TMI Blog1989 (11) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... (I.T. Payers) Act, 1974 had not been considered in that case, the W.T.O. held that, as provided in that section, the amount of compulsory deposit should be deemed to be a deposit with a banking company to which the Banking Company Regulation Act, 1949 applies. In this view of the matter, therefore, rejecting the assessees' claim for exemption, the W.T.O. brought the sums in question to tax. 4. The assessees were unsuccessful before the C.W.T.(Appeals), who noted, inter alia, that the Nagpur Bench of the I.T.A.T. had decided the issue in favour of the Department vide order dated 27-1-1988 in W.T.A. Nos. 36(Nag)/86 and batch. He, therefore, declined to interfere in the matter. 5. Shri Trivedi fairly conceded that this matter stood decided against the assessees by the aforesaid order of the I.T.A.T.and did not seriously press this issue. 6. On his part, Shri V.G. Nair, the learned Departmental Representative, strongly supported the impugned orders of the C.W.T.(Appeals) on this issue. 7. We have looked into the facts of the case. We have perused the I.T. A.T.'s order dt. 27-1-1988 referred to supra. We are in full agreement with the decision of the I.T.A.T. on this issue. We t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , because he found that in respect of the shares of the Bajaj Auto Ltd. there was negligible difference between the closing quotation on 28-3-1985 (Rs. 1,160) and the opening quotation of 1-4-1985 (Rs. 1,165) on the Bombay Stock Exchange. As regards the shares of Bajaj Tempo Ltd. there was no difference at all in the closing and the opening quotations on the said dates on the Bombay Stock Exchange. 12. In view of the foregoing, therefore, the W.T.O. applied Bombay quotations throughout. 13. The assessees took up the matter in appeal before the C.W.T(Appeals). The arguments which the assessees had unsuccessfully advanced before the W.T.O. were reiterated. It was further contended that, as respects the assessment for the assessment year 1986-87, ex-bonus quotation was available at the Poona Stock Exchange for the shares of Bajaj Tempo Ltd. On the Bombay Stock Exchange, on the contrary, the shares were quoted-cum-bonus. Hence the W.T.O. was not justified in adopting the cum-bonus Bombay quotation for the purpose of valuing the shares in question, even though he had made necessary adjustment in the cum-bonus quotation, taking into account the ratio in which the bonus shares were is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower quotation must be adopted. What is necessary is to see that the quotation provides a better approximation to the correct value of the shares. (ix) The contention that the Bombay Stock Exchange is highly speculative cannot be accepted because there is not enough data to arrive at such a conclusion. 16. In view of the foregoing, therefore, the C.W.T.(Appeals) declined to interfere in the matter. 17. Shri Y.P. Trivedi, the learned Counsel for the assessees contended that the lower authorities were not justified in adopting Bombay quotations for valuing the shares in question. According to him, the as have consistently been following Poona quotations. True, in the assessment years prior to the assessment year 1985-86, Bombay quotations were adopted ; but that was because, at that point of time, a recognised stock exchange had not come into existence at Poona. The moment a recognised stock exchange started functioning at Poona, the assessees switched over to Poona quotations and were consistently adopting the same. 18. Secondly, the bona fides of the assessees are borne out by the fact that Poona quotations were adopted even though they were higher than the Bombay quotati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a market for quoted shares, a recognised Stock Exchange readily suggests itself. True, conceptually speaking, the Stock Exchange is not the only possible market even for quoted shares. This is because the possibility of even quoted shares being sold through private treaty or negotiation cannot be ruled out. For a fact, in the recent past, we have witnessed more than one instance of sale of quoted shares by private treaty, by negotiated settlement. Viewed thus, the open market would be wider than those who by through the Stock Exchange. Even so, the Stock Exchange is the best market for quoted shares. 26. Now, the answer to the second question is readily supplied by the answer to the first question. Once it is found that the Stock Exchange is the best market for quoted shares, it should logically follow that the prices quoted on the Stock Exchange are proper measure of the price which the share would fetch on sale in the open market. 27. There is of course a significant exception to the above proposition, and that is that where, in consequence of special circumstances, the prices so quoted are by themselves not a proper measure of the price which the shares might reasonably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recite the words of sub-section (1), must in general be assessed by reference to the quotations to be found in the Stock Exchange official Daily List of the relevant date or to the recorded prices for bargains done on that date. It is to be observed that the quotations on no other stock exchange were given a parallel ranking by the statute. The provisions of sub-section (3) plainly stem from the experience gained over many years of the practice that has matured in regard to calculations made for the purposes of assessing estate duties. Thus this obligatory method of measurement imposed by this sub-section must be taken to have been selected in full knowledge of both the advantages and disadvantages inherent in the bargaining process that prevail on the London Stock Exchange. In essence the legislature took that market as it found it. " 31. The aforesaid observations highlight the fact that the prices quoted on recognised Stock Exchanges are the proper measure of the value of quoted shares. 32. It is noteworthy that Rule 9 of Part C of the newly introduced Schedule III to the Wealth-tax Act, 1957, has recognised the fact that the prices quoted on a recognised Stock Exchange i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is quoted as on the valuation date (for example, when the Exchange is closed for business for that day), the price on a date nearest to the valuation date may be adopted. " It will be readily seen that the said guidelines will help only if the holder of the shares is assessed to tax, in the example given, either in the State of Maharashtra or in Delhi. 36. If, on the contrary, the assessee in question is assessed to tax in some other State, the choice between the two Stock Exchanges will depend upon whether the State of Maharashtra or Delhi happens to be nearer the State in which the assessee is assessed to tax. 37. Situation 2 : Let us assume that the assessee is assessed to tax in the State of Tamil Nadu ; that the equity shares held by him are quoted on the Calcutta and the Bangalore Stock Exchanges ; that no quotations are available on the valuation date on (31-3-85, say) on both the Exchanges ; that the quotation of the Bangalore Stock Exchange relates to 20-2-85 while that of the Calcutta Stock Exchange relates to 15-3-85 ; and that the Calcutta quotation which is more proximate to the valuation date is lower than the Bangalore quotation. The question that arises is : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge. In this connection, we consider that while applying the principle of consistency, considerations of balance of convenience will tilt the scale in favour of the assessees. This is one reason why we are inclined to hold that there is no need to disturb the valuation made by the assessees by adopting Poona quotations. 43. There is also the further fact that the bona fides of the assessees are borne out by the fact that they had adopted Poona quotations even when they were higher than Bombay quotations. Again, the availability of quotations on a date more proximate to the valuation date, and the availability of ex-bonus quotations on Poona Stock Exchange are the factors which go in favour of the assessees. 44. In this connection, we may add that at no stage of the proceedings before the lower authorities, there was any suggestion that the Poona quotations are unreliable because they had been manipulated. 45. In view of the foregoing, therefore, we do not consider that the lower authorities were justified in substituting Bombay quotations for Poona quotations for the purpose of valuing the shares in question. 46. Before taking leave of this matter, we may deal with some of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .V. Pratap v. CWT [1987] 34 Taxman 406/[1988] 170 ITR 461 to the effect that " it is not necessary that out of the two valuations, the Department is always bound to accept the lower valuation ". This was also the view taken by the Karnataka High Court in the case of V.C. Ramachandran v. CWT [1980] 126 ITR 157. 51. The C.W.T.(Appeals), we fear, has missed the significant point that, in both the cases referred to above, the Courts were concerned with the valuation of immovable property. In the very nature of the thing, valuation of immovable property entails the estimaing of its value. This will be clear from the fact that section 7 of the Wealth-tax Act itself talks of estimated price. 52. The value of immovable property is generally estimnated by adopting more than one method of valuation, which of the results will provide a proper measure of the value of the property will depend only on the fact whether the result obtained by a particular method represents a reasonable approximation to the value of the property. Thus viewed nothing turns on the fact whether the valuation is higher or lower. In a particular case, higher valuation may justifiably be adopted, if that valuation re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of the assessees on the decision of the Gujarat High Court in the case of CWT v. Ashok K. Parikh [1981] 129 ITR 46. On his part, the W.T.O. relying on the decision of the Punjab and Haryana High Court in the case of Ashok Kumar Oswal (Minor) v. CWT [1984] 148 ITR 620/18 Taxman 214 and that of the Karnataka High Court in the case of CWT v. N. Krishnan [1986] 162 ITR 309/24 Taxman 269, took into account the net provision for taxation, that is to say, after reducing the gross provision for taxation by the advance tax paid. 59. It may here be mentioned that the W.T.O. took the same line as respects the valuation of certain unquoted equity shares held by the assessees. 60. Predictably, the assessees took up both the issues before the C.W.T.(Appeals). 61. On the matter of valuation of unquoted equity shares under Rule 1D of the Wealth-tax Rules, the C.W.T.(Appeals), relying on the latest judgment of the Bombay High Court in the case of CWT v. Pratap Bhogilal [1987] 167 ITR 501/32 Taxman 438 allowed the assessees' claim. 62. However, while dealing with the same point in the context of valuing the assessees' interests in the partnership firms/A.O.Ps., the C.W.T.(Appeals) took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther than taxation shall be treated as a reserve ". 68. Now, the distinction between 'reserve' and 'provision' is well known. Even so, for purpose of rule 2E, provision for any purpose other than taxation shall be treated as a reserve, and, on that basis, left out of reckoning. Provision for taxation, on the contrary, will continue to be treated as such and included in the liabilities of the firm/association of persons. The said treatment is not subject to any stipulation or rider. 69. Now, the lower authorities say that the provision for taxation actually made in the books of account of the firm/association of persons should not be taken into account. According to them, what should be taken into account is the provision for taxation actually made as reduced by the advance tax paid which figures on the asset side of the balance-sheet. 70. We are able to see their point of view. Advance tax paid, though figuring on the assets side of the balance-sheet is to be left out of reckoning, as laid down in rule 2D(a). Consequently, the net wealth of the firm/association of persons will to that extent go down. In such circumstances, to treat as a liability the entirety of the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be deducted from the gross provision for taxation. In this connection, the Court observed : " If advance tax paid is shown as an asset, the provision for taxation has, of necessity, to be of gross tax payable with reference to the book profits. Hence for the purpose of determining excess of provision for taxation over the tax payable with reference to book profits in terms of Explanation II(ii)(e) to rule 1D, the tax payable with reference to book profits cannot be reduced by the amount of advance tax paid. " 75. It is noteworthy that, the convoluted and hence confusing phraseology of Explanation II(ii)(e) to rule 1D notwithstanding, the Bombay High Court held that the provision for taxation actually made in the books of account in accordance with the tax payable on the book profits will have to be treated in its entirety as a liability, without reducing it by the amount of advance tax paid. Rule 2E, on the contrary, is singularly free from the obtuseness that characterises Explanation II(ii)(e) to rule 1D, and the clear provisions of the former do not contain anything to suggest even remotely that the provision for taxation actually made (" gross provision " in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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