2002 (5) TMI 42 - HC - Income Tax

Summary

Issues Involved:
1. Valuation method for shares gifted by the assessee.
2. Validity of the revocable gift of shares.

Summary:

Issue 1: Valuation Method for Shares Gifted by the Assessee
The primary issue was whether the valuation of shares gifted by the assessee should be made on the basis of the yield method or the break-up method u/r 10(2) of the Gift-tax Rules, 1958. The Gift-tax Officer and the appellate authority had adopted the break-up method, valuing the shares based on the company's balance-sheet as of June 30, 1981. The Tribunal, however, held that the valuation should be based on the yield method, citing the Supreme Court's decision in CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38. The High Court, after examining the provisions of section 6 of the Gift-tax Act and rule 10(2), concluded that the value of shares should be primarily determined with reference to the total assets of the company unless it is shown that the value is not ascertainable by this method. The High Court held that the Tribunal erred in adopting the yield method and affirmed the use of the break-up method as per rule 10(2). Thus, the first question was answered in favor of the Revenue.

Issue 2: Validity of the Revocable Gift of Shares
The second issue was whether the revocable gift of 6,000 shares was valid. The Gift-tax Officer had declared the gift void, citing the Supreme Court's decision in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, and made a protective assessment in the hands of the assessee. The Tribunal, however, upheld the validity of the revocable gift, stating that the valuation should be under rule 11 of the Gift-tax Rules. The High Court noted that the Gift-tax Act, being a special law, overrides the general law, and a gift revocable after a specified period is not void. The court also observed that the law provides for specific valuation methods for such gifts. Therefore, the High Court held that the revocable gift was valid and answered the second question in favor of the assessee.

Conclusion:
The High Court concluded that the valuation of shares should be based on the break-up method u/r 10(2) and that the revocable gift of shares was valid. The matter was remanded back to the Tribunal for passing an appropriate order, with no order as to costs.