COMMISSIONER OF WEALTH TAX Vs. BHOGILAL H PATEL

JUDGEMENT

(1.) CERTAIN common questions of law arising out of the assessment of three assessees, Pranlal B. Patel, Ichhaben Bhogilal Patel and Bhogilal H. Patel under the Wealth -tax Act, 1957, have been referred to this court in this reference made under section 27(3) of the Act. The questions of law in the case of each of the three assessees run as follows : In the case of Pranlal B. Patel : Assessment years 1957 -58, 1958 -59 & 1959 -60 :

(2.) THE note below the questions in the statement of case states that it was pointed out by the assessee's counsel that the figures of Rs. 21.85, Rs. 23.3 and Rs. 27.2 in the questions wherever they occur are to be altered to Rs. 19.08, Rs. 19.53 and Rs. 20.47 and this was in view of the A. A. C's allowance of certain deductions which the department had accepted.

(3.) IT appears that Bhogilal and Pranlal held certain shares in a private limited company called Renwick and Co (P.) Ltd. Ichhaben Bhogilal patel, it appeals, held shares of I.B. Model Farm Ltd. which in turn held shares in Renwick and Co. (P.) Ltd. The face value of the shares was Rs. 10 per share. Though, the company has its registered office at Calcutta, bulk of its business was in East Pakistan and a major portion of its profits also arose in East Pakistan. It further appears that for the relevant assessment years in question and for many years subsequent thereto the profits which arose in East Pakistan could not be remitted to India on account of restrictions imposed by the Pakistan authorities on such remittances and the company could not pay the declared dividends to its shareholders on account of such restrictions. In the wealth -tax assessment proceedings a question arose as to what would be the proper valuation of the shareholding of each of the assessees in the said company on the relevant valuation dates, for the assessment years in question, whether the face value of Rs. 10 per share could be taken to be the valuation of the shares as contended for by the assessee or whether the value arrived at by adopting the break -up value method should be taken as contended for by the revenue, and further whether the amounts represented by uncashed dividend warrants issued in the name of each of the assessees should be excluded from the net wealth computation of the assessees in the relevant assessment years inasmuch as no dividends were actually received by any of the assessees in their hands on the respective valuation dates or even thereafter, though the dividends had been declared by the company. On the first question, the Wealth -tax Officer, adopting the break -up value method, fixed the value of these shares at Rs. 21.85, Rs. 23.3 and Rs. 27.2 per share for the three assessment years, viz., 1957 -58, 1958 -59 and 1959 -60, respectively. In arriving at these figures he did not take into account the provision for income -tax in the sum of Rs. 4,44,000. When the matter was carried in appeal, it was contended on behalf of the assessee before the Appellate Assistant Commissioner that not only the provision for income -tax should be excluded from the reserves but the fact that there were considerable difficulties in the transfer of profits from Pakistan to India and in the payment of dividends for several years should also be taken into account in the evaluation of these shares, and that if the latter aspect was taken into account, the valuation fixed by the Wealth -tax Officer would be found to be on the high side, and the face value of the shares which was Rs. 10 per shares should be accepted as the basis for the proper evaluation. The Appellate Assistant Commissioner accepted the contentions urged on behalf of the assessee and in the first place directed the exclusion of provision for income -tax and wealth -tax but further directed the addition of the advance tax paid. As a result of this direction even if the break -up value method were to be adopted, the proper valuation to be fixed per share for the three respective years came to Rs. 19.08, Rs. 19.53 and Rs. 20.47 per share in those three years. However, he also accepted the assessees' contentions that the fact that the company was facing difficulties in the transfer of its funds from Pakistan to India and that it had not been able to do so for a number of years due to the restrictions imposed by the Pakistan Government was an important factor to be taken into account while evaluating the shares in question and in view of these facts which emerged clearly from the correspondence which was produced on record during the course of which unsuccessful attempts had been made by the company to obtain permission for remittance of its funds for the purpose of paying dividends to its shareholders, he took the view that the assessee's valuation of Rs. 10 per share would be the proper one. The department preferred appeals to the Tribunal and the department while conceding that adjustment had been properly made in respect of valuation for income -tax and wealth -tax, it was contended that difficulties in transfer of funds from Pakistan to India that were experienced by the company should not be taken into account in the evaluation of shares, that the said aspect was an irrelevant matter and that, therefore, the valuation of the shares at the rate of Rs. 10 per share adopted by the Appellate Assistant Commissioner was not correct. It was also urged that the Appellate Assistant Commissioner ought to have taken into consideration the rise in price of Rs. 32.12 for fixing the value. On behalf of the assessee it was urged that the Appellate Assistant Commissioner was justified in taking into account the aspects of restrictions that had been imposed by the Pakistan Government on remittances to be made to India, that on account of these restrictions the company was unable to pay dividends to its shareholders for several years and that, therefore, the valuation of the shares at Rs. 10 per share adopted by him was proper. The directors' reports for the years 1957 -58, 1958 -59 and 1959 -60, as well as the correspondence that was entered into by the company with the Pakistan authorities seeking permission to effect remittances to India, which permission was refused, were pressed into service by the assessee before the Tribunal to bring out the fact that to the assessees the yield of the shares in question was almost nil and, therefore, the shares should be nominally value at the face value of Rs. 10 per share as was done by the Appellate Assistant Commissioner. The Tribunal after taking into account the directors' reports and the correspondence touching the subject of restrictions on remittances that could not be made from Pakistan to India, held that these aspects were material aspects having regard to which the valuation put on the shares by the Appellate Assistant Commissioner was regarded as just and proper and in any case could not be regarded as unreasonably low as contended by the revenue.