[The judgment of the Court was delivered by Badrul Haider Chowdhury, J],-This appeal by special leave is directed against the judgment and order of the High Court Division in an application under Section 27(1) of the Wealth Tax Act. The respondent was assessed to Wealth-tax by the Wealth Tax Officer, Companies Circle (1), Dacca for the assessment year 1963-64 on a total sum of Tk.
2,96,61,282/- by an order dated 14-6-1968 as against the net sum of Tk. 1,55,93,612/- as shown by the assessee in his return. On appeal the Appellate Assistant Commissioner allowed the appeal in part and deleted the addition made on account of revaluation of the share at market price. The department preferred an appeal before the Appellate Tribunal and the Tribunal set aside the order of the Appellate Assistant Commissioner and upheld the order of the Wealth Tax Officer. Thereafter the assessee respondent filed an application under Section 27 of the Wealth Tax Act before the High Court Division. The learned Judges of the High Court Division came to the conclusion that the Wealth Tax Officer is to determine the net value of the assets of the business as a whole, as contemplated under Section 7(2)(a) Wealth Tax Act read with Rule 8(9).
2. Leave was granted to consider whether the High Court Division was correct in taking the view that the Wealth Tax Officer is required to take into account the face value of the shares as held by the assessee and they must be valid under Section 7(1) of the Wealth-tax Act.
3. Mr. Mahmudur Rahman appearing for the Revenue canvassed that the learned Judges did not consider that in determining the value of the assets the Wealth Tax Officer while taking recourse to the provisions of Section 7(2)(a) of the Wealth Tax Act can make such adjustment in valuation given in the balance sheet, as he thinks lit, in the facts and circumstances of the case. He further canvassed that in the instant case the valuation of the shares held by the assessee in other Companies under Section 7(1) constitutes necessary adjustment "therein as the circumstances of the case may require" as contemplated under Section 7(2)(a) of the Wealth Tax Act.
4. Mr. M. Hasan appearing for the respondent assessee canvassed that when the Wealth Tax Officer was satisfied that the accounts kept by the assessee are reliable and there is no reason to suspect any fraud on the part of the assessee, he could determine the value of the net wealth of the company as per rule 8(9) putting the bulk valuation of the net wealth and the Wealth Tax Officer having adopted the bulk valuation basis as per rule 8(9) read with Section 7(2)(a), he was precluded from valuing the assets separately under rule 8(2) read with Section 7(1).
5. The assessee maintained accounts regularly, and the Wealth Tax Officer did not suspect any fraud on the part of the assessee. Now, the only question is whether the shares in question could be revalued at the market rate or at cost. Section 7 is in the following terms:
7. Value of assets-how to be determined.-(1) The value of any asset, other than cash, for the purpose of this Act, shall be estimated by the Wealth Tax Officer in accordance with the rules made under Section 46 of the Act.
(2) Notwithstanding anything contained in sub-section (l):
(a) Where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth Tax Officer may instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance sheet of such business as on the valuation date and making such adjustments therein as the circumstances of the case may require.
(b) .............................
The Rules are framed under Section 46, Rule 8(1) deals with the valuation of assets other than cash.
Sub-Rule (2) deals with shares and securities and how they are to be revalued. Sub-Rule (9) deals with bulk valuation which reads thus: (9) Bulk valuation (a) where the Wealth-tax Officer is satisfied that the accounts kept by an assessee carrying on a business are reliable and there is no reason to suspect any fraud on the part of the assessee, he may determine the value of the net wealth representing the various assets of the business in the following manner, namely-(i) The net wealth representing the various assets shall be taken as the sum of the paid up capital reserves and the balance to the credit of the profit and loss account.
(ii) The liabilities shown in the balance sheet shall be carefully scrutinised so as to exclude every item which is not a liability proper.
(iii) If according to the Accounting system followed by the assessee, the original value of the block (i.E. fixed assets) is kept unaltered and depreciation is provided for by constituting a fund out of which investments are made, the value of such depreciation fund shall be excluded from the computation.
(iv) If development allowance has been deducted from the value of the block, the amount of it shall be added back.
(v) Where the closing stock is undervalued, the amount representing the under valuation shall be added back.
The working examples have been added to the Rules for guidance. It is further mentioned the computation of value assessed can be made in two ways-(1) on the basis of balance sheet value of the assets and (2) on the paid up capital and reserves. The Wealth Tax Officer in this case has taken recourse to the first method, that is, on the basis of the balance sheet which specifically is authorised by Section 7(2)(a) and the bulk valuation is made under sub-rule (9). Now the Wealth- tax Officer having taken this course attempted to make valuation of the shares under rule 8(2). The assessee has taken objection to this procedure contending that having taken recourse under Section 7(2)(a) he could only make the bulk valuation under sub- rule 9 of rule 8. The contention of the Revenue, on the other hand, is based on the expression "making such adjustments therein as the circumstances of the case may require" occurring in Section 7(2)(a) and purporting to exercise such power the Wealth-tax Officer can take recourse to rule 8(2).
6. This is not permissible. Sub-rule (1) of rule 8 postulates subject to the provisions of sub-rules (2), (3), (4), (5), (6), (7), and (9) the value of any asset other than cash for the purpose of assessment to wealth tax be estimated to the price which in the opinion of Wealth-tax Officer it would fatch if sold in the market on the valuation date, in terms of this rule the tax officer can take recourse to one of the alternatives, namely, in this case, either on sub-rule (2) or in sub-rule (9) but he cannot do both. The position will be clear if the method of computation is pursued as given in rule 8.
Section 7 gives the power and it is divided into 2 sub-sections (1) and (2). He can either go for sub- sections (1) or sub-section (2) but if he does, the one he must follow the rule framed for the purpose. Sub-rule (2) of rule 8 is referable to sub section (1) whereas (9) is referable to sub-section 2(a) of Section 7, which says "may instead of determining separately the value of each ass.Et held by the assessee in such business, determining the under value of the assets of the business as a whole having regard to the balance sheet of such business as on the value date-" How the officer will determine the value of the net wealth is detailed by sub-rule (9). "He may determine the value of the net wealth representing the various assets of the business in the following manner". In other words, the wealth tax officer can take recourse to one of the methods of valuation, but not both.
7. In the case of Commissioner of Wealth Tax v. K.M. Desikar reported in 92 I.T.R, page 101, it has been held that Section 7(1) and 7(2) of the Wealth Tax Act provided two alternative modes of valuation in relation to the business assets of an assessee. If the wealth tax officer at the time of original assessm ent exercises his discretion adopting the basis provided under Section 7(2)(a) it is not open to him later on to re-open assessments merely because the tax effect will be more if the basis provided under Section 7(1) is adopted. Section 7(2)(a) of the Indian Act is in the following terms.
Section 7(2)(a) runs as follows: "Notwithstanding anything contained in sub-section (1) (a) where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth Tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance sheet of such business as on the valuation date and making such adjustments therein as may be prescribed." (emphasis added)."
8. It is word for word for our Enactment excepting the expression that in the Indian Act the adjustments to be made "as may be prescribed" whereas in our enactment "as the circumstances of the case may require" Section 7 of the Indian Act was amended by the amendment Act 1964 by the insertion of words "subject to any rules made in this behalf in subsection (1)." Similarly, in sub- section 2(a) the words "the circumstances of the case may require" appearing earlier were substituted by the words "may be prescribed" with effect from 1-4-1965. The intention of the amendment was to have a uniform statutory methods of adjustment instead of different type of adjustments by different officers and resulting in unnecessary and protracted litigations. Under the amended provisions the valuation of assets is to be made as prescribed under the Rules which have the force of Law. Section 7 lays down the method of valuation of an asset for the purpose of computation of net wealth to follow either of the two methods mentioned therein for the calculation of the value of the assets. In the case of an assessee carrying on business he may under subsection (1) of the said section proceed to determine the market value or he may under sub-section (2) proceed with global valuation basis of valuing the assets of the business as a whole. The description that was conferred on the wealth tax officer was done away by the insertion of the words "as may be prescribed". In fact in 1965 Rules 2(A) to 2(G) were inserted by the second amendment Rules 1965. But in our enactment the discretion to some extent has been kept with the Wealth Tax Officer for "making such adjustment therein as the circumstances of the case may require". But that will not entitle the Wealth Tax officer to follow both the methods. In the case of Commissioner of Wealth Tax v. Pershow Properties, 1969 I.T.R. 388, the Patna High Court observed that, "Having regard to the valuation as shown in the balance sheet of the business and making such adjustments therein as the circumstances of the case may require does not mean that he should proceed partly under Section 7(i) and partly under Section 7(2)(a). Under Section 7(2)(a) the net value of the business as a whole has got to be taken as mentioned in the balance sheet whereas under Section 7(1) the market value of the assets has got to be determined.............. Of course, some adjustment could be made if the circumstances of the case so require."
9. This decision was given under the old law before the amendment, but then the Patna High Court took the view that the Wealth Tax Officer must follow one of the two methods but not both. The Madras High Court, as noted in 92 I.T.R. 101, also clearly laid down that the Wealth Tax Officer can follow any of the alternatives but not both only because that under sub-section (1) the tax effect will be more. In the instant case the wealth tax officer observed:- "The assessee owns all the shares of M/s. Jute Fibres Ltd. and M/s. Pakistan Commodities Ltd., and in view of the reasons stated above the total value of the shares of these companies will be the total value of the assets of the Company computed on bulk valuation basis. In wealth-tax I feel multiple taxation cannot be avoided."
Herein lies the error. The Wealth Tax Officer made the bulk valuation but for the reasons given by him: "But as in the balance sheet only the book value of the shares held by assessee in other companies have been shown and the actual market value of the shares has not been taken into consideration.
The correct value of assessee's assets on the last day of the accounting year cannot be ascertained by accounting the representatives interpretation of the rules, under reference". The only question was, whether to value the shares from the book value or market value. The wealth- tax officer having made the bulk valuation which could only be done under sub-rule (9) of rule 8 attempted to value the shares on the market price which is authorised under sub- rule (2).
10. He could not do it both ways. The legislative scheme does not provide for such assessment. The discretion that is given "as the circumstances may requires" occur in sub-section (2) and not for sub-section (1). The Wealth Tax Officer in computing under Section 7(2) cannot take recourse to the discretion given by the expression "as the circumstances may require" for computing it under Section 7(1). We are in respectful agreement with the Madras and Patna decisions and the conclusion in that the High Court Division has correctly formulated the law.
In this view of the matter the opinion held by the assessee must be valued under 8(9) and not separately under Section 7(1) is nothing to interfere.
In the result, therefore, this appeal is dismissed with any order as to cost..