TMI Blog1990 (12) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... hartered Accountants. According to their report, the value of the shares of Amalgamations Ltd. is nil. Even so, along with the return of wealth filed by them the assessees had filed a statement valuing the said shares on the basis of the Instructions contained in the CBDT Circular No. 118(F.No. 319/16/73-WT) dated 15-9-1973. According to the said statement, the value of each share came to Rs. 61.53. 4. The Assessing Officer did not accept the nil value placed on the shares by the firm of Chartered Accountants. He also took the line that the shares needed to be valued not on the basis of Circular No. 118 of 15-9-1973, but on the basis of the CBDT Circular No. 332-A (F.No. 326/2/80/WT) dated 31-3-1982. This was because Circular No. 332-A of 31-3-1982 replaced not only Circular No. 118 of 15-9-1973, but also Circular No. 2(WT) of 1967 dated 31-10-1967. On this basis, he valued the shares of Amalgamations Ltd. at Rs. 451.25 each. 5. The manner in which he valued the said shares at the said figure may briefly be noted. He first computed the aggregate of the average maintainable profits of both the parent investment company and its subsidiaries at Rs. 15,99,889. He capitalised the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a single entity, the dividends declared by the subsidiary companies must be excluded from the average maintainable profits of the holding company. Otherwise, contended Shri Ramamani, there will be a case of double addition. 10. The second limb of Shri Ramamani's argument was that the Assessing Officer was not justified in adding a 10 per cent premium to the capitalised value of the aggregate average maintainable profits. Shri Ramamani drew our attention to the fact that para 3 of Circular No. 2 (WT) of 1967, which deals with the valuation of unquoted equity shares of investment companies which are substantially holding companies, a 10 per cent premium was to be added. Paragraph-3 of Circular No. 118 of 15-9-1973, however, clarified that paragraph-3 of Circular No. 2 (WT) of 1967 will not apply in case of valuation of shares of a parent investment company, which has a wholly owned subsidiary-company. Further, Circular No. 332-A of 31-3-1982 did not amend or alter the situation. 11. In the case before us, Amalgamations Ltd. had as many as five wholly owned subsidiaries and, hence, there was no case for adding a 10% premium to the aggregate average maintainable profits. 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation rate is not known. In any event, that Act is a separate statute and it is not necessary to draw inspiration therefrom. 18. Similarly, there is no need to give any discount at all towards the so-called non-declaration of dividends. Here again there is no need to travel beyond the Circular. 19. As regards the contention that bulk holding of shares meant that the share price will go down, the learned Departmental Representative contended that it need not necessarily to be so. For a fact, bulk holding may mean a higher price also. 20. In view of the foregoing, contended the learned Departmental Representative, the impugned order of the CIT(A) does not invite any interference on this issue. 21. In his reply, Shri Ramamani, contended that in the past intercorporate dividends were excluded while valuing the shares in question. In any event, the integration of the holding company and its subsidiaries for purposes of valuing the shares logically necessitated the exclusion of such dividends. 22. We have looked into the facts of the case. We have considered the rival submissions. 23. Under the scheme of the Wealth-tax Act, 1957, taxable assets other than cash will have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the settled principles. For this purpose the valuation should take into account the complete enterprise. That is to say, both the parent investment company and its wholly owned subsidiary or subsidiaries must be treated as one company. (2) The value of the shares of the parent company must be determined first on the basis of the integrated balance-sheet of the parent-company and its subsidiaries. (3) The maintainable profits of the parent investment company and its wholly owned subsidiary or subsidiaries must be arrived at on the basis of the principles laid down in Circular No. 2(WT) of 1967. The average maintainable profits thus arrived at must be aggregated. Thereafter, the average aggregate maintainable profits will have to be capitalised at 9%. (4) The average of the values arrived at (2) and (3) would determine the price which the shares of the parent investment company would fetch if sold in the open market on the valuation date. Paragraph - 3 of the said Circular made it clear that no addition need be made on account of premium in case of valuation of shares of a parent investment companies which has a wholly owned subsidiary. 27. Meanwhile, the question w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of shares arrived at by capitalising average maintainable profits. 31. Para 6 of the Circular stipulated that the valuation of unquoted equity shares of an investment company which has a wholly owned subsidiary should be worked out on the basis that the parent investment company and the wholly owned subsidiary or subsidiaries were, in fact, one single company. For this purpose the guidelines contained in Circular No. 118 of 15-9-1973 were to be followed. The rate of capitalisation was to be 10% in the case of investment companies other than those that derive a major part of their income from house property. 32. Shri Ramamani, the learned counsel for the assessee, it may be recalled, made four points, namely :-- (1) Dividends declared by the subsidiary companies and received by the parent company will have to be executed for the purpose of working out the average maintainable profits of the parent company ; (2) There was no need to add a premium of 10%. (3) Rate of capitalisation must be 15% and not 10% ; and (4) Discount must be given for factors such as non-declaration of dividend by the holding company, bulk holding of the shares by the assessees etc. It may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest in the company. Simply because they had chosen not to declare dividends, it cannot follow that a discount should be given on that count. 37. Similarly, bulk holding of unquoted shares need not invariably go to depress the value of the shares. It should not be forgotten that, in cases of the type under consideration, where the shares are not quoted in the market, their sale can only be through private treaty, by negotiated settlement. Hence, the price determined under such private treaty or negotiated settlement will essentially be a matter of contract. The price agreed upon may be higher. 38. In the recent past we have come across instances of sale of even quoted shares through private treaty, by negotiated settlement. The instances, which naturally received their share of publicity, go to show that, if anything, the prices agreed upon were generally higher. 39. In view of the foregoing, therefore, we reject the claim in question. 40. We may now take up the assessee's claims which are within the framework of this Circular. The first claim is that, while calculating the average maintainable profits of the parent-company the dividend declared by the subsidiaries and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt company and its subsidiaries as one single unit will mean nothing more than that the average profit of the single unit cannot be higher than Rs. 14,00,000. To say that the average profit is Rs. 19,00,000 is to give a distorted picture of the matter. If the picture is not to be distorted, the average profits of the parent company of Rs. 5,00,000 must be deducted from the aggregate average profits of Rs. 19,00,000. 42. We are convinced that the absence in the Circular of any reference to the aforesaid adjustment is not conclusive of the matter. Further, no inference can be drawn, one way or the other, by the fact that the Circular contemplates an adjustment in respect of the profits required for paying dividend on shares with prior rights, that is preference shares. All that the said stipulation means and implies is that an adjustment will necessarily have to be made on that count. However, there is no warrant to draw the inference, which the lower authorities have drawn, to the effect that since no specific adjustment is mentioned as regards the dividends received by the parent company from the subsidiary companies, no adjustment is either necessary or warranted by the scheme a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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