1. The above appeals arise out of the same facts and raise the same questions. They are, therefore, dealt with by this single order.
1. The learned CIT (Appeals) has erred in confirming the value of shares of Harivallabhdas Kalidas (P.) Ltd. The appellant submits that the value, as per rule ID of the WT Rules, is substantially lower than the value adopted by the learned WTO and confirmed by the learned CIT (Appeals). It is submitted that the same be properly worked out now.
2. The learned Commissioner (Appeals) has erred in confirming the value of life interest as worked out by the WTO following Rule 1B and not accepting the actuarial report submitted by your appellant.
With regard to the Ground No. 1, we have been informed by the learned departmental representative and by the learned Advocate on behalf of the assessee that the Commissioner had proceeded under Section 264 of the Income-tax Act, 1961 ("the Act"). Therefore, this ground has become infructuous and is dismissed.
3. With regard to Ground No. 2, the Commissioner (Appeals) has confirmed the value of the life interest of the assessee as worked out by the WTO who followed Rule 1B of the Wealth-tax Rules, 1958 ("the Rules") on the ground that the WTO was bound to determine the value as per that rule. It is on this point that considerable arguments have been advanced by the counsel on both the sides. Shri J.P. Shah has invited our attention to the decision of the Bombay High Court in the case of Smt. Kusumben D. Mahadevia v. N.C. Upadhya [1980] 124 ITR 799.
In that case the High Court was dealing with Rule 1D of the Rules and it held that the provisions thereof were not mandatory. From this he has advanced a general proposition that the rules are not mandatory and that, therefore, Rule 1B is not mandatory. Shri Kathuria, the learned departmental representative, on the other side, cited the decisions of the Allahabad High Court in CWT v. Sripat Singhania [1978] 112 ITR 363 and CWT v. Padampat Singhania [1979] 117 ITR 443 in support of his contention that the rules are binding on all the authorities under the relevant Act, including the Tribunal. Shri J.P. Shah has also drawn our attention to the decision of the Bombay High Court in CIT v. Bombay State Transport Corporation [1979] 118 ITR 399 in support of his contention that if a certain rule is beyond the scope of the rule making power, it should be so construed as to bring it within the scope of that Act.
4. In deciding the question of the directory or mandatory nature of rule ID, the Bombay High Court in Kusumben D. Mahadevia (supra) interpreted Sections 7(1) and 46(2)(a) and Rule 1D thus.
Section 7(1) thus being a machinery provision, the scope of the power to be exercised under the provisions must be ultimately to determine the price of an asset if it is sold in the open market on the valuation date. Now, when Section 7(1) opens with the words 'subject to any rules made in this behalf the rules contemplated were rules which would enable the WTO to determine the price. In other words, any rules made must be for the purpose of carrying out the object of Section 7, the object being to determine the market value as contemplated by Section 7(1) ... (pp. 817-18) It was of the view that the word "may", used in the main part of Section 46(2), clearly indicated that it was in the nature of an enabling provision, enabling the rule making authority, in respect of topics specified in Clauses (a) to (f). The Court observed that there were two methods of valuation of shares and that on a perusal of Clauses (a) and (f) in Sub-section (2) it was found that the words "may" and "shall" were used on different occasions for making a provision either directory or mandatory. Noting that in Clause (f) the word "may" had been used, it concluded that Clause (a) was intended to make a rule, vesting a discretion in the WTO in the matter of valuation of unquoted shares of a private limited company. The Court also emphasised the importance of Section 24(6) and observed that if the object of the rule was that only one method had to be applied, there could hardly be any dispute, of any substantial nature, which could be taken by the assessee, under that section, to the valuers when an appeal was filed before the Tribunal. Thus, according to the Court, in spite of the word "shall" in rule ID it had to be so construed so as to bring it within the rule making power in the said Section 46(2)(a).
This construction gave discretion to the WTO to apply the rule, if necessary, and compute the value according to the manner prescribed in that rule.
5. The Allahabad High Court in Sripat Singhania's case (supra) was also concerned with the application of rule ID. A contention was raised before it that the words "as it thinks fit" occurring in Section 24(5) enabled the Tribunal to ignore this rule. The Court negatived this contention. It held that the Tribunal was constituted under the Act to decide in accordance with the principles of the Act and the Rules made thereunder. The Court also held : ...Assessment appeal to the Appellate Assistant Commissioner and further appeal to Tribunal are parts of an integrated process. It is well established that an appellate court or authority exercises the same power as the trial court or assessing authority. We do not agree that the use of the expression 'as it thinks fit' in any manner takes away or whittles down the binding effect of rule ID. The Tribunal has to consider the orders passed by the authorities below in the light of the law applicable to those authorities. (p.
367) The second Allahabad High Court case above follows the first one. Shri J. P. Shah has tried to distinguish the aforesaid Allahabad High Court decisions on the ground that the Court was, in those cases, concerned with the wider question about the meaning of the words "as it thinks fit" in the said Section 24(5) and not specifically about the directory or mandatory nature of the rules. He supported his contention with the general proposition that a case is an authority only for what it decides, possibly having in mind the well known dictum of Lord Balsbury in Quinn v. Leathan. We find it difficult to accept this distinction drawn by him. The Court was specifically concerned with the applicability of rule ID and the fact that it might not have entered into an elaborate discussion about its directory or mandatory nature, would, in our view, not make a substantial difference.
6. We now consider the various reasons on which the above decision of the Bombay High Court is based. The words "subject to any rules made in this behalf" in Section 7(1) mean that the WTO is to estimate the value of an asset, by forming an opinion about its market price, until the rules are made. Since the section itself contemplates the making of rule there is no question of the estimate of the market value prevailing over the method prescribed in the rules. Secondly the word "may" in the main part of Section 46(2) confers the discretion on the rule making authority to choose any subject mentioned in Clauses (a) to (f) thereof on which to make a rule.
7. The word "may" is used in Clause (a) of Section 46(2) only because it may not be necessary to ascertain the market value of all assests.
In some cases, the market value may be too well known and so the question of ascertainment would not arise. On a perusal of Clauses (b), (c), etc., it can be seen that the word "shall" has been used where no other possibilities are there. Thus, the word "shall" in Clause (b) has been used because returns must be made and when made they must be verified. The word "may" in Clause (c) is used in relation to making appeals and applications because they may or may not be made. But the word "shall" is used in that clause in relation to verification because when once an appeal or application is made it must be verified.
Further, the purpose of making the rule is to provide some definite method of valuation and to make the law in that field certain. If the WTOs were to be given the power to choose between the application of the rules and adopting some other methods, the certainty would be lost and so would the purpose of making the rule. Again, if the WTOs were to be given such discretion it would enable them to discriminate between assessees, which could hardly be said to be in the contemplation of the Legislature. The purpose of Section 24(6) was not only to resolve a dispute regarding the method of valuation, but, generally, regarding valuation itself which could involve many other factors.
8. For the aforesaid reasons, we are inclined to hold the view that once the rules are made, they are binding on all the authorities under the Act including this Tribunal. This is in accordance with the aforesaid view of the Allahabad High Court. The above decision in Bombay State Transport Corporation (supra) cited by Shri J.P. Shah does not deal with the question of restriction of meaning of a rule so as to bring it within the scope of the Act. In that case the Court held that the rule was beyond the scope of the Act and, therefore, held it to be inapplicable. Consequently, the decision of the Commissioner (Appeals) on this point is confirmed and the appeals are dismissed.