High Court Of Gujarat
Controller Of Estate Duty vs. G.K. Swarup
Section ED 36, WT Rule 1D
M.S. Shah & A.M. Kapadia, JJ.
ED Ref. No. 1 of 2000
28th January, 2004
Counsel Appeared
Manish R. Bhatt, for the Petitioner : B.P. Munshi & Ms. Nirali B. Munshi, for the Respondent
JUDGMENT
M.S. Shah, J. :
In this reference at the instance of the Revenue, the following question of law has been referred for our opinion : “Whether the Tribunal is right in law and on facts in directing the Asstt. CED to make valuation of shares of private limited company in accordance with r. 1D of the WT Rules and not in accordance with the general break- up method ?”
2. On the date of his death, i.e., on 18th Feb., 1979, the deceased had 206 shares of a certain private limited company. The accountable person declared the value of these shares at the rate of Rs. 1,553 per share. The computation was made in accordance with the provisions of r. 1D of the WT Rules, 1957. The Asstt. CED did not accept the valuation made by the accountable person. According to him, the valuation should not be made in accordance with the principle laid down in the said rule. He made addition of Rs. 10,000 to the value of land owned by the company, Rs. 33,000 to the value of the other assets mentioned in the balance sheet and Rs. 87,000 towards value of goodwill which had not been mentioned at all in the balance sheet. Thus, he made additions in the value shown in the balance sheet and came to the conclusion that the value would be Rs. 2,256 per share. The value of Rs. 3,19,981 declared by the accountable person was increased to Rs. 4,65,736 by the Asstt. CED which was confirmed by the CED(A). The respondent-assessee carried the matter in appeal before the Tribunal. The Tribunal held that r. 1D of the WT Rules was liable to be adopted for making valuation under the ED Act as there could not be two different methods of valuation for the purpose of estate duty and for the purpose of wealth-tax. Accordingly, the Tribunal held in favour of the assessee. Hence, this reference at the instance of the Revenue.
3. At the hearing of this reference, our attention is invited to the decision of the Hon’ble Supreme Court in Bharat Hari Singhania vs. CWT (1994) 118 CTR (SC) 125 : (1994) 207 ITR 1 (SC). In the said decision, the apex Court has held that r. 1D of the WT Rules contains the break-up method which is undoubtedly one of the recognised method of valuing unquoted equity shares. Even if it is assumed that there was another method available which was more appropriate, still the method chosen cannot be faulted so long as the method chosen is one of the recognised methods, though less popular. The break-up method based upon the balance sheet of the company, incorporated in r. 1D, is a fairly simple one. Rule 1D has to be followed in valuing each and every case of unquoted equity share of a company (other than an investment company or a managing agency company). It is not a matter of choice or option. The rule-making authority has prescribed only one method for valuing the unquoted equity shares. If this method were not to be followed, there is no other method prescribed by the rules. Where there is a rule prescribing the manner in which a particular property has to be valued, the authorities under the Act have to follow it. They cannot devise their own ways and means for valuing the assets.
Our attention is also invited to the decision of the Mysore High Court in CED vs. J. Krishna Murthy (1974) 96 ITR 87 (Mys), wherein the Court was concerned with the identical question about applicability of r. 1D of the WT Rules to estate duty. The Mysore High Court held that, since no rules are prescribed under the ED Act for valuing unquoted equity shares, the method of valuation prescribed under the WT Act has to be adopted.
In our view also, since the method of valuation for valuing unquoted equity shares has been prescribed in the WT Rules, in absence of any such rule of valuation under the ED Act or the ED Rules, the method of valuation prescribed under the WT Act is required to be adopted. We are accordingly in agreement with the view of the Mysore High Court.
Applying the ratio of the aforesaid decision of the apex Court in Bharat Hari Singhania vs. CWT (supra) and extending the said principle to the valuation of unquoted equity shares under the ED Act, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.
The reference accordingly stands disposed of.
[Citation : 275 ITR 137]
