Commissioner of Wealth Tax v. Dominic Joseph — 1991 DIGILAW 266 (KER)

Judgment :- Radhakrishna Menon, J. The Commissioner of Wealth-tax is before us. 2. The question referred to us for our opinion reads: "Whether. on the facts and in the circumstances of the case. the appellate Tribunal is right in law in directing the Wealth-tax Officer to value the shares held by the assessee by allowing the provision for taxation as a liability without deducting the advance tax payment". There is no need to state the facts because the answer to the question depends purely upon the construction of the relevant rule. However we would refer to relevant parts of the order from which the above question arises and pertaining to the issue. They read: "But. we find that this very question was considered by the Bombay High Court in a very recent decision in the case of C.W. 7. v. Pratap Bhogilal, 167 I.T.R.501 wherein the High Court had considered all the High Courts' decision on this point and have held in favour of the assessee. Since the High Court had considered all the decisions and found it necessary to follow the Gujarat High Court decision. we are of the opinion that we should also follow the Gujarat High Court decision. Therefore. we will accept the assessee 's appeal and reject the department's contentions". ( "identical to the one extracted above) Now coming to the question: The answer thereto depends upon the construction of Rule ID Explanation II(i)(a) and Explanation II(ii)(e) of the Wealth-tax Rules 1957. For easy reference we shall extract these Rules (leaving out unnecessary parts):- "Rule ID. Market value of unquoted equity shares of companies other than investment companies and managing agency companies.-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: - The value of all the liabilities as shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in the balance-sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent of the break-up value so determined. Explanation II. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent of the break-up value so determined. Explanation II. For the purposes of this rule- (1) the following amounts shown as assets in the balance-sheet shall not be treated as assets. namely: (a) any amount paid as advance-tax under S. ISA of the Indian Income-tax Act. 1922(11 of 1922). or under S.210 of the Income-tax Act. 1961 (43 of 1961). (ii) the following amounts shown as liabilities in the balance-sheet shall not be treated as liabilities. namely:- (e) any amount representing provision for taxation (other than the amount referred to in clause (i) (a) to the extent of the excess over the tax payable with reference to the book-profits in accordance with the law applicable thereto". 3. This Rules prescribes the procedure. the assessing authority shall follow while determining the market value of an unquoted equity share of any company other than an investment company or a managing agency company. To determine the market value of the unquoted equity share the assessing authority shall first deduct all the. liabilities as shown in the balance sheet from the value of all its assets. again as shown in the balance sheet. In view of Explanation II(l)(a) (hereinafter mentioned as clause's'). the assessing authority however. shall not treat the amount paid as advance lax under S. ISA of The Indian Income-tax Act. 1922 (11 of 1922) or under S.210 of The Income- tax Act. 1961 (43 of 1961) as asset although the same is shown as asset in the balance sheet. Similarly the amount representing provision for taxation (other than the amount referred to in clause (l) (a) to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto. the assessing authority shall not treat as liability notwithstanding the fact. the same is shown as liability in the balance sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance sheet. Eighty five percent of the brake up value so determined is the market value of each unquoted equity share. 4. the same is shown as liability in the balance sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance sheet. Eighty five percent of the brake up value so determined is the market value of each unquoted equity share. 4. The plain and unambiguous language employed in the Rule makes it clear that the assessing authority is directed not to treat the amount paid as advance income-tax and shown as asset in the balance sheet. as asset while assessing the value of the assets shown in the balance sheet for the purpose of determining the market value of the unquoted equity share. That. that is what is intended to be accomplished. is made further clear by the words in brackets in Explanation (II)(ii) (e) (hereinafter mentioned as clause's') namely' other than the amount referred to in clause (l) (a)'. In other words the words preceding the words in brackets namely 'any amount representing provision for taxation' read and understood alongwith the words in brackets. make it abundantly clear that the amount paid as advance tax shall not be treated as 'assets' within the meaning of the Rule. Any other interpretation would make clause 'a' otiose. 5. The counsel for the Revenue however. argued that sub-clause (e). in terms. provides that an adjustment must be made. if called for. to the amount appearing as 'provision for taxation' in the balance sheet. He expanded the argument by giving the following illustration. For example if the lax on the book profits is Rs. 200/- and the advance tax paid is Rs. 70/-. then the provision for taxation that an assessee could make can be only Rs. 200-70. In other words only the resultant 200-70 alone can be deducted by way of liability. To treat the advance tax paid as a liability as suggested by the counsel for Revenue. the court necessarily has to stretch the language employed in clause (e) and in doing so shall ignore clause (a). This will result in the erasure of the mandate contained in clause (a). This is not permissible because the court indirectly will be declaring that the Parliament enacted clause (a) without any purpose. It is worthwhile to remember. in this connection. This will result in the erasure of the mandate contained in clause (a). This is not permissible because the court indirectly will be declaring that the Parliament enacted clause (a) without any purpose. It is worthwhile to remember. in this connection. the well established principle of interpretation that the Parliament/ legislature would legislate only for the purpose of bringing about an effective result. That is why it is always said that as far as possible. the court shall endeavour to make every part of the statute effective. harmonious and sensible. It therefore follows that the advance tax paid under no circumstance can be treated as a liability within the meaning of clause 2(e) of the Explanation.-A similar view is expressed by the High Courts of Gujarat. Bombay and Madras. (vide Commissioner of Wealth-tax v. Arvindbhai Chinnubai (Guj) (1982) 133 I.T.R. 800. C.W.T. v. Pratap Bhogilal (Bom.) (1987) 167 I.T.R. 501, Balakrishnan v. C.W.T. (Mad.) (1988) 173 I.T.R.266 and C.W.T. v. Ashok K. Parikh (Guj) (1981) 129 I.T.R.46). The contrary view expressed by the High Courts of Punjab & Haryana. Karnataka and Andhra Pradesh (vide Ashok Kumar Oswal. C.W.T. (P & H) (1984) 148 I.T.R.620.C.I.T. v. Krishnan (Kar. (1986) 162 I.T.R.309, C.W.T. v. Latha D. Pal (Kar.) (1989) 179 I.T.R.249 and C./.7. V. M. Lakshmaiah (A.P.) (1988) 174 I.T.R.4) with respect. we cannot agree. 6. The counsel for the Revenue then argued that the cannons of interpretation that govern construction of a statute or the provisions thereof cannot provide the guidelines to interpret The Rules made under the statute because the Rules cannot be treated on a par with the provisions of a statute. We are not impressed by this argument because Rules made under an Act cannot be described as. or equated with. administrative directions. 'Rules made under a statute must be treated for all purposes of construction or obligation exactly as if they were 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 Maxwell 10th edition. pages 50-51 and State of U.P. v. Babu Ram. AIR 1961 S.C. 751). (See Maxwell 10th edition. pages 50-51 and State of U.P. v. Babu Ram. AIR 1961 S.C. 751). The Wealth-tax Act and The Rules made under S.46 thereof by the Central Board of Direct Taxes constitute a self-contained code providing for the levy of wealth-tax and therefore any action taken by the assessing authority must conform to the provisions of the Act or the Rules. The above argument of the counsel for Revenue therefore is rejected. 7. The question accordingly is answered in the affirmative and in favour of the assessee. A copy of this judgment under the signature of the Registrar and the seal of this Court will be forwarded to the Income-tax appellate Tribunal. Cochin Bench.