1. This appeal by the revenue is directed against the order of the CIT (A) on a solitary ground that CIT (A) has erred in directing the Assessing Officer to adopt yield method for the purpose of determining fair market value as on 1-4-1981 instead of correct method of valuation adopted by the Assessing Officer as per Rule 1D of the W.T. Rules.
2. The brief facts borne out from the record are that during the accounting year on 13-9-94, the assessee have sold 89 unquoted equity shares of Duke & Sons on total consideration of Rs. 12,60,991/-. On the same day 89 bonus shares of same company issued against the equity shares was also sold for an identical consideration. These equity shares were inherited by the assessee from the estate of her uncle who expired in 1985. The assessee claimed through his letter dated 5-9-96 that these shares were held by her uncle since 1968 or even earlier.
For the purpose of computation of long term capital gain, the cost of acquisition of original shares was opted by the assessee for the fair market value as on 1-4-1981, as per Section 55(2)(b)(1) of the I.T. Act (hereinafter called as an Act). In support of his calculation of fair market value, the assessee submitted the valuation report of Mr. P.C.Hansotia & Co., who adopted the yield method taking into account the profits of three preceding years prior to 1-4-1981 i.e., year ending 30-6-1978, 30-6-1979 and 30-6-1980. He, accordingly, calculated the value of each share at Rs. 3656/- as fair market value as on 1-4-1981 for the original equity shares. Since the bonus shares were issued on the original equity shares at 1:1 basis, the assessee arrived at the average cost of both original as well as bonus shares at Rs. 1828/- per share. Applying cost of inflation index separately to the original shares and the bonus shares issued on 19-5-1989 the cost of acquisition of original shares was arrived at Rs. 4,21,372/-. The cost of acquisition for bonus shares was arrived at Rs. 2,44,984/-. He accordingly computed at a long term capital gain at Rs. 18,55,625/-.
3. The Assessing Officer, however, did not agree with the method of calculation of the cost of acquisition of these shares. He calculated the value as per Rule 1D of the W.T. Rules and arrived at the break up market value as on 1-4-1981 at Rs. 724/-. This was done on the basis of balance sheet of Duke & Sons Ltd., for the year ending 30-6-80. In this process, capital gain was arrived at Rs. 23,90,023/- as against Rs. 18,55,625/- shown by the assessee. Assessee preferred an appeal before the CIT (A) and placed heavy reliance upon the judgment of the Apex Court in the case of CWT v. Mahadeo Jalan and Ors. 86 ITR 621 and CGT v. Kusumben D. Mahadevia 122 ITR 38 in support of his plea that the valuation of unquoted shares is to be done on the basis of yield method and Rule 1D of the W.T. Rules is not applicable to determine the valuation of shares for the purpose of computing the capital gain.
Being convinced with the explanation of the assessee, the CIT (A) directed the Assessing Officer to accept the computation of the assessee which were done by adopting yield method. While dealing with the issue, the CIT (A) has also examined the judgment of the Apex Court in the case of Bharat Hari Singhania and Ors. v. CWT 207 ITR (1)(SC).
4. Aggrieved, the revenue has preferred an appeal before the Tribunal with the submissions that in the case of Bharat Hari Singhania and Ors.
their Lordships of the Apex Court have examined the earlier judgments of the Apex Court in the case of Mahadeo Jalan and Ors. (supra) and Smt. Kusum Ben D. Madhavidevi (supra) minutely and have categorically held that the break up method adopted under Rule 1D is based on balance sheet of the company and is fairly a simple one. They have further held that one probable reason why the yield method or dividend method should not be adopted in the case of unquoted equity shares was that the bulk of these companies are private limited companies where dividend declared does not represent the correct state of affairs and to estimate the probable yield is not simple exercise. The dividends in these companies is declared to suit purpose of the persons controlling the companies.
5. The learned DR further contended that the judgment in the case of Bharat Hari Singhania was rendered by the Bench comprising three judges and has not been reversed so far. With regard to its applicability to the income tax proceedings, the learned DR has contended that in the income tax Act no procedure or the guidelines has been laid down as to how unquoted shares are to be valued for the purpose of computation of capital gain. The learned DR further invited our attention to the provisions of Section 55A of the I.T. Act in which a reference was made to ascertain the fair market value of a capital asset for the purpose of computation of income from capital gains with the submissions that when a reference is made to a DVO the relevant provisions of W.T. Act are applicable. Meaning thereby, the provisions of the W.T. Act are applicable whenever no specific provision is laid down under the Income tax Act. Since the fair market value of the shares as on 1-4-1981 is to be determined in order to compute the capital gain, the formula laid down in the W.T. Act for determining the fair market value of the unquoted shares should be adopted. Before the introduction of Rule 1D to the W.T. Rules, different methods were being adopted by the assessee to determine the fair market value as it was held by the Apex Court in the case of Mahadeo Jalan and others and Smt. Kusumben D. Mahadevia, but, once, Rule 1D was brought on statute the unquoted shares are to be valued as per Rule 1D i.e., the break up method, as held by the Apex Court in the case of Bharat Hari Singhania. While dealing with all these mode of computation of fair market value, the Apex Court has categorically held that the break up method is the best method to determine the fair market value of the unquoted shares. Though Rule 1D has been omitted from the statute, but, it should be followed in the light of the judgment of the Apex Court in the case of Bharat Hari sighania (supra) as no specific provision was inserted for determining the fair market value of the unquoted shares.
6. On the other hand, besides placing heavy reliance upon the order of the CIT (A), the earned counsel for the assessee emphatically argued that the mode of determination of the market value of the unquoted shares was thoroughly examined by the Apex Court in the case of Mahadeo Jalan and others and Kusumben D. Mahadevia. The learned Counsel for the assessee further invited our attention to the Judgment of the Bharat Hari singhania with the submission that their Lordship of the Apex Court have not anywhere held that yield method is not a proper method for determination of the fair market value of the shares. Since Rule 1D had been omitted from the statute, it should not be followed for determination of the fair market value of the unquoted shares. In the absence of Rule 1D from the statute the different methods for determination of this value of the shares should be treated on par and the assessee should be given an opportunity to value the shares by adopting any one of the method. The learned Counsel for the assessee further contended that Bharat Hari Singhania case was rendered in the case of wealth tax, as such, ratio laid down therein, should not be applied to the income tax proceedings while determining the fair market value of the unquoted shares for the purpose of computation of capital gain.
7. Having carefully considered the rival submissions and from careful perusal of the orders of the lower authorities in the light of the aforesaid judgments of the Apex Court, we are of the view that the entire controversy revolves around a sole issue as to what method should be adopted to determine the fair market value of the unquoted shares as on 1-4-1981 The method of determination of market value of unquoted shares was examined by the Apex Court in the case of Mahadeo Jalan and others and Smt. Kusumben D. Mahadevia and in those cases it has been held by the Apex Court that the unquoted shares can be valued as per dividend yield method. But, later on the controversy arose before the Apex Court in the case of Bharat Hari Singhania and Ors. v.CWT wherein the validity of Rule 1D and its applicability was challenged. After upholding the validity of Rule 1D their Lordships of the Apex Court have dealt with the controversy about the applicability of Rule 1D and held that the unquoted equity shares are to be valued as per break up method. Their Lordships of the Apex Court have examined this issue in the light of earlier judgments of the Apex Court in the case of CWT v. Mahadeo Jalan and Ors. (supra) and CGT v. Smt. Kusumben D. Mahadevia, Executors and trustees of the Estate late Shri Ambalal Sarabhai 67 CTR SC 247. Their Lordships have categorically held that Rule 1D has necessarily to be followed and WTO has no option either to follow or not to follow the same and the question whether the Rule is mandatory or directory does not arise. While dealing with the other methods of valuation of unquoted shares their Lordships have out rightly discarded the arguments of the assessee that the break up method adopted by Rule 1D does not lead to proper determination of the market value of the unquoted shares. They further held that the argument to this effect advanced by the learned Counsel for the assessee is based upon the assumption and premises that the value determined by applying the yield method is the correct market value.
Their Lordship have further held that once Rule 1D is brought on the statute it is to be followed in each and every case as the rule is found to be good and valid. 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 methods were not to be followed, there is no other method prescribed by the Rules. Their Lordships have further held that if the contention of the assessee are accepted then it would be open to the WTO to adopt such other method of valuation as he thinks appropriate in the circumstances. This is bound to lead to vesting of uncalled for the wide discretion in the hands of the WTO/valuing authorities. It would lead to uncertainty and may be arbitrariness in practice. 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. Their Lordships further explained that Rule 1D does not treat the break up value as the market value. A deduction of 15% is to be made in the break up value to arrive the market value.
Their Lordships further examined the various principles enunciated in the Judgments of Mahadeo Jalan and others and Smt. Kusumben D.Mahadevia by the Apex Court.
8. Their Lordships have also commented on the dividend method, yield method and earning method. Their Lordships have observed that in the aforesaid cases that the Apex Court has not laid down any hard and fast rule. It recognized the various factors of the each case which should be taken into account to determine the method of valuation to be applied in that case. With regard to the dividend yield method their Lordships have observed that it is not the only method indicated in the case of going concern, there is earning method and then combination of both methods. The several qualifications added to the above Rules which make them highly cumbersome and time consuming. The WTO has to examine the facts and circumstances of each case including the nature of the business, prospects of the profitability and similar other considerations before finally determining whether to apply the dividend method, yield method or whether break up method should be followed.
There may be cases where an assessee may be holding shares of large number of private companies or public limited companies whose shares are not quoted. Their Lordships have commented that compared to them, break up method incorporated in Rule 1D is fair, simpler and fair, less time consuming. It prescribes simple uniform method, to be followed in all cases. The WTO has to take the balance sheet, delete some items from the columns relating to assets and liabilities as directed by the Explanation II and then apply the formula contained in the Rules. He need not have looked into the profitability, earning capacity and the various other factors mentioned in propositions 2, 3 and 4 of the decision. Their Lordships further held that under these circumstances, it is, difficult to agree with the learned Counsel for the assessee either that break up method is not a recognized method or that yield method is only permissible method for valuing the unquoted equity shares. Their Lordships further held that unquoted shares of going concern should be valued as per Rule 1D. For the sake of reference we extract the relevant portion of the judgment of the Apex Court hereunder: The next argument that Rule 1D is not mandatory but directory proceeds upon a certain misconception. A provision is said to be directory when the absence of a strict or literal compliance with it and in some cases, even non-compliance with it may not vitiate the thing done. On the other hand, a mandatory provision is one which has to be obeyed in its letter and spirit and anything done without such compliance stands vitiated. The counsel for the assessees, however, do not understand the said expressions in the above sense.
What they really say is that following Rule 1D should be optional.
According to them, in all cases except in the case of companies ripe for winding up, Rule 1D ought not to be followed and that only the yield method should be. This is really substituting a rule of the choice of assessees in the place of the rule made by the rule making authority under Section 46 of the Act. If the rule is good and valid as we find it to be, it has to be followed in each and every case.
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. The acceptance of the assessees' contention would mean that it would be open to the WTO to adopt such other method of valuation as he thinks appropriate in the circumstances. This is bound to lead to vesting of uncalled for wide discretion in the hands of WTO/valuing authorities. It would lead to uncertainty and may be arbitrariness in practice. 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. It is equally well to remember that Rule 1D does not treat the break up value as the market value. A deduction of 15% is made in the break up value to arrive at the market value. It is equally relevant to notice that r 1D uses the expression 'shall', which prima facie indicates its mandatory character.
Two decisions of this Court constitute the bed-rock upon which are founded the several submissions of the learned Counsel for the assessees. They are CWT v. Mahadeo Jalan and Ors.
therefore, necessary to examine the ratio of the said decisions to find out whether they do in fact support their contentions.
Mahadeo Jalan was concerned with asst. yrs, 1957-58 and 1958-59.
Rule 1D was not in force at that time. The assessee owned shares in certain private limited companies which had to be valued for determining the assessee's wealth. The question referred to the High Court Under Section 66(1) of the Indian IT Act, 1922 was : "whether, on the facts and in the circumstances of the case, the principle of break up value' adopted by the Tribunal as the basis for the valuation of the shares in question is sustainable in law". At the relevant time, Sub-section (1) of Section 7 read differently. It provided that "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 WTO it would fetch if sold in the open market on the valuation date". The opening words "subject to any rules made in this behalf were not there. (These words were added w.e.f. 1^st April, 1965). The question posed by Jaganmohan Reddy, J., speaking for the Bench comprising himself and H.R. Khanna, J. was "what is the basis of valuation of shares in private limited companies for the purpose of Section 7 of the WT Act?" After discussing the relevant principles and decisions, the learned Judge enunciated the following principles: An examination of the various aspects of valuation of shares in a limited company would lead us to the following conclusion: (1) Where the shares in a public limited company are quoted on the stock exchange and there are dealings in them, the price prevailing on the valuation date is the value of the shares.
(2) Where the shares are of a public limited company which are not quoted on a stock exchange or of a private limited Company the value is determined by reference to the dividends if any, reflecting the profit earning capacity on a reasonable commercial basis. But, where they do not, then the amount of yield on that basis will determine the value of the shares. In other words, the profits which the company has been making and should be making will ordinarily determine the value. The dividend and earning method or yield method are not mutually exclusive; both should help in ascertaining the profit earning capacity as indicated above. If the results of the two methods differ, an intermediate figure may have to be computed by adjustment of unreasonable expenses and adopting a reasonable proportion of profits.
(3) In the case of a private limited company also where the expenses are incurred out of all proportion to the commercial venture, they will be added back to the profits of the company in computing the yield. In such companies the restriction on share transfers will also be taken into consideration as earlier indicated in arriving at a valuation.
(4) Where the dividend yield and earning method break down by reason of the company's inability to earn profit and declare dividends, if the set-back is temporary then it is perhaps possible to take the estimate of the value of the shares before set back and discount it by a percentage corresponding to the proportionate fall in the price of quoted shares of companies which have suffered similar reverses.
(5) Where the company is ripe for winding up then the break up value method determines what would be realised by that process.
(6) As in Attorney General of Ceylon v. Mackie (1952) 2 All ER 775 (PC) a valuation by reference to the assets would be justified where as in that case the fluctuations of profits and uncertainty of the conditions at the date of the valuation prevented any reasonable estimation of prospective profits and dividends.
In setting out the above principles, we have not tried to lay down any hard and fast rule because ultimately the facts and circumstances of each case, the nature of business, the prospects of profitability and such other considerations will have to be taken into account as will be applicable to the facts of each case. But, one thing is clear, the market value, unless in exceptional circumstances to which we have referred, cannot be determined on the hypothesis that because in a private limited company one holder can bring it into liquidation by the break up method is one resorted to in exceptional circumstances or where the company is ripe for liquidation but nonetheless is one of the method In Kusumben D, Mahadevia (supra), a Bench comprising P.N. Bhagwati and R.S. Pathak, JJ, affirmed the aforesaid principles and added the following observations: Now it is true, as observed by the Court, that there cannot be any hard and fast rule in the matter of valuation of shares in a limited company and ultimately the valuation must depend upon the facts and circumstances of each case, but that does not mean that there are no well settled principles of valuation applicable in specific fact situations and whenever a question of valuation of shares arises, the taxing authority is in an uncharted sea and it has to innovate new methods of valuation according to the facts and circumstances of each case. The principles of valuation as formulated by the Court are clear and well defined and it is only in deciding which particular principle must be applied in a given situation at the facts and circumstances of the case become material. It is significant to note that immediately after making the above observation the Court hastened to make it clear, as if in answer to a possible argument which might be advanced on behalf of the Revenue on the basis of that observation that the yield method is the generally applicable method while the break-up method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation.
Kusumben D. Mahadevia was concerned with the valuation of shares in an investment company which was, of course, a going concern. The valuation of unquoted equity shares in investment companies is governed by a different rule, viz., Rule 1E which was later incorporated as Rule 12 in Schedule III of the Act.
Now, let us examine the principles enunciated in Mahadeo Jalan (supra). The decision recognises that the break-up method "nonetheless is one of the methods" of valuation of such shares, though the said method is said to be appropriate in exceptional circumstances or where the company is ripe for liquidation. The normal method in the case of a going concern is stated to be the dividend method or the yield method. If one reads the proposition (2) enunciated in the decision carefully, one would immediately recognise the several practical difficulties. Firstly, it is stated that the "dividends, if any, reflecting the profit earning capacity on a reasonable commercial basis" shall be the basis. It is worth pointing out that it is not the dividends declared that is the basis but the "dividends reflecting the profit earning capacity on a reasonable commercial basis". It is then stated that if the dividends declared do not reflect the profit earning capacity on a reasonable commercial basis, one has to adopt the "earning method', which is explained as meaning "the profits which the company has been making and should be making". It is then stated that if the results of two methods (dividend method and earning method) differ, "an intermediate figure may have to be computed by adjustment of unreasonable expenses and adopting a reasonable proportion of profits". One need not emphasise the amount of investigation the WTO has to do in each case and an assessee may own shares in any number of companies. This is not all. Where in a private limited company, disproportionate expenses are incurred, such disproportionate expenses have to be added back to the profits of the company in computing the yield, Again, in a case where dividend and earning methods break down "by reason of the company's inability to earn profits and declare dividends" and "if the set back is temporary", then "it is perhaps possible to take the estimate of the value of the shares before set back and discount it by a percentage corresponding to the proportionate fall in the price of quoted shares of companies which have suffered similar reverses". A very daunting task indeed even for the most efficient and expert valuer.
Propositions (5) and (6) set out in the judgment recognises that where the company is ripe for winding up or where the fluctuation of profits and uncertainty of conditions at the date of valuation prevent a reasonable estimation of prospective profits and dividends, the break up method can be adopted. All the above propositions, it is relevant to point out, are qualified by the statement: "in setting out the above principles, we have not tried to lay down any hard and fast rule because ultimately the facts and circumstances of each case, the nature of the business, the prospects of profitability and such other considerations will have to be taken into account as will be applicable to the facts of each case.
The statement of law in the decision would thus establish that it does not purport to "lay down any hard and fast rule". It recognises that various factors in each case will have to be taken into account to determine the method of valuation to be applied in that case. The dividend yield method is not the only method indicated in the case of a going concern; there is the "earning method' and then a combination of both methods. The several qualifications added to the above rules, as already stated, make them highly cumbersome and time-consuming. The WTO has to examine the facts and circumstances of each case including the nature of the business, prospects of profitability and similar other considerations before finally determining whether to apply the dividend method, yield method or whether the break up method should be followed. There may be cases where an assessee may be holding shares of a large number of private companies or other public limited companies whose shares are not quoted. Compared to them, the break up method incorporated in Rule 1D is far simpler and far less time consuming. It prescribes a simple uniform method to be followed in all cases. All that the WTO has to do is to take the balance sheet, delete some items from the columns relating to assets and liabilities as directed by Expln. II, and then apply the formula contained in the rule. He need not have to look into the profitability, the earning capacity and the various other factors mentioned in propositions (2), (3) and (4) of the decision. The decision, it bears repetition, recognises that break up method "nonetheless is one of the methods". In the circumstances, it is difficult to agree with the learned Counsel for the assessees either that break up method is not a recognised method or that yield method is the only permissible method for valuing the unquoted equity shares. It is not as if the rule making authority has adopted a method unknown in the relevant circles or has devised an impermissible method. There is no empirical data produced before us to show that break up method does not lead to the determination of market value of the shares. Merely because yield method may be more advantageous from the assessee's point of view, it does not follow that it alone leads to the ascertainment of true market value and that all other methods are erroneous or misleading. This aspect we have emphasised hereinbefore too.
The decision in Kusumben D. Mahadevia does no more than reiterate the principles and observations in Mahadeo Jalan.
10. Dr. Gauri Shanker brought to our notice a brochure entitled "Guidelines for valuation of equity shares of companies and the business and net assets of branches", issued by the Ministry of Finance, Department of Economic Affairs, Investment Division [vide F. No. Section 11 (21) CCI(11)/90 dt. 13th July, 1990, published in (1990) 60 Comp Cas (St) 121]. The said guidelines are stated to be applicable to the valuation of, inter alia, equity shares of companies, private and public limited. Para (5) in Part II says that the object of the valuation process is to make a best reasonable judgment of the value of the equity shares of a company, referred to in the said guidelines as 'fair value'. For determining the fair value, three methods are devised, viz., (1) net asset value method; (2) profit earning capacity value method; and (3) market value method in the case of listed shares. Para (6) shows that what is referred to as net asset value is roughly the break up method incorporated in r, 1D. The relevance of these guidelines lies in the fact that they do indicate and reaffirm that break up method is one of the recognised methods of valuing equity shares.
11. Sri M.L. Verma placed strong reliance upon the decision of this Court in CGT v. Executors & Trustees of the Estate of Late Sh.
Ambalal Sarabhai in support of his contention. The question in the said case related to valuation of certain shares which were the subject-matter of a gift. The shares were of a company incorporated in the United Kingdom which was analogous to a private company in India. The assessee contended that the shares must be valued applying the break up method taking the average of the balance sheets dt. 31^st March, 1963 and 31^st March, 1964. The GTO adopted the break up method but only on the basis of the balance sheet as on 31^st March 1964. When the matter reached the High Court, it opined that the GTO ought to have taken the balance sheet as on 31^st March, 1963 and not as on 31^st March, 1964. Before this Court, however, the Revenue contended, on the basis of Mahadeo Jalan and Kusumben D. Mahadevia, that the correct method was to adopt the yield method and not the break-up method. While upholding the contention of the Revenue, the Court refused to interfere in the matter having regard to the number of years that have elapsed since the controversy arose and also because the amount involved was very small. Firstly, it may be seen that the matter had arisen under the GT Act and Rule 1D did not in terms apply to it. The shares were of a British Company which was analogous to a private limited company in India. Upto the stage of High Court, both the Revenue and the assessee were ad aidem in applying the breakup method. The only question was which balance sheet was required to be taken as the basis In this Court, however, the Revenue shifted its stand and wanted the yield method to be applied, which contention was upheld following the aforesaid two decisions. This decision does not, therefore, lay down any different propositions than those enunciated in Mahadeo Jalan and Kusumben D. Mahadevia (supra), Incidently, this case establishes that in case of some companies, break up method is more advantageous to the assessees than the yield method. In other words, it is not always that yield method is more advantageous to the assessees.
12. Dr. Gauri Shankar submitted that inasmuch as Section 46 provides for the Rules being laid before both the Houses of Parliament for the specified period, it must be deemed that the Parliament has approved these Rules. The consequence, according to the learned Counsel, is that the Rules have acquired a higher status almost as good as that of the statute itself. It is not possible to agree. The requirement of laying before the House is one form of parliamentary control. But by that means, the Rules do not acquire the status of the statute made by the Parliament, Indeed, the Rules are effective as soon as they are made and published. The Parliament is, no doubt, entitled to modify the said Rules in such manner as it thinks appropriate or even annul them. But it does not mean that the Rules become effective only after the expiry of the period for which they are to be laid before the Parliament. Section 46(4) expressly provides that any such modification or annulment of Rules by the Parliament "shall be without prejudice to the validity of anything previously done under that Rule". To reiterate, the Rules even after they are laid before both Houses of Parliament for the specified period, yet continue to be delegated legislation. All that may be said is that the Parliament did not find any justification to amend or modify the Rules and nothing more.
13. It is brought to our notice that a good number of High Courts have taken the view now espoused by the assessees and that only the Allahabad High Court has taken the contrary view. Inasmuch as the decisions of the High Courts upholding the assessees' contention are based mainly upon the decisions of this Court in Mahadeo Jalna and Kusumben D. Mahadevia, which decisions we have already dealt with, we do not think it necessary to examine the reasoning of the High Courts separately. Sri M.L. Verma particularly emphasized the observation in Dr. D. Renuka v. CWT (ASSESSMENT PROCEEDINGS), a decision of Andhra Pradesh High Court (rendered by a Bench comprising one of us, Jeevan Reddy, J.) holding that the break up method brings about a situation un-relatable to realities and unjust to the assessees in general. It must be stated that the said observations were influenced by the views of the majority of the High Courts and also because the Bench did not have the benefit of an in depth debate, as has taken place now in this Court. Indeed, the decision of this Court in Executors of Ambalal Sarabhai (supra) indicates that 'break-up' method is not always advantageous to the Revenue nor is the "yield method' always advantageous to the assessees.
14. For all the above reasons, we hold that Rule 1D is not ineffective or invalid for any of the reasons suggested by the learned Counsel for the assessees nor can it be said that the WTO has an option to follow or not to follow the said rule. He has to follow and apply the said rule in each and every case where he has to value the unquoted equity shares of a company. The contention of the assessee that it is merely directory and that it need not be followed at the choice of the WTO or the assessee, or in the case of a going concern, cannot be accepted.
8. We have also examined the applicability of provisions of W.T. Act and we find that while making a reference Under Section 55A to the WTO the relevant provision of WT Act are applicable to determine the fair market value. We also find force in the contention of the department that under the income-tax act no specific mode or formula is laid down to determine the fair market value of the unquoted shares. In the absence of any specific procedure, one has to look to other Act in which a procedure has been laid down. Under the W.T.Act Rule 1D was inserted of which applicability was upheld by the Apex Court in the case of Bharat Hari singhania with a categorical finding that unquoted shares are to be valued as per Rule 1D. Now Rule 1D has been omitted from the W.T. Rules, but, it does not mean that it cannot be used for determination of the value of the unquoted shares. At present schedule III is brought on the statute of the W.T. Act and as per schedule III fair market value is to be determined. While dealing with the issues their Lordships of the Apex Court in the case of Bharat Hari singhania have categorically examined the dividend yield method, the earning method and the break up method and finally concluded that the earning method and dividend yield method is a cumbersome process and the best method is the break up method as laid down in Rule 1D. We are also not convinced with the argument of the assessee that the ratio laid down in the case of Bharat Hari Singhania is not applicable to the present case as it was rendered in wealth tax matter, because, whatever cases are referred before us they all were rendered in different Acts. We, therefore, have to follow the latest judgment which is more rational in order to adjudicate the impugned issue. We, therefore, of the view in the light of the categorical finding of the Apex Court, that the unquoted shares in the instant case should have been valued as per break up method, as done by the Assessing Officer. We, therefore, do not agree with the finding of the CIT (A). Accordingly, we, set aside the order of CIT (A) and restore that of the Assessing Officer.
Order pronounced in the open Court, on this the 15^th day of September, 2005.