COMMISSIONER OF WEALTH TAX vs M. P. BIRLA.

AJIT K. SENGUPTA, J. :

In this reference under s. 27(3) of the WT Act, 1957 for the asst. yrs. 1981-82, 1982-83 and 1983-84 the following questions of law have been referred to this Court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in computing the value of the unquoted shares of East India Investment Co. (P) Ltd. on the basis of adopting the average of the break-up value and the value arising out of capitalisation method ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in granting exemptions under ss. 5(i)(iv)(b) and 5(1)(ix) of the WT Act, 1957 out of the assessees interest in the Partnership firm, M/s. Kumaon Orchard, included in the net wealth of the assessee ?"

It is not dispute that the second question is concluded by the decision of this Court in the case of L.N. Birla Vs. Commissioner of Wealth Tax, . Following the said decision we answer the second question in the affirmative and in favour of the assessee.

The facts leading to the first question are that the assessee held 1500 equity shares in East India Investment Co. (P) Ltd. For the asst. yrs. 1981-82, 1982-83 and 1983-84 under reference the assessee disclosed the value of the these shares on the basis of the report of an approved valuer. The said shares were unquoted shares. The WTO, however, determined the value of these shares as per Circular F. No. 326/2/80-WT, dt. 31st March, 1982 of the CBDT.

The assessee appealed to the AAC for the first two assessment years before whom it was submitted that the registered valuer had valued the shares keeping in view that principles laid down by the Hon''ble Supreme Court in the cases of Commissioner of Wealth Tax Vs. Mahadeo Jalan and Mahabir Prasad Jalan and Others etc., and Commissioner of Gift Tax, Bombay Vs. Smt. Kusumben D. Mahadevia, . It was further submitted that as the aforesaid company is an investment company where profits fluctuated very widely, the WTO should take into consideration the profits for three years instead of five years. The assessee also objected to the disallowance of donation for the accounting year 1980. Another objection raised on behalf of the assessee was that the WTO had not made any allowance for lack of negotiability and retention of reserve. It was further contended that the WTO capitalised the value by taking the yield at 10% though an investor would except an yield of not less than 15%. The AAC in his order for the first two assessment years mentioned that the WTO had not given any reason for not accepting the valuation report of the registered valuer. The AAC was of the view that the capitalisation by taking the yield at 10% was low. The WTO was directed to accept the valuation report of the registered valuer.

The assessee appealed to the CWT(A) for the asst. yr. 1983-84 who following the Tribunals order for the asst. yrs. 1977-78 to 1979-80 in the assessees own case, directed the WTO to adopt the value of Rs. 18.88 per share for valuing 1,500 equity shares of the aforesaid company.

The Department came in appeal against the orders of the AAC and the CWT(A). The Tribunal noted that no defects could be pointed out in the reports of the registered valuer. The orders of the AAC and the CWT(A) were upheld by the Tribunal.

At the hearing before us Mr. Bajoria learned counsel appearing for the assessee has contended that the first question does not arise out of the order of the Tribunal. This contention whether the average of the break-up value and the value arising out of the capitalisation method should be adopted was not an issue before the Tribunal. The only questions which was urged before the Tribunal was with regard to the deduction allowed for lack of negotiability and retention of reserve, etc. The Tribunal recorded as follows :

"We have considered the rival contentions as also the facts on record. As has rightly been pointed out by the AAC/CWT(A), no defects could be pointed out in the reports of the registered valuer on the basis whereof the assessee has disclosed the valuation of the share. Before us also the learned Departmental Representative could not point out any defects in the report of the registered valuer. The only contention was that the WTO was justified in determining the valuation of the shares in accordance with the instructions contained in the aforesaid circular. As has been rightly contended on behalf of the assessee that the circulars issued by the CBDT are not binding on the Tribunal or the assessee as has been held by the Calcutta High Court in the case of Balbhadradas Bangur (supra). The Tribunal in the assessees own case vide its orders dt. 16th January, 1984 and 6th April, 1984 for the earlier assessment years has accepted the valuation disclosed by the assessee in respect of these shares on the basis of the report of the approved valuer. We, are, therefore, of the view that the AAC as well as the CWT(A) were justified in directing the WTO to accept the valuation as determined by the approved valuer."

It appears by the Circular No. 118 dt. 15th September, 1973 where the Board directed that the average of (a) the break-up value of the shares based on the book value of the assets and the liabilities disclosed in the balance sheet, and (b) the capitalised value arrived at by applying a particular rate of yield of its maintainable profit will be taken to represent fair market value of the shares of an investment company. Subsequently, the Board considering the judgment of the Supreme Court in CWT vs. Smt. Kusumben D. Mahadevia (supra) held that the said Circular dt. 15th September, 1973 requires modification in the light of the Supreme Court decision as also the earlier decision of the Supreme Court in CWT vs. Mahadeo Jalan (supra). The guidelines were issued by the Board by the Circular dt. 26th March, 1983. In that Circular it has been specifically mentioned the principle of combination of the two methods, i.e., the average of (a) the break up value of the shares based on the book value of assets and liabilities disclosed in the balance sheet, and (b) the capitalised value arrived at by applying certain rate of yield on maintainable profits has to be discarded.

Therefore, the question of adopting the said method of combining of the two methods would not arise in this particular case. This method cannot be applied and has not been applied having regard to the circular of the Board. We have indicated that the only contention raised before the CWT(A) and the Tribunal was regarding the deduction for retention of reserve, lack of negotiability, etc. and it was recorded by the Tribunal, as we have already extracted, that no defect was pointed out in the report of the registered valuer in determining the valuation.

For the reasons aforesaid we are of the view that the question which has been sought to be raised is purely academic and does not arise out of the order of the Tribunal. In any event, having discarded by the Board in the Circular dt. 26th March, 1983, the question of adopting such method did not arise at all. For the reasons aforesaid we decline to answer the first question.

There will be no order as to costs.

SHYAMAL KUMAR SEN, J. :

I agree.