Rule ID of the Wealth Tax Rules, 1957 is mandatory and prevails over section 7(1) of the Wealth Tax Act, 1957 in valuing unquoted equity shares.

The following questions have been referred by the Appellate Tribunal under section 27 (1) of the Wealth Tax Act, 1957 (for short, the Act) at the instance of the Revenue :

(i) Whether on the facts and in the circumstances of the case, the Tribunal was justified in treating the shares of M/s Moheema Ltd., M/s Sonai River Tea Co. Ltd. and M/s Numburnadi Tea Company Ltd. as unquoted shares within the meaning of Rule 1A (1) of the Wealth Tax Rules, 1957 though they had been quoted at the Calcutta Stock Exchange ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Rule ID of the Wealth-tax Rules must prevail over section 7(1) of the Wealth Tax Act, in valuing unquoted equity shares ?

2. The reference relates to the assessment of wealth tax year 1977-78 under the Wealth Tax Act, 1957 (for short, the Act) and the Wealth Tax Rules, 1957 (for short, the Rules). The relevant valuation date is 31.12.1976. The assessee is an individual owning wealth including equity and preference shares in three public limited companies, namely, M/s Moheema Ltd., M/s Sonai River Tea Company Ltd. and M/s Numburnadi Tea Company Ltd. The assessee claimed that shares of these companies are quoted at the Calcutta Stock Exchange and showed in the return the market value of the shares at what according to him are the prevailing rates quoted at the stock exchange. The Wealth Tax Officer (WTO) found that M/s Moheema Ltd. is a subsidiary of another private limited company, by name M/s Sookerating Tea Co Ltd., which is holding 96% of the equity shares of M/s Moheema Ltd. and majority of the remaining 4% shares were held by members of Saharia family group and that the holding company is controlled and managed by Saharia family. He found that 80% of shares of M/s Sonai River Tea Co. Ltd and M/s Numburnadi Tea Company Ltd. were held by members of the Saharia family in their own names or in the name of the Bank as security. He found that there had been no transaction in the stock exchange within two years prior to the valuation date in the shares of M/s Moheema Ltd, within one year prior to the valuation date in shares of M/s Sonai River Tea Company Ltd. and shares of M/s Numburnadi Tea Company Limited. He also found that in the present distribution of shares, the shares of the three companies are not eligible for listing at any stock exchange and the companies have not complied with the listing conditions and the provisions of the Securities Contract (Regulation) Rules, 1957 and thereby rendered themselves liable for delisting. He therefore held the shares to be 'unquoted shares' within the meaning of Rule 1A (1) of the Wealth Tax Rules, 1957 (for short, the Rules) and valued the shares under Rule ID of the Rules on the break up value.

3. In appeal, the Appellate Assistant Commissioner (AAC) reversed this decision and held that the shares must be valued at the rates quoted in the stock exchange. In appeal at the instance of the Revenue, the Tribunal restored the decision of the WTO on the ground that the shares were not regularly quoted in any st ock exchange.

4. Question No. (i) : Rule 1A(1) defines' unquoted share' thus :

"(1) 'unquoted share' means an equity share or a preference share of a company other than any such share the value of which is regularly quoted at any recognised stock exchange; "

The emphasis appears to be on the words 'the value of which is regularly quoted.'' If the value of shares of a company is regularly quoted at the stock exchange, ordinarily the quoted price shall be the basis for valuation for the purpose of the Act and the Rules. Rule 1C prescribes how the market value of unquoted preference shares is to be assessed. Rule ID lays down how market value of unquoted equity shares of companies other than investment companies and managing agency companies is to be determined.

5. The three companies are public limited companies. According to the assessee, the shares of these co