SHARBATI DEVI JHALANI Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) The question which arises for consideration in this, and in the connected wilt petitions, is with regard to the manner of valuation of the unquoted equity shares of companies, other than investment companies and managing agency companies, for the purposes of the Wealth tax Act. 1957.

(2.) The petitioner is one of the share-holder of M/s. Gedore- Tools (I) Pvt. Ltd. (hereinafter referred to as 'the Company'). This Company belongs to, what is known as "Jhalani Group". In respect of the assessment year 1979-80, with which the present writ petition is concerned, the petitioner had filed her return of wealth tax. In the said retorn the value of the shares of the Company was shown at Rs. 232.48P. per share, the face value of each share being Rs. 100. This valuation had been made in accordance with Rule 1-D of the Wealth Tax Rules and a certificate of a Registered Valuer was enclosed therewith. The petitioner held 9800 equity shares of the said Company and the total value of the shares so disclosed in the return was Rs. 22,78,304.

(3.) Before the wealth tax assessment was made, the petitioner filed a revised return. In the said revised return the petitioner valued the shares of the aforesaid Company at Rs. 120 per share. The total value of 9800 shares of the Company which was now disclosed thus came to Rs. 11,76,000. This revised valuation was supported by the valuation done by the Registered Valuers, M/s. Khandelwal & Co., Charatered Accountants. In its report the Registered Valuers stated that the Supreme Court held in the case of Commissioner of Gift-Tax, Bombay vs. Smt. Kusumben D. Mahadevia (1980) 122 I.T.R. 38(1) that in the case of a company which is a going concern whose shares are not quoted at the Stock Exchange profits which the Company has been making and should be capable of making or in other words the profit capacity of the company would ordinarily determine the value of its shares. According to the Registered Valuers the proper course to be adopted, therefore, was values of the shares on the basis of the yield method and not by applying Rule 1-D which prescribed the method of values, the shares by what is known as Break-up method.