JUDGMENT
Kantawala, C.J.
1. Pursuant to the order of the High Court at the instance of the assessee the following two questions are referred for our determination under of the W.T. Act, 1957 (hereinafter referred to as “the Act”) :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming that the Appellate Assistant Commissioner of Wealth-tax was competent in law to pass the order dated the December 24, 1962, setting aside the original assessment made by the Wealth-tax Officer ?
2. Whether, on the facts and in the circumstances of the case, the principle of valuation under of the Wealth-tax Act, 1957, applies while valuing the shares of Amritlal & Co. Private Limited, in the hands of the assessee ?”
2. The fact necessary for the first question need not be stated as the counsel for the assessee has not pressed that question. The facts relating to question No. 2 are as under :
The assessee are four individuals. Question Ns. 2 relates to valuation of certain shares held by the assessee in a private limited company called Amritlal & Co., Private Ltd. (hereinafter referred to as “the company”. The question has arisen for the assessment year 1962-63, for which the relevant valuation date is March 31, 1962. In all, there are four assessees and their cases are consolidated. Each one of them held a certain number of shares in the company. Otherwise, the facts are common. It will suffice if we state the facts with reference to the assessment of H. J. Doshi, one of the assessee. He had 1,446 shares of the company. Initially, there was an assessment made by the WTO which was set aside by the AAC with a direction that in any recomputation of the break-up value, a reasonable amount of tax provision should also be considered by the WTO. Thus, after remand, the WTO made the reassessment on August 30, 1963. He enhanced the break-up value of the company’s shares by taking into account the market value of the shares held by the company in Amar Dye Chemicals Ltd. In an appeal by the assessee, the enhancement of the break-up value by substitution of the market value of the shares of Amar Dye Chemicals Ltd. was confirmed by the AAC. In a second appeal preferred before the Tribunal, the Tribunal took the view that s. 7(2)(a) of the Act had no application to the facts of the case. The assessee, before the taxing authorities and the Tribunal, was an individual and the Tribunal felt as to how could the provisions of s. 7(2)(a) be made applicable to the assessee in determining the market value of some of the assets, namely, the shares held by him in the company. The Tribunal pointed out that it was not determining the net wealth of the company which held the shares. The Tribunal was really concerned with evaluating the shares of the company held by the assessee. The Tribunal felt that the wealth of a shareholder arising from shareholdings is one thing, while the wealth of the company itself is a different matter. A company’s net wealth under the Act is not the sum total of the net wealth of the individual shareholders. The company and the shareholders are different assessable entities under the Act and the computations of the net wealth of each are according to different principles.
3. Question No. 2 above referred to arises from this order of the Tribunal. Mr. Dilip Dwarkadas, on behalf of the assessee, urged two contentions before us. First, he submitted that even though directly will not be applicable to the facts of the present case, the principle therein contained has to be applied for determining the market value of the shares of the assessee in the company on the valuation date. He, therefore, submitted that after the order of remand by the AAC, the taxing authorities and the Tribunal were in error in enhancing the value of the shares held by the assessee in the company. Secondly, he submitted that the taxing authorities and the Tribunal were concerned in the valuation of the shares held by the assessee in the company which shares were not quoted in the market. According to his submission the valuation of such shares had to be made in accordance with Circular No. 3 (W.T.) of 1957 dated September 28, 1957, issued by the Central Board of Revenue. He urged that if the instructions contained in this circular are followed then the valuation made by the assessee in respect of the shares of the company was proper and it was not open either to the taxing authorities or to the Tribunal to enhance the same.
4. Dealing with the second contention first, the circular on which reliance was placed by Mr. Dilip Dwarkadas deals with valuation of shares not quoted on stock exchange. It states that in the case of shares which are not quoted on the stock exchange quotation, the following method of valuation may be adopted :
“The total wealth of the company without excluding the value of any assets which would have been exempted in making the assessment on the company to wealth-tax should first by determined. This will be determined by adding to the paid-up capital the debentures, reserves and the balance as per profit and loss account. The provision for liabilities in the balance-sheet should particularly be scrutinised with a view to excluding therefrom items which should really from part of the reserves. From the total as arrived at, the paid up value of the preference shares and the debentures should be subtracted. The resulting balance should be divided by the amount of the paid up ordinary share capital in order to arrive at the value of each rupee of paid up capital. On multiplying this result by the paid up value of the shares held by the assessee, their value is arrived at for purpose of wealth-tax assessment.”
5. The very language of the circular indicates that it is only an enabling provision and there is nothing in the language of the circular to indicate that its provisions are mandatory and must in every case be followed irrespective of special considerations which may exist as regards undervaluation of any of the assets. Since the directions contained in the circular are only empowering provisions and do not contain mandatory orders or directions, it is always open to the taxing authorities either to follow the same or not depending upon the facts and circumstances of the case. Thus, the argument on the basis of the circular relied upon by Mr. Dilip Dwarkadas cannot be accepted.
6. That takes us to the first contention urged by him. of the Act deals with value of assets to be determined and the provisions of the relevant part of the said section are as under :
“7(1) Subject to any rules made in this behalf the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.
(2) 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 the 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;
(b) Where the assessee carrying on the business is a company not resident in India and a computation in accordance with clause (a) cannot be made by reason of the absence of any separate balance-sheet drawn by for the affairs of such business in India, the Wealth-tax Officer may take the net value of the assets of the business in India to be that proportion of the net value of the assets of the business as a whole wherever carried on determined as aforesaid as the income arising from the business in India during the year ending with the valuation date bears to the aggregate income from the business wherever arising during that year.”
7. On a plain reading of sub-s. (2) (a) it is quite evident that its provisions as such can never be attracted. We are not concerned with valuation of the assets of an assessee carrying on a business. if the valuation of the assets of the company had to be done, then it can probably be said that the principle laid down in clause (a) should be adhered to subject to such adjustments therein to be made as may be prescribed. However, we are not concerned with the valuation of the assets of the company. It cannot be overlooked that in law a company and the shareholders are different entities. A company is an incorporate body entirely distinct and separate from its shareholders. Further, having regard to the provisions of the Companies Act, 1956, a company can never own its own shares. So in the case of valuation of the assets of a company for the purposes of wealth-tax the question of valuation of its own shares will never arise or will never be relevant. What procedure or principle ought to have been adopted, if for purposes of wealth-tax the assets of the company, namely, Amritlal & Co. Pvt. Ltd., were to be valued, is entirely different from valuation of the shares of that company. Thus, neither clause (a) will directly be applicable nor can the principle underlying thereunder be attracted to the present case. We are not concerned in the present case with valuation of block assets of a business carried on by the assessee. In the present case we are concerned with valuation of an individual asset like a share owned by the assessee who is an individual. In such a case, clause (2) (a) will neither directly nor by way of even analogy, be attracted. It is not the case of any one of the assessee before us that they are carrying on business and they want to have the assets of the business to be valued as a block. In this reference we are merely concerned with the valuation of the shares held by each one of the four assessee in the company. To such a case the provisions of sub-s. (2) (a) can neither directly nor inferentially be applied, nor the principle therein contained be attracted. Sub-section (2) does not contemplate valuation of individual assets held by the assessee like an individual.
8. The question then arises, how is the valuation to be made of the shares held by the assessee in the company. Such valuation has to be determined, in the absence of any special provision to the contrary, in the manner laid down by of the Act. Our attention has not been drawn, apart from the circular above referred to, to any other provision of the Act or any direction or instruction issued by the Central Board of Revenue wherein a mandatory principle is laid down for valuation of shares of a company which are not quoted on the stock exchange. Valuation of such shares has to be determined on the basis of the price which, in the opinion of the WTO, they would fetch if sold in the open market on the valuation date. It is true that in the present case since the shares are not quoted on the stock exchange we have to consider a hypothetical sale but what a prudent purchaser will be willing to pay and what a prudent vendor will be willing to accept can be regarded as the open market price on the relevant valuation date. In the present case, there is no grievance whatsoever as regards the valuation of the other assets held by the company. The company itself-held 16,222 shares of Amar Dye Chemicals Ltd. of the fact value of Rs. 16,22,200. The shares of Amar Dye Chemicals Ltd. are quoted on the stock exchange and on the basic of the valuation on the relevant valuation date this block of shares will be worth Rs. 56,77,770 though they are shown on the basis of the book value in the balance-sheet and profit and loss account irrespective of the appreciation in the price thereof. A prudent purchaser, before deciding to pay a particular price for the shares of the company, will bear in mind the market value of the assets held by the company and he will not merely take into account the book value of the shares irrespective of its market quotation. Ordinarily, therefore, the valuation of the shares in the company ought to be arrived at on the footing that one of the assets held by the company was a block of shares of Amar Dye Chemicals Ltd. which are quoted at a particular rate in the market. However, in the present case, it appears from the order of the Tribunal that though initially Mr. Kolah, who appeared on behalf of the assessee before the Tribunal, was not willing to refer the matter to the valuers under of the Act at the last stages of the hearing, he placed before the Tribunal valuation of shares of the company as on March 31, 1962, in a case decided by the Tribunal (Gift-tax Appeal No. 85 of 1963-64). In that report the valuers had valued the shares and by a unanimous report the shares of the assessee-company were valued at Rs. 675 per share and it was that valuation which had been adopted by the Tribunal. of the Act as existing at the relevant time provided as under :
“24(6)(a) Where the appellant objects to the valuation of any property, the Appellate Tribunal may, and if the appellant so requires, shall, refer the question of the disputed value to the arbitration of two valuers, one of whom shall be nominated by the appellant and the other by the respondent, and the Tribunal shall, as far as that question is concerned, pass its orders under sub-section (5) conformably to the decision of the valuers.”
9. We are informed by Mr. Kolah that there are similar provisions contained in the G.T. Act at the relevant time and the valuation was made by arbitration of two valuers, one appointed by the Tribunal and the other appointed by the assessee. If such valuation was at the last stage produced by the assessee’s counsel, the Tribunal was fully justified in taking the view that the valuation was a proper valuation by referring the matter to two valuers in the manner required by Thus, in our opinion, in view of the unanimous valuation report of the two valuers which was produced before the Tribunal, the Tribunal was fully justified in valuing the shares in conformity with the valuation made by the valuers.
10. Thus, our answer to question No. 2 is in the negative. The assessee shall pay the costs of the Tribunal.
