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TMI Blog1994 (11) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... 1982 and 31-3-1983, M/s Hero Cycles Pvt. Ltd. issued certain bonus shares. As on 31-3-1983, the assessee held 1138 equity shares of M/s Hero Cycles Pvt. Ltd. which included bonus shares also. The assessee returned the value of these shares at the rate of Rs. 30.45 per share. The Assessing Officer, however, worked out the value of these shares at Rs. 326.19 per share. 4. One of the reasons for the difference in the valuation of the aforesaid shares shown by the assessee and adopted by the Assessing Officer was that the assessee wanted that advance tax already paid should be excluded from the total assets. The Assessing Officer following the Punjab and Haryana High Court decision in the case of Ashok Kumar Oswal (Minor) v. CWT [1984] 148 ITR 620 decided the issue against the assessee. The Supreme Court in the case of Bharat Hari Singhaniav. CWT [1994] 207 ITR 1 has since impliedly approved the decision of the Punjab and Haryana High Court in the case of Ashok Kumar Oswal and hence to that extent, the order of the Assessing Officer is correct. Moreover, this controversy has not been raised before us by the learned counsel for the assessee either. 5. The second point of differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by the Assessing Officer. While the assessee wants that the value of shares of M/s Hero Cycles Pvt. Ltd. including bonus shares should be adopted by dividing the capital as on 30-6-1982 by 248885 shares, the department wants the capital to be divided by 149331 shares. 7. Shri Subhash Aggarwal, the learned counsel for the assessee, submitted that the decision of the Madras High Court in the case of CGT v. K. Ramesh [1983] 141 ITR 462 was a complete answer to the controversy at hand. In that case, the question was of valuation of unquoted shares in M/s. T.V. Sundaram Iyengar and Sons and M/s Sundaram Industries Ltd. The gift was made by, the assessee shareholder on 28-3-1972 and balance-sheet of the two companies were drawn as on 31-3-1972. The Assessing Officer applied the break-up value method on the net worth of the companies as on 31-3-1972. The Tribunal, however, held that as the gift had taken place before the balance-sheet as at 31-3-1972, the breakup value method should be applied to the last balance-sheet of the company before the date of the gift, viz., as at 31-3-1971. The High Court held that even though the balance-sheet as on 31-3-1972 was subsequent to the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee claimed that these shares were worth Rs. 1 lakh as he acquired them only two days before the valuation date. The Assessing Officer accepted the plea of the assessee but the CWT held the assessment as erroneous and prejudicial to the interests of revenue and directed the Assessing Officer to make a fresh assessment by applying rule 1D of the Wealth-tax Rules. The Tribunal upheld the application of rule 1D but held that the balance-sheet as on 31-12-1975 be applied and not as on 31-12-1974. The Tribunal also held that the order of the WTO was erroneous but it was not prejudicial to the interests of revenue and hence the order of CWr was set aside. An application for reference was rejected by the Tribunal on the ground that there was only a question of fact involved in the case. The revenue approached the High Court and the High Court observed that according to Explanation 1 to rule 1D, the immediately preceding balance-sheet as on 31-12-1974 should be examined to determine the value of the shares. The High Court, however, further observed that unfortunately the particular shares were issued by the company only on 29-3-1975 and so found no place in that balance-sheet. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-sheets. 13. After carefully considering the submissions of both the sides, we are of the opinion that it would be fair and equitous to compute the value of shares including the bonus shares on the basis of balance-sheet of M/s Hero Cycles Pvt. Ltd. as on 30-6-1982. There is no denying the fact and the Supreme Court has now put its seal of approval in the case of Bharat Hari Singhania that rule 1D is mandatory. According to Explanation 1 to rule 1D, if there is no balance-sheet as on the valuation date, which position obtains in the present case, then the immediately preceding balance-sheet has to be taken into account. It is only when that balance-sheet is absent that the succeeding balance-sheet has to be taken into consideration. Since the balance sheet as on 30-6-1982 is available, in our view, the same should be taken into consideration. It is true that as on 30-6-1982, the bonus shares did not exist and they were reflected for the first time in the balance-sheet as on 30-6-1983. That, however, would not make any difference to the net wealth of the company for arriving at the value of all the shares including the bonus shares because the bonus shares were issued by reducin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the valuation of equity shares of M/s Highway Cycle Industries Ltd., Ludhiana at the rate of Rs. 2,650 each as against Rs. 1,012 each valued by the assessee. In that case, the Assessing Officer adopted the value of each share at Rs. 4.071.23 as against the returned value of Rs. 1,012 per share. In that case also the year of the company ended on 30th June and the assessee's valuation date was 31-3-1983. In that case also bonus shares were issued between 1-7-1982 and 31-3-1983. For the reasons mentioned above, we direct the Assessing Officer to work out the value of each share of the company by adopting the balance-sheet as on 30-6-1982 and by applying the denominator of total number of shares including the bonus shares. While ground Nos. 1 and 2 in the assessee's appeal are allowed pro tanto, ground Nos. 1 and 2 in the revenue's cross-appeal are rejected. 16. This disposes of the revenue's cross-appeal which is dismissed. There is, however, one more ground in the assessee's appeal being ground No. 3 which is discussed hereunder. 17. The assessee claimed exemption under section 5(1)(xxa) of the Wealth-tax Act in respect of the value of equity shares of M/s. Hero Fibres Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al year was not withdrawn. Though this case was in respect of section 80J of the Income-tax Act yet the learned counsel for the assessee relied on its ratio in the present case. 20. Relying on the Third Member decision of the Tribunal in the case of ITO v. Sundaram Spinning Mills [1985] 11 ITD 596 (Mad.), it was submitted that an assessee who was spinning yam was held to be a manufacturer of textiles for purposes of grant of higher development rebate. It was submitted that Entry No. 21 of 9th Schedule and Entry No. 32 in the 5th Schedule were identical and hence the assessee was entitled to exemption under section 5(1)(xxa). Reliance was also placed on the Madras High Court decision in CIT v. North Arcot District Co-operative Spinning Mills Ltd. [1984] 148 ITR 406 for the proposition that the assessee was manufacturing cotton yarn which amounted to manufacture of textiles entitling the assessee to a higher development rebate in view of Entry No. 22 of 5th Schedule. 21. It was vehemently argued that one has not to go by the actual production in a particular year but the main object. It was submitted that the main object of M/s. Hero Fibres Ltd. was to carry on the business of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the nitty-gritty of production and decide the issue every year. In our opinion, whether exemption is available to the assessee or not will depend upon the interpretation of the items mentioned in 9th Schedule and if the object of the company is to produce those items, then the shareholders would be entitled to exemption under section 5(1)(xxa). If the matter were to be decided on the basis of actual production, then the matter will remain open and fluid for every year and will have to be decided every year on the facts and circumstances of each case which could not be the intention of the Legislature. In our opinion, once it is held that the shareholders are entitled to exemption under section 5(1)(xxa), then this exemption will be available for five years without any disturbance. We also find merit in the submissions of the learned counsel for the assessee that anything stated in the prospectus has to bear the stamp of responsibility and accountability and cannot be taken lightly because anybody responsible for a statement in the prospectus is liable to prosecution under the Companies Act. As per the prospectus, it is very clear that the object was to produce cotton yarn and it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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