Commissioner of Wealth Tax v. Mahadeo Jalan & Mahabir Prasad Jalan

Supreme Court13 Sept 19721972 INSC 219 · [1973] 2 S.C.R. 2151972 INSC 219

A compact analysis

This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.

Commissioner of Wealth Tax versus Mahadeo Jalan & Mahabir… — Income Tax | Supreme Court (1973)

¶41

Appeal> Nos. 1765, 1766 and 1767 /1969 the respandents are Mahabir :PraJad Jalan, Mahadeo Jalan and Madan Mohan Jalan respectively. Ali these appeals pertain to assessment years 195758 and 1958-59. In respect of these years the value 0f the shares in private limited companies were included in the total wealth of the respective assessees on the basis of their yield B though some of the companies were not paying dividends while others were declaring dividends throughout. The first two appeals which related to a later year seem to have been heard by the High Court and disposed of on December 12, 1967 while the last three appeals were disposed of later on February 4, 1969, mainly on the basis of the judgment of the High Court in the c first two appeals. For the years 1957-58 and 1958-59 relating to the three persons referred to above, the Wealth-tax Officer had, as in the case of assessment for the year 1959-60 adopted the break-up value of the shares as disclosed on the balance sheets of the company in computing their value as if each of the companies was brought to liquidation. This assessment was D confirmed by the Appellate Assistant Commissioner. The Tribunal however held that certainly this basis is one of the recognised modes of valuation of the shares of the private companies which are not saleable in the open market but in so far as those cases were concerned the valuation on the basis of the yield derived from the shares will be a more reasonable method to be adopted in the particular circumstances of their respective cases. Accordingly he ·adopted the valuatipn on that basis in respect of each of the companies as specified in its order. In the first two appeal,; also the Wealth Tax Officer and the Appellate Assistant Commissioner adopted the break-up value a~ the basis as in the other cases, and agreed with that basis inasmuch as the assessees had failed to place before the Wealth-tax Officer and the AppelF late Assistant Commissioner facts and figures relating to dividends declared by the respective companies. It was also stated by the Tribunal that at the time of hearing by the Tribunal in the cas~ of last thre appeals, it .was apparently not brought to the nol!ce ?f the Tb~mal that the companies being private limited compames the d1v1dends declared would be controlled bv G persons controlli!1g he companies so as to suit their own purpose, as such, the mamtamable profits rather than the dividends declared would nffo.rd a reasonable basis. While so stating, it was o.bserved that tins apect of the case need not be taken note of smce the· objectio_n before it is only on the principle whether (O adopt the ·'break-up value" method. In respect of the first two appeals therefore the Tribunal held tt:at the adoption of the H 'break-up' value was in order.

¶50

When the reference came up for hearing before the · Bench of the High Court, it was felt that as the question required an abitrac,t answer as to whether the principle of 'break-up value' is sustainable in law and as in their opinion the Tribunal wanted to refer for the opinion of the Court "the doubt they experienced in dealing with the case which related to the question ,as to whether the 'break-up value' method is correct method to be adopti:Q in the facts and circumstances· of the case or it is the 'yield value' method to be adopted, that question was re-framed and a further statement of the case called for from the Tribunal. The question as re-framed is as follows :- "Whether on the facts and in the circumstances of the case the Tribunal was justified in law to follow the method involving the princiJ,>le of 'break-up' value instead of the method involving the principle of 'yield value' in determining the value of the shares in question under s. 7 of the Wealth Tax Act?" In compliance with this direction the Tribunal drew up a supplementary statement of the case and submitted it to the High Court. In that statement the Tribunal stated : "Before the Appellate Assistant Commissioner no alternative basis of valuation appear to have been claimed. For the first time before the Tribunal, the assessee filed a statement of the dividends declared· by the aforesaid private companies during the years 1953 to 1957 and claimed that the market value of the shares should be worked out with reference to the average percentage of the dividends declared by each company and on the footing that the shares quoted in the market at Rs.-100/each would yield a dividend of Rs. 6/·" It was· further stated by the Tribunal that the asseisee had relied on the decision of the Tribun.al for the assessment years 1957-58 and 1958-59 where it determined the 11rnrket value of the shares on the yield basis but in so far .as the assessment year 1959-60 it did not accept that the information furnished before it would be :1dequate for working out the market value on the basis of "maintainable profits" because it was of the view that "in cases of private companies declaratio11 of dividend would be dictated bv the directors having regard to the advantage in their personal a~scssmcnts and not ~ith reference to the capacity or other busi11ess considerations. It went on to say that

¶92

The shares the transfer of which is not restricted may be sold on the stock exchanges for which there is official market quotatio:i .. There may also be shares in public limited compani9s for which there are no quotations on the stock exchange. Generally the price at which a reasonably willing purchaser would buy c the shares post.ulates a hypothetical purchaser- but even in such a case it is to be assumed that the vender would only be willing to sell the share for its real value and the purchaser would be willing to pay the price. This has to , be always detennined notionally. Where shares in a company are brought and sold on the stock exchange and there are no abnormalities affecting the p market price, the price at which the shares are changing hands in the o;dmary course of business is usually their true value. These quotations genetally reflect the valtte of the asset having regard to the several factors which are taken into consideration by persons who transact business on the stock exchange and by the buyers who want to invest their money in any particular share £ or shares. Even where they are quoted on the stock exchange, the quotations do not depend entirely on the yield or the dividend declared. There are several factors which are taken into consideration which affects and determines the. quotations, namely the factors which are taken into consideration by a person who wants to sell his shares and the factors which a buyer who wants to purchas~ the.m. considers as determining the price which price F the bi;yer IS willing to plly and the seller to receive. Leavina aside any. distress sals. the factors which in our view are likely to detel1!11ne th fixhon of a share on anv particular day or at any partir.ular tune 1s, firstly, the profit-earning capacity of the compny ~m a reasonable commercial basis; secondly, its capacityto mamtam those profits or a reasonable return for the capital inG vested, an.d in special cases such as investment companies, the a.sset-backmg; the prospects of capitalisation of its earnin<> in the shape .of declaration of ?onus shares or where the com;any is financ1ally and commerc1ally sound. the prospects of issue of further capital vhere the existing shareholders liave a right to aoplv for and obtam them at ~ certain price which is generally less than ff the market valu, offermg an increased vield on his investment. en the assumption that the company will be able to maintain the same rate or at least increase the aggregate payment of divi-

Commissioner of Wealth Tax v. Mahadeo Jalan & Mahabir Prasad Jalan

A compact analysis

Cases cited

Parties & counsel

Coram

Case details

Similar cases

C.I.T. (Central) Calcutta versus Daulat Ram Rawatmull

Mahabir Commercial Co. Ltd. versus C.I.T. West Bengal, Calcutta

M. L. Sethi versus R.P. Kapur

Sales Tax Officer, Ganjam & Anr. versus M/S. Uttareswari Rice Mills

R. B. Seth Moolchand Suganchand versus the Commissioner of Income-Tax, Delhi

Commissioner of Wealth Tax v. Mahadeo Jalan & Mahabir Prasad Jalan

A compact analysis

Cases cited

Parties & counsel

Coram

Case details

Similar cases

C.I.T. (Central) Calcutta versus Daulat Ram Rawatmull

Mahabir Commercial Co. Ltd. versus C.I.T. West Bengal, Calcutta

M. L. Sethi versus R.P. Kapur

Sales Tax Officer, Ganjam & Anr. versus M/S. Uttareswari Rice Mills

R. B. Seth Moolchand Suganchand versus the Commissioner of Income-Tax, Delhi

Statutes considered

T. S. Krishna versus C. I. T. Madras