CONTROLLER OF ESTATE DUTY v. S. M. ZAKI — 1988 DIGILAW 337 (CAL)

AJIT K. SENGUPTA, J. ( 1 ) AT the instance of the Controller of Estate Duty, West Bengal, the following question of law has been referred to this court under Section 64 (1) of the Estate Duty Act, 1953 :" Whether, on the facts and circumstances of the case, the method of valuation prescribed under Rule 1d of the Wealth-tax Rules, 1957, is to be applied for valuation of unquoted shares held by the deceased for the purpose of estate duty ?" ( 2 ) THE facts leading to this reference are that one Sk. Md. Naqui died on or about August 27, 1969. The deceased, at the time of death, held shares of M/s. Detinners Pvt. Ltd. , M/s. Metale Products Pvt. Ltd. and M/s. Bengal Cold Storage Pvt. Ltd. These were unquoted shares. The Assistant Controller, while valuating these shares on the break-up method had taken into account the value of the goodwill of these companies though not shown in the balance-sheets of the companies concerned. In this way, he valued the shares of (1) M/s. Detinners Pvt. Ltd. at Rs. 4,732 per share (2) M/s. Metale Products Pvt. Ltd. at Rs. 259. 20 per share and (3) M/s. Bengal Cold Storage Pvt. Ltd. at Rs. 73. 60 per share. ( 3 ) AGGRIEVED by the said action of the Assistant Controller, the assessee brought the matter by way of appeal before the Appellate Controller. On the strength of the decision of the Mysore High Court in CED v. J. Krishna Murthy [19741 96 ITR 87, the Appellate Controller held that there was no case for the Assistant Controller to add the value of the goodwill of the companies concerned to their respective assets to determine the value of each of these shares on break-up value method. He further held that Rule 1d of the Wealth-tax Rules, 1957, constitutes a sound basis for the valuation of unquoted shares in estate duty proceedings. He, accordingly, on the strength of the said Rule 1d, valued the said shares on the date of the death of the deceased at Rs. 2,354 per share in the case of M/s. Detinners Pvt. Ltd. , Rs. 162 per share in the case of M/s. Metale Products Pvt. Ltd. and Rs. 55. He, accordingly, on the strength of the said Rule 1d, valued the said shares on the date of the death of the deceased at Rs. 2,354 per share in the case of M/s. Detinners Pvt. Ltd. , Rs. 162 per share in the case of M/s. Metale Products Pvt. Ltd. and Rs. 55. 29 per share in the case of M/s. Bengal Cold Storage Pvt. Ltd. ( 4 ) THE Departmental Representative, on the strength of the decision of the Calcutta High Court in Controller of Estate Duty v. Biswanath Rungta [1968] 67 ITR 748 urged before the Tribunal that the Appellate Controller had erred in valuing the aforesaid shares by holding that the goodwill should not be added while valuing the shares of the three companies in question on break-up value method. ( 5 ) LEARNED counsel for the accountable person had relied on the order of the Appellate Controller on this point. The Tribunal gave consideration to the above arguments of the parties and upheld the order of the Appellate Controller of Estate Duty by observing as under :" It is an admitted position that these shares in question are not quoted in the stock exchange. Under Section 36 of the Estate Duty Act, 1953, the principal value of these shares has to be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open market at the time of the deceased's death. No rules are made under the 1953 Act, prescribing the manner in which the value of unquoted shares may be determined for the purpose of estate duty. As laid down by the Mysore High Court in the case of CED v. J. Krishna Murthy [1974] 96 ITR 87, which has been followed by the Appellate Controller in the absence of rules under the 1953 Act, valuation for purposes of the Act has to be made in accordance with well-recognised methods of valuation followed in India. This position has been accepted by the Assistant Controller because he has valued the shares in question on break-up value method. This position has been accepted by the Assistant Controller because he has valued the shares in question on break-up value method. As such, and as held by the Mysore High Court in the aforesaid decision, the method of valuation prescribed by Rule 1d of the Wealth-tax Rules, 1957, being the only statutorily recognised method of valuation of unquoted equity shares in this country, it would not be wrong to adopt that method of valuation for the purpose of estate duty also. The said rule can be looked into for the purposes of knowing the manner of breakup method of valuation which is one of the recognised methods of valuation. The Appellate Controller has, therefore, acted correctly in the matter. At this stage, the Assistant Controller cannot complain, when he has adopted the break-up method in valuation of these shares, to say, on the strength of the decision of the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621, that the break-up value method is not the correct method. We, therefore, in the facts and circumstances of the case, uphold the valuation of the shares in question as made by the Appellate Controller. " ( 6 ) ACCORDING to the Controller of Estate Duty, the following questions of law arise out of the aforesaid order of the Tribunal :" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the method of valuation prescribed under Rule 1d of the Wealth-tax Rules, 1957, is applicable for valuation of unquoted shares for the purpose of estate duty ignoring the provisions of Sections 36 and 37 of the Estate Duty Act, 1953 ? 2. When, for the Wealth-tax Act, valuation of unquoted shares has to be done in accordance with the Wealth-tax (Amendment ). Rules, 1967, taking the last published balance-sheet as the basis, whether the Tribunal is right in placing the same value for the purpose of estate duty assessment resulting in non-consideration of other items not covered by the Wealth-tax Rules going into the determination of the value of the shares for estate duty purposes ? Rules, 1967, taking the last published balance-sheet as the basis, whether the Tribunal is right in placing the same value for the purpose of estate duty assessment resulting in non-consideration of other items not covered by the Wealth-tax Rules going into the determination of the value of the shares for estate duty purposes ? " ( 7 ) THE Appellate Tribunal, after hearing both sides, declined to refer question No. 2 as it records nothing but an argument in support of the stand taken by the Revenue involved in question No. 1 and thus referred to this court only question No. 1 which we have already set out. ( 8 ) MR. A. C. Moitra, the learned advocate appearing for the Revenue, has submitted that the decision of the Mysore High Court in the case of CED v. J. Krishna Murthy [1974] 96 ITR 87 should be followed. We do not appreciate this submission. It is not known why the Controller of Estate Duty was aggrieved. The Appellate Controller, after following the decision in that case, held that the valuation of shares should be made in terms of Rule 1d of the Wealth-tax Rules, 1957. But, before the Tribunal, a contention was raised that the goodwill should not be added while valuing the shares of the companies in question on break-up value method. In this court, however, the Revenue is contending that the Tribunal should have directed the valuation to be made in terms of Rule 1d of the Wealth-tax Rules, 1957. We are at a loss to understand the submission of the Revenue. If the Tribunal has decided that the Appellate Controller was right in directing adoption of Rule 1d of the Wealth-tax Rules, 1957, how could the Revenue be aggrieved against the said order ? This is one of such misconceived references brought before this court. On the facts of this case, we answer the question in this reference by saying that the method of valuation prescribed under Rule 1d of the Wealth-tax Rules, 1957, is to be applied for valuation of unquoted shares held by the deceased for the purpose of estate duty. There will be no order as to costs.