BHARAT HARI SINGHANIA Vs. COMMISSIONER OF WEALTH TAX CENTRAL
LAWS(SC)-1994-2-68
SUPREME COURT OF INDIA
Decided on February 16,1994

BHARAT HARI SINGHANIA Appellant
VERSUS
COMMISSIONER OF WEALTH TAX (CENTRAL) Respondents





Cited Judgements :-

J K INDUSTRIES LTD VS. UNION OF INDIA [LAWS(SC)-2007-11-75] [REFERRED TO]
PREM SHAMSHER SINGH VS. COMMISSIONER OF WEALTH TAX [LAWS(DLH)-1994-7-79] [RELIED )(]
ONKARJIT SINGH KANWAR VS. COMMISSIONER OF WEALTH TAX DELHI [LAWS(DLH)-2000-7-45] [REFERRED]
SHRIPATI SINGHAI IND VS. COMMISSIONER OF WEALTH TAX [LAWS(ALL)-1996-1-18] [REFERRED TO]
RAJENDRA KUMAR AGRAWAL VS. COMMISSIONER OF WEALTH TAX [LAWS(ALL)-1999-9-53] [REFERRED TO]
GAUR HARI YADUPATI SINGHANIA VS. COMMISSIONER OF WEALTH TAX [LAWS(ALL)-2002-12-14] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. PUSHPAWATI DEVI SINGHANIA [LAWS(ALL)-2002-12-16] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. GAUR HARI SINGHANIA HUF [LAWS(ALL)-2003-1-172] [REFERRED TO]
SUSHILA DEVI SINGHANIA VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-2003-1-140] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. GAUR HARI SINGHANIA [LAWS(ALL)-2004-7-38] [REFERRED TO]
COMMISSIONER OF GIFT TAX BANGALORE VS. K SARADHI [LAWS(APH)-1999-4-89] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. JANAKRAJ SONI [LAWS(MPH)-1996-2-47] [REFERRED TO]
Commissioner of Wealth tax VS. Vikram Swarup [LAWS(CAL)-1994-8-38] [REFERRED TO]
Batuk Nath Bhattacharjee VS. Commissioner of Gift tax [LAWS(CAL)-1994-9-28] [REFERRED TO]
Sri Sri Radheshyam Jew VS. Valuation Officer [LAWS(CAL)-1998-6-13] [REFERRED TO]
Lalit Mohan Thapar VS. Commissioner of Wealth Tax [LAWS(CAL)-2004-7-24] [REFERRED TO]
COMMISSIONER OF GIFT TAX VS. GOPAL SRINIVASAN [LAWS(MAD)-1995-1-103] [REFERRED TO]
BPL LIMITED VS. DEPUTY COMMISSIONER OF GIFT TAX [LAWS(KAR)-2006-12-53] [REFERRED TO]
WHEELS INDIA LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(MAD)-1995-2-38] [REFERRED TO]
RAJAN N C J VS. COMMISSIONER OF WEALTH TAX [LAWS(KER)-1994-11-48] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. GEORGE DOMINIC [LAWS(KER)-1996-1-57] [REFERRED TO]
N J MATHEW LATE VS. COMMISSIONER OF WEALTH TAX [LAWS(KER)-1996-8-43] [REFERRED TO]
COMMISSIONER OF WEALTH TAX HYDERABAD VS. TRUSTEES OF HEH [LAWS(SC)-2003-4-25] [REFERRED]
COMMISSIONER OF WELTH TAX GUJARAT VS. SHILABEN FAMILY TRUST [LAWS(SC)-2000-9-38] [REFERRED]
COMMISSIONER OF WEALTH TAX HYDERABAD VS. TRUSTEES OF HEH [LAWS(SC)-2002-11-40] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. T S SANTHANAM HUF [LAWS(SC)-2001-1-69] [REFERRED]
G L SULTANIA VS. SECURITIES AND EXCHANGE BOARD OF INDIA [LAWS(SC)-2007-5-117] [REFERRED TO]
COMMISSIONER OF WELTH TAX VS. SITA RAM JINDAL [LAWS(SC)-2000-9-70] [RELIED ON]
COMMISSIONER OF WEALTH TAX VS. SETH LALIT MODI [LAWS(DLH)-1996-9-40] [REFERRED TO]
KRISHNA LAL VS. COMMISSIONER OF WEALTH TAX [LAWS(DLH)-1996-9-63] [REFERRED TO]
K T PLANTATION PVT LTD VS. STATE OF KARNATAKA [LAWS(SC)-2011-8-39] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. AJAY KUMAR SOOD [LAWS(DLH)-1995-10-41] [REFERRED TO]
SUCHETA SINGH VS. WEALTH TAX OFFICER [LAWS(DLH)-2002-9-263] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. VANDANA A SIFANEY [LAWS(DLH)-2002-10-80] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. DEVINDER KUMAR MODI [LAWS(DLH)-2003-2-122] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. UDAYAN L GAJJAR [LAWS(GJH)-1998-4-7] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. ARUN K PARIKH [LAWS(GJH)-1998-9-53] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. RAJENDRA K PARIKH [LAWS(GJH)-2002-2-55] [REFERRED TO]
COMMISSIONER OF GIFT TAX VS. MOHANLAL CHATURBHUJ [LAWS(GJH)-2002-6-46] [REFERRED TO]
INDUKUMAR C PATEL VS. COMMISSIONER OF WEALTH TAX [LAWS(GJH)-2002-7-122] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. CHANDRAKALA KASTURBHAI [LAWS(GJH)-2002-7-5] [REFERRED TO]
K M SHAH VS. DY C I T [LAWS(GJH)-2004-5-13] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. VIBHA AGRAWAL [LAWS(ALL)-2002-12-140] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. VIJAY KUMAR [LAWS(ALL)-2003-7-190] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. A V REDDY TRUST B V HARISH REDDY [LAWS(APH)-1998-10-12] [REFERRED TO : (1994) 207 ITR 1 (SC) : (1994) 73 TAXMAN 3 (SC) : TC 64R.444,]
LAND ACQUISITION ZONE OFFICER VS. DHOBANI SAHU [LAWS(ORI)-2007-5-13] [REFERRED TO]
COMMISSIONER OF GIFT TAX VS. K MAHESH [LAWS(MAD)-1996-2-13] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. DAVID JOSEPH [LAWS(KER)-1994-11-19] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. N J CHANDY [LAWS(KER)-1996-1-50] [REFERRED TO]
COMMISSIONER OF GIFT TAX VS. MATHEW N J [LAWS(KER)-1996-6-72] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. DOSHI S V [LAWS(KER)-1996-8-51] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. A RAMAMOORTHY [LAWS(MAD)-1997-2-5] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. T M JOSEPH [LAWS(MAD)-1997-11-50] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. N DAMODARAN [LAWS(MAD)-1998-2-109] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. B VIJAYAKUMAR [LAWS(MAD)-1998-2-187] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. T R JAYARAMAN [LAWS(MAD)-1998-11-107] [REFERRED TO]
E M PURUSHOTHAMAN VS. STATE OF KERALA [LAWS(KER)-2002-12-35] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. L G BALAKRISHNAN [LAWS(MAD)-2000-11-82] [REFERRED TO]
K C MAMMEN VS. COMMISSIONER OF GIFT TAX [LAWS(KER)-2004-4-4] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. VIDUR V PATEL [LAWS(BOM)-1994-12-32] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. MASTER ASUTOSH K MAHADEVIA [LAWS(BOM)-1994-12-21] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. ABHAYANKAR G M HUF [LAWS(BOM)-1994-12-27] [REFERRED TO]
COMMISSIONER OF WEALTHTAX VS. IRMGARD VELAGAPUDI [LAWS(MAD)-2002-8-64] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. V M RAO [LAWS(MAD)-2002-8-139] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. SHANTA RANGARAJAN [LAWS(MAD)-2002-11-65] [REFERRED TO]
COMMISSIONER OF WEALTH TAX CHENNAI VS. VGP HOUSING PVT LTD [LAWS(MAD)-2007-7-177] [REFERRED TO]
M S ANANTH DIRECTOR OF I I T VS. E MURALIDHARAN [LAWS(MAD)-2009-7-242] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. BISWAJIT SAMONTA [LAWS(PAT)-1996-6-12] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. SARDARMAL RAJENDRA PRASAD [LAWS(RAJ)-1994-4-70] [REFERRED TO]
KUSHAL CHAND VS. COMMISSIONER OF WEALTH TAX [LAWS(RAJ)-1995-3-47] [REFERRED TO]
COMMISSIONER OF GIFT TAX VS. SATYA NAND MUNJAL [LAWS(P&H)-2002-5-25] [REFERRED TO]
NANCY COLLAGE OF EDUCATION PATIALA VS. NATIONAL COUNCIL FOR TEACHER EDUCATION [LAWS(P&H)-2008-10-1] [REFERRED TO]
VENKTESHWAR SUGAR MILLS VS. CIT [LAWS(ALL)-2012-1-259] [REFERRED TO]
LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD VS. DEEPAK BHATNAGAR [LAWS(DLH)-2013-1-372] [REFERRED TO]
MADHURA COATS LTD. AS GENTS TO J AND P COATS LTD VS. COMMISSIONER OF INCOME TAX [LAWS(BOM)-2005-8-226] [REFERRED TO]
K. J. CHACKO VS. THE COMMISSIONER OF WEALTH TAX [LAWS(KER)-1994-11-78] [REFERRED TO]
STATE OF J&K & ANR. VS. VIJAY KUMAR & ORS. [LAWS(J&K)-2010-8-13] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. UMANG KONORIA [LAWS(CAL)-2001-8-61] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. SAMIR JAIN [LAWS(CAL)-2001-8-62] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. AMAR SINGH [LAWS(P&H)-2007-10-95] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. GOPALDAS DWARAKDAS FAMILY TRUST ESTATE [LAWS(MAD)-2010-4-720] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. RAJIV GUPTA [LAWS(DLH)-2007-3-250] [REFERRED TO]
M/S. BHARAT BIOTECH INTERNATIONAL LTD. VS. THE DCIT [LAWS(IT)-2014-5-124] [REFERRED TO]
N . T . R . UNIVERSITY OF HEALTH SCIENCE VS. DUBBASI PRAVEEN KUMAR [LAWS(APH)-2015-3-159] [REFERRED TO]
SINGH ALLOYS STEEL LTD VS. DEPUTY COMMISSIONER OF INCOME-TAX [LAWS(CAL)-1995-5-51] [REFERRED]
CWT VS. AMAR SINGH [LAWS(P&H)-2007-10-160] [REFERRED]
PROPERTY OWNERS ASSOCIATION AND OTHERS VS. STATE OF MAHARASHTRA [LAWS(BOM)-2019-4-227] [REFERRED TO]
TVL TRANSTONNELSTROY AFCONS JOINT VENTURE, VS. UNION OF INDIA [LAWS(MAD)-2020-9-756] [REFERRED TO]
M.V. NARAYANAN VS. PERIYADAN NARAYANAN NAIR [LAWS(KER)-2021-5-127] [REFERRED TO]
PTC INDIA FINANCIAL SERVICES LIMITED VS. VENKATESWARLU KARI [LAWS(SC)-2022-5-48] [REFERRED TO]


JUDGEMENT

B.P.JEEVAN REDDY - (1.)DELAY condoned. Leave granted.
Substitution in Civil Appeal No. 1587 of 1980 is allowed.

(2.)THE Wealth Tax Act, 1957 was enacted by Parliament providing for levy of wealth tax. Section 3 is the charging section. It levies wealth tax on an individual, Hindu Undivided Family and Company in respect of their net wealth on the corresponding valuation date at the rate or rates specified in Schedule I. THE expression 'net wealth' is defined in clause (m) of Section 2. In short, it means the aggregate value of all the assets belonging to the assessee on the valuation date minus all his liabilities. Section 7 prescribes the manner in which the value of the assets is to be determined. At the relevant time, sub-section (1) of Section 7 read:
"Subject to any rules made in this behalf, 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 Wealth-tax Officer it would fetch if sold in the open market on the valuation date." Section 46(1) empowers the Board (Central Board of Direct Taxes) to make rules for carrying out the purposes of the Act. Sub-section (2) particularises the topics with respect to which rules can be made. Clause (a) in sub-section (2) says that Rules made by the Board may provide for the manner in which the market value of an asset may be determined. Rules have been made as contemplated by the said sub-section. Rule 1-B provides the manner in which the life interest is to be valued. Rule 1-BB prescribes the manner of valuing the house property. Rule 1-C prescribes the manner in which the market value of unquoted preference shares has to be determined. Rule 1D, with which we are concerned herein, prescribes the manner in which the market value of unquoted equity shares of companies other than investment companies and managing agency companies is to be determined. Inasmuch we are concerned herein with the interpretation of the said rule in its various aspects, it would be appropriate to set out the rule in full, as it obtained at the relevant time:

"1D. THE market value of an unquoted equity share of any company, other than an investment company or a managing agency company, shall be determined as follows:

THE value of all the liailities as shown in the balance sheet of such company shall be deducted from the value of all its assets shown in the balance sheet. THE net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance sheet. THE resultant amount multiplied by the paid up value of each equity share shall be the break-up value of each unquoted equity share. THE market value of each such share shall be 85 per cent of the break-up value so determined.

Provided that where, in respect of any equity share, no dividend has been paid by such company continuously for not less than three accounting years ending on the valuation date, or in the case where the accounting year of that company does not end on the valuation date for not less than three continuous accounting years ending on a date immediately before the valuation date the market of such share shall be as indicated in the Table-below :

THE TABLE
JUDGEMENT_46_SUPP3_1994Html1.htm
Explanation I : For the purposes of this rule, "balance sheet", in relation to any company, means the balance sheet of such company as drawn up on the valuation date and where there is no such balance sheet, the balance sheet drawn up on a date immediately preceding the valuation date and in the absence of both, the balance sheet drawn up on a date immediately after the valuation date.

Explanation II : For the purpose of this rule-

(i) the following amounts shown as assets in the balance sheet shall not be treated as assets, namely :-

(a) any amount paid as advance tax under Section 18A of the Indian Income-tax Act, 1922(11 of 1922), or under Section 210 of the Income-tax Act, 1961 (43 of 1961);

(b)...

(ii) the following amounts shown as liabilities in the balance sheet shall not be treated as liabilities, namely :-

(a) the paid up capital in respect of equity shares;

(b) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the valuation date at a general body meeting of the company;

(c) reserves, by whatever name called, other than those set apart towards depreciation;

(d) credit balance of the profit and loss account;

(e) any amount representing provision for taxation (other than the amount referred to in clause (1)(e) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(f) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares.

Rule 1-D introduced with effect from 6/11/1967. It may be noticed that by Direct Tax Laws (Amendment) Act, 1989, these Rules have been incorporated in Schedule III to the Act. Rule 11 in the Schedule corresponds to Rule 1-D.

Among the companies incorporated in India, more than 80% are private companies (excluding government owned companies). In private limited companies, there is always a restriction upon the transfer of shares with the result that their shares are not quoted on the stock exchange. Apart from private companies, there may be some public limited companies whose shares are also not quoted on the stock exchange for one or the other reason. Where the shares are quoted on the stock exchange, it is evident that their value on the valuation date is the value for the purposes of the Act. In case of unquoted equity shares, a formula, a method, has to be devised to ascertain their value on the valuation date. Rule 1-D provides for this situation. It is one of the rules contemplated by the opening words in sub-section (1) of section 7.

(3.)LET us now analysis the rule to find out what it says. The formula prescribed in the main limb of the Rule is this; take the balance sheet of the company; deduct the value of all the liabilities as shown in the balance-sheet from the value of all the assets shown therein; divide the net amount so arrived at by the total amount of its paid-up equity share capital as shown in the balance-sheet; multiply the resultant amount thus obtained by the paid-up Value of each equity share; the value so arrived at is the break-up value of each unquoted equity share; 85% of such break-up value shall be treated as the market value of the share.
The balance-sheet of the company thus constitutes the basis for working the rule. The rule cannot be worked without the balance-sheet. No problem will arise if the date of the balance-sheet and the valuation date coincide. But this may not always happen. There may be a case where the balance-sheet is prepared on a date earlier than the valuation date of the assessee (shareholder) concerned. This situation is met by Explanation I. The Explanation contemplates a situation where the valuation date of the assessee concerned and the date of balance-sheet of the company is not the same. In such a situation, it says take the balance-sheet drawn up on a date immediately preceding the valuation date of the assessee. In case, both these balance-sheets are not available, the Rule says, take the balance-sheet drawn up on a date immediately following the valuation date of the assessee.

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