TMI Blog1993 (2) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Wealth-tax Rules, 1957 (for short, "the Rules"). The relevant valuation date is December 31, 1976. The assessee is an individual owning wealth including equity and preference shares in three public limited companies, namely, Messrs. Moheema Ltd., Messrs. Sonai River Tea Company Ltd., and Messrs. Numburnadi Tea Company Ltd. The assessee claimed that shares of these companies are quoted on the Calcutta Stock Exchange and he showed in the return the market value of the shares at what, according to him, are the prevailing rates quoted on the stock exchange. The Wealth-tax Officer found that Messrs. Moheema Ltd. is subsidiary of another private limited company by name Messrs. Sookerating Tea Co. Ltd., which is holding 96 per cent. of the equity shares of Messrs. Moheema Ltd., and the majority of the remaining four per cent. shares were held by the members of the Saharia family group and that the holding company is controlled and managed by the Saharia family. He found that 80 per cent. of shares of Messrs. Sonai River Tea Co. Ltd. and Messrs. Numburnadi Tea Company Ltd. were held by the members of the Saharia family in their own names or in the name of the bank as security. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pril 30, 1976, and the first transaction in the shares after the valuation date was on March 12, 1978. The two dates in the case of shares of Messrs. Numburnadi Tea Co. Ltd. are December 3, 1976, and January 22, 1977, respectively. It is admitted by the assessee that there were no other transactions at the stock exchange in regard to these shares. It was by considering these circumstances that the Tribunal held that the shares of the three companies cannot be said to be "regularly quoted" in the absence of regular transactions. According to learned counsel for the assessee, even if there are no regular transactions, prices of shares will be regularly quoted at the stock exchange with reference to the price fetched at the last transaction and, therefore, for shares of a company to be regarded as regularly quoted there need not be regular transactions and even if there was only a solitary transaction or there were only isolated transactions, the shares of the company must be regarded as regularly quoted. In CWT v. Mahadeo Jalan [1972] 86 ITR 621, the Supreme Court considered various methods of valuation of shares. The company concerned in the case was a private limited company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation is March 31, 1968, it will not be a quoted share as implied by the definition under the said clause but it will be an 'unquoted share' as therein defined in the absence of regular quotation of regular transactions." (emphasis supplied). We are inclined to agree with the view expressed by Datta J., which is strengthened by the observations of the Supreme Court. The quotation at the stock exchange for the share of any company need not necessarily reflect the transactions on the day. It may reflect the price fetched at the last transaction, which may have been a few days, weeks, months or years earlier. Net wealth has to be valued for the purpose of the Act as on the valuation date, namely, the last day of the previous year as defined in section 3 of the Income-tax Act, 1961, that is, December 31 of the previous year. Necessarily, the valuation must reflect the position as on the valuation date and if that is not practicable, as on a date within reasonable proximity to the date of valuation. It is only this idea which is reflected in the words "the value of which is regularly quoted" in rule 1A(1) of the Rules. When there has been only a solitary transaction or when there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay, Delhi, Karnataka and Madras have held rule 1D of the Rules to be directory while the High Courts of Allahabad, Calcutta and Kerala have taken the contrary view. See Smt. Kusumben D. Mahadevia v. CWT [1980] 124 ITR 799 (Bom), Sharbati Devi Jhalani v. CWT [1986] 159 ITR 549 (Delhi), CWT v. R. K. Gupta [1990] 183 ITR 640 (Delhi), Dr. D. Renuka v. CWT [1989] 175 ITR 615 (AP), CWT v. S. Jindal [1992] 194 ITR 539 (Kar), K. M. Mammen v. WTO [1983] 139 ITR 357 (Mad), CWT v. Laxmipat Singhania [1978] 111 ITR 272 (All), CWT v. Padampat Singhania [1979] 117 ITR 443 (All), CWT v. Mamman Varghese [1983] 139 ITR 351 (Ker), Mrs. Grace Collis v. CWT [1988] 172 ITR 597 (Ker) and CWT v. India Exchange Traders' Association [1992] 197 ITR 356 (Cal). We will examine the matter independently before dealing with the reasoning in the above decisions. The Act is to provide for levy of wealth-tax. Section 3 is the charging section by which tax is leviable in respect of net wealth on the corresponding valuation date at the rates specified in Schedule 1. Section 4 contains an inclusive definition of net wealth. Section 5 deals with exemptions in regard to certain assets and section 6 deals with exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Rules 1C and 1D were introduced by the Wealth-tax (Amendment) Rules, 1967, with effect from October 6, 1967. Rule 1C indicates the manner in which the market value of unquoted preference shares is to be determined. Rule 1D lays down the manner in which the market value of unquoted equity shares of companies other than investment companies and managing agency companies is to be determined. It is unnecessary to refer to the exact formula laid down in rule 1D. It is sufficient to indicate that the formula is a variant of the breakup method. In laying down the formula, rule 1D states as follows : "The market value of an unquoted equity share of any company other than an investment company or a managing agency company, shall be determined as follows :-" (emphasis supplied). While the expression "shall" need not always be indicative of the mandatory nature of a provision and the word "may" need not always be indicative of its directory nature, ordinarily the word "shall" may be taken to be indicative of the intention of the Legislature or the rule-making authority to make the provision mandatory. The intention has to be gathered on the basis of the general purpose of the statute, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e valuation is not excessive by prescribing a percentage of the break-up value as the market value. We will now advert to the contention that rule 1D of the Rules is in conflict with the decision of the Supreme Court in Mahadeo Jalan's case [1972] 86 ITR 621 and hence the rule should not be held to be mandatory. Rules made under a statute must be treated for all purposes of construction or obligation exactly as if they are in the Act and are to be of the same effect as if contained in the Act, and are to be judicially noticed for all purposes of construction or obligation. See State of U. P. V. Babu Ram Upadhya, AIR 1961 SC 751, at paragraph 23. A rule and statutory provision must be harmoniously construed and in case of conflict, the rule must give way to the statutory provision. A statutory rule, while even subordinate to the parent statute, is, otherwise, to be treated as part of the statute and as effective. See State of Tamil Nadu v. Hind Stone, AIR 1981 SC 711, at paragraph 11. This is the ordinary principle relating to subordinate legislation. However, this principle may not be apposite in the present case in view of the language used in section 7(1) of the Act. Section 7( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Supreme Court as laying down any rigid formula. The conclusion or rules formulated by the Supreme Court in a case relating to a period prior to incorporation of rule ID of the Rules are rules of general or ordinary application and cannot affect the power of the Legislature or the rule-making authority to prescribe any particular method with reference to a particular kind of asset. It is also not correct to assume that rule ID of the Rules follows in its entirety the break-up method. It prescribes modified form of the break-up method. Sub-section(1) of section 46 empowers the rule-making authority to make rules for carrying out the purposes of the Act. Sub-section (2)(a) provides that : "(2) In particular, and without prejudice to the generality of the foregoing power, rules made under this section may provide for (a) the manner in which the market value of any asset may be determined;" It is pointed out that section 46(2)(a) uses the word "may" while some of the other clauses in section 46(2) use the word "shall", and hence the rule-making authority cannot make a rule mandating the Wealth-tax Officer to adopt a particular method of valuation. This reasoning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section. On receipt of the order, the Wealthtax Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer. It is argued that rule 1D of the Rules applies only to valuation by the Wealth-tax Officer and not to that by the Valuation Officer and if a reference is made, the Valuation Officer is not bound to follow rule 1D of the Rules and, therefore, this would lead to an anomalous situation. Assuming and without deciding that the Valuation Officer is not bound by rule 1D of the Rules, it would only mean that the Wealth-tax Officer has to follow the order of the Valuation Officer. There is no provision in the Act to the effect that the appellate authorities are bound to pass orders in conformity with the estimate of the Valuation Officer. Section 24(6) has been repealed and does not require consideration. It is also argued that the break-up method in relation to companies which are going concerns is unrelated to realities and is unjust. We need only point out that no attempt has been made to justify this contention with reference to any fact situation. We may also refer ..... 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