Wealth-tax Officer Vs. Sheo Prosad Nopany - Court Judgment

Excerpt:
1. the wto while framing assessment in the case of the assessee, shri sheo prosad nopany, for the assessment year 1979-80 valued 20,000 unquoted equity shares of asiatic wires ltd. under rule id of the wealth-tax rules, 1957 ('the rules') at rs. 2,81,200. on appeal, the aac directed those shares to be valued in accordance with yield method.it may ho mentioned here that according to yield method, the value of those shares comes to nil. the department is, therefore, in appeal.2. contention of the learned departmental representative is that rule id is a mandatory provision and, therefore, the learned aac erred in directing the unquoted shares of asiatic wires ltd. to be valued according to yield method. he in support placed reliance upon bharat hari singhania v. cwt [1979] 119 r 258 (all.) and cwt v. mamman varghese [1983] 139 itr 351 (ker.). the learned counsel for the assessee, on the other hand, contended that the said rule id is directory and not mandatory. in support he placed reliance upon the judgment of the hon'ble supreme court in the case of cgt v. smt.kusumben d. mahadevia [1980] 122 itr 38 and the judgment of the bombay high court in the case of smt. kusumben d. mahadevia v. cwt [1980] 124 itr 799.3. the question as to directory or mandatory nature of rule id has been considered by the tribunal in many cases and now it is too late to say that the said rule is directory. special bench of the tribunal at delhi in the case of wto v. seth sudhir kumar modi [1985] 14 itd 194 held that the rule id is mandatory. similar is the finding given by the bench of the tribunal at delhi in the case of wto v. mrs. rilu nanda [1985] 14 itd 269.4. we may further add that principles enunciated by the hon'ble supreme court in the cases of smt. kusumben d. mahadevia (supra) and cwt v.mahadeo jalan [1972] 86 itr 621, for the valuation of shares get auto matically superseded in view of enactment of rule id. those principles were laid down by the hon'ble supreme court for general purposes when there was no rule like id in existence. moreover, while laying down the principles for valuation of the shares, the supreme court did not prescribe any rigid formula. the hon'ble supreme court in the case of mahadeo jalan (supra) observed : 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... (p. 634) 5. section 7(1) of the wealth-tax act, 1957 ('the act') has been interpreted by the hon'ble supreme court in the case of pandit lakshmi kant jha v. cwt [1973] 90 itr 97 with these observations : bare reading of the section makes it plain that subject to any rules which may be made in this behalf, the value of the assets, other than cash, has to be the price which the assets, in the opinion of the wealth-tax officer, would fetch in the open market on the valuation date. it would, therefore, follow that in the absence of any rule prescribing a different criterion, the value of an asset, other than cash, should be taken to be the price which it would fetch if sold in the open market on the valuatian date. no rules prescribing a different criterion in respect of the value of quoted stocks and shares have been brought to our notice.... (p. 102) it is, thus, to be seen that all the while the hon'ble supreme court wanted to give preference to any rules made under section 7(1) over the provisions of section 7(1) itself. how statutory provision in the form of 'subject to any rules made in this behalf should be interpreted has been explained in the principles of statutory interpretation by g.p.singh (1983 edn.) in these words : similarly, when a statutory provision is in the form 'except as may be otherwise prescribed by rules' or when it is 'subject to the rules', the rules are made to prevail over the statutory provision -- see punjab sikh regular motor services v. rta air 1966 sc 1318 and joginder singh v. dy. custodian general air thus, according to rule of interpretation as laid down by the hon'ble supreme court in several cases, rule id must prevail over the statutory provision. it is apparent that the hon'ble bombay high court interpreted section 7(1) and rule id framed thereunder differently than according to the principles enunciated by the hon'ble supreme court.we, therefore, with profound respect express our inability to follow the same and instead we follow the judgments of the allahabad and the kerala high courts in the cases of bharat hari singhania (supra), cwt v. padatnpat singhania [1979] 117 itr 443 and mamman varghese's case (supra).6. one need not feel inconvenient as to how a rule framed under the act should prevail over the statutory provision. it is general rule that rules made in exercise of the rule making power of the government should be treated as part of the statute. in this connection, reference may be made to the following observations of the hon'ble supreme court in the case of state of tamil nadu v. hind stone air ...a statutory rule, while ever subordinate to the parent statute, is, otherwise, to be treated as part of the statute and as effective. 'rules made under the statute must be treated for all purposes of construction or obligation exactly as if they were in the act and are to be of the same effect as if contained in the act and are to be judicially noticed for all purposes of construction or obligation' (state of u.p. v. babu ram upadhya [1961] 2 scr 679 at p. 702 : air 1961 sc 751 ; (see also maxwell : interpretation of statutes, 11th edn. pp. 49-50). so, statutory rules made persuant to the power entrusted by parliament are law made by parliament within the meaning of article 302 of the constitution. to hold otherwise would be to ignore the complex demands made upon modern legislation which necessitate the plenary legislating body to discharge its legislative function by laying down broad guidelines and standards, to lead and guide as it were, leaving it to the subordinate legislating body to fill up the details by making necessary rules and to amend the rules from time to time to meet unforeseen and unpredictable situations, all within the frame work of the power entrusted to it by the plenary legialating body.... (p. 720) 7. we, therefore, hold that rule id is mandatory and it must prevail over the provisions of section 7(1).8. even if it is taken otherwise for argument's sake, the assessee cannot escape application of rule id in the instant case. it is interesting to know that value of the shares, according to rule id, comes to rs. 2,81,200 and according to yield method it comes to nil. it is not the case of the assessee that there is no value at all of the shares held by him. it is needless to say that no recourse should be had to any method of valuation which would render the estimate wide off the mark. the order of the aac is, therefore, set aside and instead that of the wto is restored.

Judgment:
1. The WTO while framing assessment in the case of the assessee, Shri Sheo Prosad Nopany, for the assessment year 1979-80 valued 20,000 unquoted equity shares of Asiatic Wires Ltd. under rule ID of the Wealth-tax Rules, 1957 ('the rules') at Rs. 2,81,200. On appeal, the AAC directed those shares to be valued in accordance with yield method.

It may ho mentioned here that according to yield method, the value of those shares comes to nil. The department is, therefore, in appeal.

2. Contention of the learned departmental representative is that rule ID is a mandatory provision and, therefore, the learned AAC erred in directing the unquoted shares of Asiatic Wires Ltd. to be valued according to yield method. He in support placed reliance upon Bharat Hari Singhania v. CWT [1979] 119 R 258 (All.) and CWT v. Mamman Varghese [1983] 139 ITR 351 (Ker.). The learned counsel for the assessee, on the other hand, contended that the said rule ID is directory and not mandatory. In support he placed reliance upon the judgment of the Hon'ble Supreme Court in the case of CGT v. Smt.

Kusumben D. Mahadevia [1980] 122 ITR 38 and the judgment of the Bombay High Court in the case of Smt. Kusumben D. Mahadevia v. CWT [1980] 124 ITR 799.

3. The question as to directory or mandatory nature of rule ID has been considered by the Tribunal in many cases and now it is too late to say that the said rule is directory. Special Bench of the Tribunal at Delhi in the case of WTO v. Seth Sudhir Kumar Modi [1985] 14 ITD 194 held that the rule ID is mandatory. Similar is the finding given by the Bench of the Tribunal at Delhi in the case of WTO v. Mrs. Rilu Nanda [1985] 14 ITD 269.

4. We may further add that principles enunciated by the Hon'ble Supreme Court in the cases of Smt. Kusumben D. Mahadevia (supra) and CWT v.Mahadeo Jalan [1972] 86 ITR 621, for the valuation of shares get auto matically superseded in view of enactment of rule ID. Those principles were laid down by the Hon'ble Supreme Court for general purposes when there was no rule like ID in existence. Moreover, while laying down the principles for valuation of the shares, the Supreme Court did not prescribe any rigid formula. The Hon'ble Supreme Court in the case of Mahadeo Jalan (supra) observed : 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... (p. 634) 5. Section 7(1) of the Wealth-tax Act, 1957 ('the Act') has been interpreted by the Hon'ble Supreme Court in the case of Pandit Lakshmi Kant Jha v. CWT [1973] 90 ITR 97 with these observations : Bare reading of the section makes it plain that subject to any rules which may be made in this behalf, the value of the assets, other than cash, has to be the price which the assets, in the opinion of the Wealth-tax Officer, would fetch in the open market on the valuation date. It would, therefore, follow that in the absence of any rule prescribing a different criterion, the value of an asset, other than cash, should be taken to be the price which it would fetch if sold in the open market on the valuatian date. No rules prescribing a different criterion in respect of the value of quoted stocks and shares have been brought to our notice.... (p. 102) It is, thus, to be seen that all the while the Hon'ble Supreme Court wanted to give preference to any rules made under Section 7(1) over the provisions of Section 7(1) itself. How statutory provision in the form of 'subject to any rules made in this behalf should be interpreted has been explained in the Principles of Statutory Interpretation by G.P.Singh (1983 edn.) in these words : Similarly, when a statutory provision is in the form 'except as may be otherwise prescribed by rules' or when it is 'subject to the rules', the rules are made to prevail over the statutory provision -- see Punjab Sikh Regular Motor Services v. RTA AIR 1966 SC 1318 and Joginder Singh v. Dy. Custodian General AIR Thus, according to rule of interpretation as laid down by the Hon'ble Supreme Court in several cases, rule ID must prevail over the statutory provision. It is apparent that the Hon'ble Bombay High Court interpreted Section 7(1) and rule ID framed thereunder differently than according to the principles enunciated by the Hon'ble Supreme Court.

We, therefore, with profound respect express our inability to follow the same and instead we follow the judgments of the Allahabad and the Kerala High Courts in the cases of Bharat Hari Singhania (supra), CWT v. Padatnpat Singhania [1979] 117 ITR 443 and Mamman Varghese's case (supra).

6. One need not feel inconvenient as to how a rule framed under the Act should prevail over the statutory provision. It is general rule that rules made in exercise of the rule making power of the Government should be treated as part of the statute. In this connection, reference may be made to the following observations of the Hon'ble Supreme Court in the case of State of Tamil Nadu v. Hind Stone AIR ...A statutory rule, while ever subordinate to the parent statute, is, otherwise, to be treated as part of the statute and as effective. 'Rules made under the statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act and are to be judicially noticed for all purposes of construction or obligation' (State of U.P. v. Babu Ram Upadhya [1961] 2 SCR 679 at p. 702 : AIR 1961 SC 751 ; (See also Maxwell : Interpretation of Statutes, 11th edn. pp. 49-50). So, statutory rules made persuant to the power entrusted by Parliament are law made by Parliament within the meaning of article 302 of the Constitution. To hold otherwise would be to ignore the complex demands made upon modern legislation which necessitate the plenary legislating body to discharge its legislative function by laying down broad guidelines and standards, to lead and guide as it were, leaving it to the subordinate legislating body to fill up the details by making necessary rules and to amend the rules from time to time to meet unforeseen and unpredictable situations, all within the frame work of the power entrusted to it by the plenary legialating body.... (p. 720) 7. We, therefore, hold that rule ID is mandatory and it must prevail over the provisions of Section 7(1).

8. Even if it is taken otherwise for argument's sake, the assessee cannot escape application of rule ID in the instant case. It is interesting to know that value of the shares, according to rule ID, comes to Rs. 2,81,200 and according to yield method it comes to nil. It is not the case of the assessee that there is no value at all of the shares held by him. It is needless to say that no recourse should be had to any method of valuation which would render the estimate wide off the mark. The order of the AAC is, therefore, set aside and instead that of the WTO is restored.