BHARAT HARI SINGHANIA AND ORS. ETC. ETC. versus COMMISSIONER OF WEALTH TAX (CENTRAL) AND ORS.

Citation: [1994] 1 S.C.R. 1033 · Decided: 16-02-1994 · Supreme Court of India · Bench: S.C. AGRAWAL

Cited by 2 judgment(s) · cites 2 · see the full citation network in Lexace

Judgment (excerpt)

-I 
BHARAT HARi SINGHANIA AND ORS. ETC. ETC. 
A 
v. 
-A. 
COMMISSIONER OF WEALTH TAX (CENTRAL) AND ORS. 
1-D. 
FEBRUARY 16, 1994 
[S.C. AGRAWAL, B.P. JEEVAN REDDY AND 
AS. ANAND, JJ.] 
Wealth TaxAct, 1957/Wealth Tax Rules: Sections 2, 3, 7 and 24(6)/Rule 
Unquoted equity shares of companies other than investment companies 
B 
c 
. and managi,ng agency companies-Detemiination of market value-Break-up 
method fomiula-Validity of-Rule 1 ( d) and Explanation I thereto-Perfectly 
valid piece of delegated legi,slation-Not in conflict with Section 24(6) of the 
Act-Rule being mandatory or directory does not arise-No deduction on 
account of capital gains tax payable in case the shares were sold on the D 
valuation date-Assessee holding shares in company whose assets comprise 
of .igricultural land wholly or partly-Not entitled to exclude such shares from 
his wealth. 
Rule 1-D of the Wealth Tax Rules prescribed the formula for deter-
E 
mining the market value of unquoted shares of a company. A'i per the 
formula, all the liabilities from all the assets shown in the balance-sheet 
have to be deducted; the net amount so arrived at has to be divided by 
total amount of paid up equity share capital; the amount thus arrived at 
to be multiplied by the paid up value of each equity share and the value 
so arrived at is called the break-up value of the share and 85% of such 
break-up value is to be treated as the market value of the share. 
In the present Writ Petition and appeals, the adoption of the above-
said formula was challenged, giving rise to the following questions: 
F 
G 
(1) Whether it is obligatory to follow Rule 1-D while valuing the 
unquoted equity shares of companies (other than investment companies 
and managing agency com1ranies) or is it merely optional? 
· (2) Whether the valuatfon officer is bound by Rule 1-D when valuing 
the unquoted equity shares of the companies? 
H 
1033 
1034 
SUPREME COURT REPORTS 
(1994) 1 S.C.R. 
A 
(3) Whether the application of the break-up method in Rule 1-D 
B 
c 
D 
E 
F 
G 
H 
means that the capital gains-tax, which would be payable in case the said 
shares are sold on the valuation date, is liable to be deducted from the 
market value determined? 
( 4) Where the date of a balance-sheet of the company is earlier to 
the valuation date of the assessee, is it obligatory to follow Rule l·D? (The 
same question arose where in the absence of such a balance-sheet, the 
balance-sheet drawn up on a date immediately following the valuation date 
is taken as the basis). 
(5) How are sub-clauses (a) of clause (i) and (e) of clause (ii) of 
Explanation-II to Rule 1-D to be read and understood? 
(6) Whether the assessee holding shares in a company whose assets 
comprise wholly of Tea Estates is entitled to exclude such shares from his 
wealth? 
Upholding the validity of Rule 1-D and answering the questions in 
favour of the Revenue, this Court 
HELD: (On questions 1 and 2): 
1.1. Rule 1-D of the Wealth Tax Rules is perfectly valid and effective. 
The Rule bas to be followed in every case where unquoted equity shares of 
a company (other than investment company or a managing agency com· 
pany) have to be valued. All the authorities under the Act including the 
valuation officer are bound by the said Rule. The question of the Rule being 
mandatory or directory does not arise. [1068-B) 
1.2. Section 7(1) of the Wealth Tax Act, 1957 defines the expression 
"value of an asset." It is "the price which in the opinion of the Wealth Tax 
Officer it would fetch if sold in the open market on the valuation date", but 
this is made expressly subject to the Rules made in that behalf •. No 
guidance is furnished by the Act to the rule-making authority except to say 
that the Rule made ~ust lead to "ascertainment of the value of the asset 
(unquoted equity share) as defined in Section 7. It is thus left to the 
rule-making authority to prescribe an appropriate method for the pur-
pose. Now, there may be several methods of valuing an asset or for that 
method an unquoted equity share. The rule-making authority cannot 
obviOusly prescribe all of them together. It bas to choose one of them which 
,J.,_ 
~ 
).... 
B.H. SINGHANIA v. C.W.T. 
1035 
according to it is more appropriate like the one in this case viz. the A 
break-up method, which is undoubtedly one of the recognised methods of 
valuing unquoted equity shares. Even if it is assumed that there was 
another method available which was more appropriate, 

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