The rule-making authority has the power to prescribe a universal method of valuation for all unquoted equity shares, and such method is not ultra vires Section 7(1) of the Wealth-tax Act, 1957, if it is one of the methods approved by the Supreme Court for valuing unquoted shares.

Ajit K. Sengupta, J.

1. THIS writ application has been specially assigned before this Bench. THIS writ application has been filed by the petitioner as the karta of a Hindu undivided family challenging the vires of Rule 1D of the Wealth tax Rules, 1957. The facts are in a narrow compass.

2. THE Hindu undivided family of which the petitioner is the karta held, amongst others, shares and securities in several companies. THE shares are both quoted and unquoted. THE unquoted shares are as follows :

(i) 3,079 equity shares in Prayagdas-Mathuradas (Bombay) Private Limited, (a trading company). (ii) 4,170 equity shares in Rashtriya Metal Industries Ltd. (a manufacturing company). (iii) 19 preference shares in Rashtriya Metal Industries Ltd. (a manufacturing company). (iv) 1,65,000 equity shares in Binani Commercial Co. (Private) Limited, (a trading company).

For the assessment year 1981-82, for which the relevant valuation date is November 7, 1980, the petitioner family filed its return declaring a net wealth of the Rs. 7,86,700. The petitioner valued the unquoted shares on the basis of the yield method. In the course of the assessment proceedings for the said assessment year, the petitioner family made statements in regard to the valuation and audited accounts of the companies in which the petitioner held unquoted shares. The contention of the petitioner before the Assessing Officer was that the market value of the said unquoted shares should be determined on the basis of the yield method as accepted by the Central Board of Direct Taxes in its Circular dated March 31, 1992, and the principles laid down by the Supreme Court in the case of CGT v. Smt. Kusumben D. Mahadevia (1980) 122 ITR 38 and another decision of the Supreme Court in the case of CWT v. Mahadeo Jalan [1972] 86 ITR 621. The petitioner-family filed a revised valuation on the basis of the yield method before the Assessing Officer. By an order of assessment dated February 21, 1985, made under Section 16(3) of the said Act, the Wealth-tax Officer computed the value of the unquoted shares on the basis of the break-up method under Rule 1D of the Rules. The Wealth-tax Officer was of the view that the Circular of the Central Board of Direct Taxes applies only to investment companies and not to manufacturing companies and the break-up method as per Rule 1D of the Wealth-tax Rules, 1957, had to be applied in determining the valuation of the unquoted shares.

3. THE petitioner-family preferred an appeal before the Appellate Assistant Commissioner. THE Appellate Assistant Commissioner was of the view that the application of the break-up method in valuing the shares of a non-investment company in a running condition was directly under Section 7(1) of the said Act. He, therefore, directed the Wealth-tax Officer to value the said unquoted shares on yield basis as per the registered valuer's report and there were no special circumstances for the application of Rule 1D.

4. BEING aggrieved by the said order of the Appellate Assistant Commissioner, the Revenue preferred an appeal before the Income-tax Appellate Tribunal. The Income tax Appellate Tribunal held that the valuation shown by the assessee on the basis of the registered valuer's report on yield basis should be accepted and that the same was rightly upheld by the Appellate Assistant Commissioner. At the instance of the Revenue, the Income tax Appellate Tribunal drew up a case under Section 27(1) of the said Act of 1957, referring the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the market value of unquoted equity shares of the companies which were not investment companies or managing agency companies should be determined on yield basis and not in accordance with Rule 1D of the Wealth-tax Rules, 1957?"

When the said reference came up for hearing, it was submitted that, since the vires of Rule 1D cannot be gone in