Judgment

JAGANMOHAN REDDY, J. :- These appeals are by special leave against the judgment of the High Court of Assam and Nagaland. Appeal No. 1136 of 1969 is of Mahadeo Mrigendra Jalan, by Mahadeo Prasad as the karta of Hindu undivided family while appeal No. 1135 of 1969 is by him in his individual capacity. In both these appeals, the Hindu undivided family as well as the individual were holding shares in five companies in respect of which shares, dividend was being declared. The Wealth-tax Officer computed the valuation of those shares on the basis of the break-up value and included them in their total wealth. In Appeals Nos. 1765, 1766 and 1767/1969 the respondents are Mahabir Prasad Jalan, Mahadev Jalan and Madan Mohan Jalan respectively. All these appeals pertain to assessment years 1957-58 and 1958-59. In respect of these years the value of the shares in private limited companies were included in the total wealth of the respective assessees on the basis of their yield though some of the companies were not paying dividends while others were declaring dividends throughout. The first two appeals which related to a later year seem to have been heard by the High Court and disposed of on December 12, 1967 while the last three appeals were disposed of later on February 4, 1969, mainly on the basis of the judgment of the High Court in the first two appeals. For the years 1957-58 and 1958-59 relating to the three persons referred to above, the Wealth-tax Officer had, as in the case of assessment for the year 1959-60 adopted the break-up value of thhe shares as disclosed on the balance sheets of the company in computing their value as if each of the companies was brought to liquidation. This assessment was confirmed by each company. This assessment was confirmed by the Appeals Assistant Commissioner. The Tribunal however held that certainly this basis is one of the recognised modes of valuation of the shares of the private companies which are not saleable in the open market but in so far as those cases were concerned the valuation on the basis of the yield derived from the shares will be a more reasonable method to be adopted in the particular circumstances of their respective cases. Accordingly he adopted the valuation on that basis in respect of each of the companies as specified in its order. In the first two appeals also the Wealth Tax Officer and the Appellate Assistant Commissioner adopted the break-up value as the basis as in the other cases, and agreed with that basis inasmuch as the assessees had failed to place before the Wealth-tax Officer and the Appellate Assistant Commissioner facts and figures relating to dividends declared by the respective companies. It was also stated by the Tribunal that at the time of hearing by the Tribunal in the case of last three appeals, it was apparently not brought to the notice of the Tribunal that the companies being private limited companies the dividends declared would be controlled by persons controlling the companies so as to suit their own purpose, as such, the maintainable profits rather than the dividends declared would afford a reasonable basis. While so stating, it was observed that this aspect of the case need not be taken note of since the objection before it is only on the principle whether to adopt the break-up value method. In respect of the first two appeals therefore the Tribunal held that the adoption of the break-up value was in order.

2. On an application under Sec. 66 (1) the Tribunal referred the following question for the opinion of the High Court, viz.,

"Whether on the facts and in the circumstances of the case the principle of "break-up" value adopted by the Income-tax Tribunal as the basis for the valuation of the shares in question is sustainable in law ?"

When the reference came up for hearing before the Bench of the High Court, it was felt that as the question required an abstract answer as to whether the principle of break-up value is sustainable in law an