valuation by different experts. There was no uniformity in valuation. In order to overcome this difficulty, the Government was armed with powers to make rules under which valuation should be done. It is with this end in view that rule 1D was framed by the Board. The break-up method of valuing the shares may also not be a fool-proof method. Sometimes, it may give higher value than earning yield method while in another case it may give lower value. This fact is manifest from the case of the assessee itself inasmuch as for the two years under consideration, the value has been done by the assessing officer taking resort to rule 1D while in subsequent assessment years, he has valued the shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 1967 SC 145 page 148". In view of the language of section 7(1) as noted above and as interpreted by the Hon'ble Supreme Court in several cases, rule 1D must prevail over the statutory provisions. The Bombay High Court in the case of Smt. Kusumben D. Mahadeva has held the rules as directory. It appears that the Hon'ble Bombay High Court interpreted section 7(1) and rule 1D made thereunder not in accordance with the principles enunciated by the Hon'ble Supreme Court. We would also agree with the learned departmental representative that it is discretionary with the Board to frame rules in view of the provisions contained in section 46(2)(a) but once the rules are framed, they are mandatory and binding on the department. The judgments of the Supreme Court in the cases of Mahadeo Jalan and Smt. Kusumben D. Mahadevia were rendered at a time when rule 1D was not on the statute book. The Kerala and Allahabad High Courts' judgments supra which are directly on the issue, in our opinion, deserve to be followed. The Hon'ble Delhi High Court has taken the view that rule 1D is not mandatory insofar as the balance sheet dates of the company where shares are held differ from the valuation dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me view holding rule 1BB relating to value of a house which is wholly and mainly used for residential purposes as mandatory which has also been framed for giving effect to the provisions of section 7(1). 7. Since we have held rule 1D to be mandatory and binding on all, we do not consider it necessary to go into the valuation made by the AAC on earning yield basis. The cross-objections by the assessee are bound to be rejected on this point. 8. Another ground which is only for the assessment year 1976-77 is that the AAC has erred in reducing the value of house property from Rs. 32,000 to Rs. 26,563 ignoring the appreciation in prices since the last valuation date. The assessee owned house property in Mohalla Vakilan, Ludhiana. Its value has been declared for this year at Rs. 26,563 as determined by the registered valuer vide his report dated 13-3-1974. Taking into consideration the continuous rise in value of property at Ludhiana, the WTO adopted the value of the above property at Rs. 32,000 as on 31-3-1976. The AAC has reduced the same to Rs. 26,563 as according to him the valuation of this property in the case of another co-owner, i.e., J.L. Oswal who holds one-fourth share in ..... 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