Bharat Hari Singhania vs Commissioner Of Wealth Tax (Central)

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1994 Supreme(SC) 238

SUPREME COURT OF INDIA
S. C. AGRAWAL, B. P. JEEVAN REDDY AND Dr. A. S. ANAND, JJ.
Bharat Hari Singhania and others etc. etc., Petioners
Versus
Commissioner of Wealth-tax (Central) and others, Respondents.
C.As. Nos. 990 of 1976, 2952-53 of 1977, 1584-95 of 19080, 4231 of 1983, 2445 of 1978, 4634, 5376 and 5377 of 1992, 1575, 1653, 1660, 1685, 2147-51 and 2152-55 of 1993, SLP(C) Nos. 12582-87 of 1987, 2082-84, 9276, 11003 of 1992, 1306-09, 3155, 3189, 5979, 5997, 6009, 6125, 6170, 7426, 7427, 7556, 8697-8700, 8708-11, and 8717-18, CC Nos. 19758, 20697, 20700, 20701, 20712, 20736, 20740, 20743, 20747, 20748, 20756, 20769, 20771, 20772, 20781, 20785, 20790, 20792, 20811, 20812, 20817, 20852, 20859, 20927, 20934, 20941, 20991, 21006, 21013, 21013, 21028, 21076, 22081, 21114, 21133, 21200, 21252, 21358, 21382, 21420, 21474, 21478, 21563, 21909 and 21930 of 1993, SLP (C) Nos. 6171, 6172 and 6173-78 of 1993, C.A. Nos. 1591-96, 2131, 2860, 3108, 3708-09, 3927 and 4299 of 1991, 1524 and 1511 of 1993, SLP (C) Nos. 600-03 and 15588-90 of 1987, 10167-70 and 10444 of 1988, 8072 of 1990, 10864 of 1991, 8938 of 1993, 14600 of 1991, C.C. Nos. 12698 of 1991, 16024 of 1992, 20523 and 21470 of 1993; C.A Nos. 2540 of 1991, 3928, 4934 of 1992, 1543 of 1993, SLP(C) Nos. 12427, 12645, 12668 and 2797 fo 1992, 1564 of 1991, SLP (C) Nos. 3165-66 of 1987, 14097-98 of 1987, 8095, 10390 and 1866 of 1990 CC Nos. 1283 of 1989, 21201 of 1993 SLP (C) Nos. 11640 and 1603-12 of 1987, 10202-08, 10340-42, 10350-51, 10455, 10458-62, 10663-90, 10694 and 11061-61A of 1988, T.r. (C) No. 1 of 1987 C.A. Nos. 413 of 1978, 2841. 4951, 4953, 4954 and 3449-52 of 1991, 1969 and 3357 of 1992, SLP Nos. 6279-80 of 1985, 10097 of 1988, 6795 of 1991, 2085 and 13037-13170 of 1992, 5977, 6002-03 and 9811 of 1993, CC Nos. 20788, 20776, 20786, 20787, 20892, 20918 and 20936 of 1993, 21067 of 1992, 21136, 21267, 21283, 21349, 21568 and 21943 of 1993, C.A. Nos. 3206-08 and 3209-12 of 1981, 189-95 and 470-76 of 1982, SLP (C) Nos. 12637 of 1987, 5996 of 1993 C.A. Nos. 2766, 2767, 2768, 2769, 2770 and 2771-2811A of 1989, 1823, 1849,, 1850, 1851-52, 1854, 1855, 1856, 1888-1889, 1919, 1920-21, 1922, 4476 and 6191-6202 of 1990, 2448, 2449 and 2450 of 1990, 233, 234, 235, 236, 2865, 2866, 2867 and 2868-83 of 1992 CC Nos. 1371 of 1990, C.A. No. 3403-04 of 1991, SLP(C) Nos. 6484093, 7609, 7700, 8093 and 14083 of 1986, 12516 of 1989 CC No. 21018 of 1993, SLP (C) No. 13082-83 of 1988, C.A. No. 1629-30 of 1990, C.A. Nos. 483-85, 2466-67 of 1991, SLP(C) No. 14869 of 1991, D/- 16-2-1994.
WITH
Writ Petion (C) No. 1213 of 1990
Advocates appeared
Mr. M. L. Verma, Sr. Advocate, Mr. Basant Mehta, Mr. S. Ganesh, Ms. Priya Hingorani, Mr. Ashok Mathur and Mr. M. M. Kshatriya, Advocates with him, for Petitioners; Dr. V. Gaurishankar, and Mr. J. Ramamurthy, Sr. Advocates Mr. S. Rajappa, Mr. M. B. Rao, Mr. B. S. Ahuja and Mr. D. S. Mahra, Advocates with them, for Respondents.

Advocates:
ASHOK MATHUR, B.S.Ahuja, BASANT MEHTA, D.S.Mahra, J.RAMAMURTHY, M.B.RAO, M.L.Verma, M.M.KSHATRIYA, Priya Hingorani, S.GANESH RAO, S.RAJAPPA, V.GAURI SHANKAR

Headnote:
Wealth Tax Act, 1957 - Section 3 and 7 - Indian Income-tax Act, 1922 - Section 18A - Income-tax Act, 1961 - Section 210 - Wealth-tax Act - Section 27(3) - equity share - shareholder - Levy of wealth tax - It levies wealth tax on an individual, Hindu Undivided Family and Company in respect of their net wealth on corresponding valuation date at rate or rates specified in Schedule I - Expression net wealth is defined in clause (m) of Section 2 - In short, it means aggregate value of all assets belonging to assessee on valuation date minus all his liabilities - Section 7 prescribes the manner in which value of assets is to be determined - Rules have been made as contemplated by said sub-section -Rule 1-B provides manner in which life interest is to be valued - Rule l-BB prescribes manner of valuing house property - Rule 1-C prescribes manner in which market value of unquoted preference shares has to be determined - Value of all liailities as shown in balance sheet of such company shall be deducted from value of all its assets shown in balance sheet - Net amount so arrived at shall be divided by total amount of its paid-up equity share capital as shown in balance sheet - Resultant amount multiplied by paid up value of each equity share shall be break-up value of each unquoted equity share – Held, In Court opinion, contention has no substance - Wealth being assessed is that of shareholder and not of company - Company may own agricultural assets and if company were to be liable to Wealth-tax, said assets may be excludible in its hands - But that has no relevance to case of a shareholder - Shareholder does not own and cannot claim any portion of property held by company of which he is a shareholder - Company is an independent juristic entity - It was held further that dividend of shareholder is outcome of his right to participate in profits of company arising out of contractual relation between company and shareholder and that the shareholder does not acquire any interest in assets of company till after company is wound up - Position of a shareholder of a company, it was explained, is altogether different from that of a partner of a firm - In Court opinion, said decision of Constitution Bench fully answers said question - Accordingly,contention is rejected - Accordingly, Court direct that all appeals shall be disposed of in terms of opinion expressed herein - In cases, where Tribunal has dismissed applications of Revenue filed under Section 27(3) of Wealth-tax Act, appeals filed by Revenue against such orders are allowed herewith and question asked for shall be deemed to have been referred and answered in terms indicated in this judgment - Correspondingly, appeals filed by assessees against order of High Courts dismissing their applications under Section 27(3) are dismissed.

Judgment

B. P. JEEVAN REDDY, J. :- 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 l-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

Number of accounting years ending on the valuation date or in the case where the accounting year does not end on the valuation date, the number of accounting years ending on a date immediately preceding the valuation date, for which no dividend has been paid. Market value

1 2

Three years 82 1/2 percent of the break-up value of such share

Four years 80 -do-

Five years 77 1/2 -do-

Six years and above 75 -do-

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 afte

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1994 Supreme(SC) 238

Cases Referred (8)