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Issues:
Computation of value of unquoted equity shares for gift tax purposes. Analysis: The dispute in this case revolves around the valuation of unquoted equity shares of a company for gift tax purposes. The Assessing Officer initially treated the difference between the value of the shares under rule 1D of the Wealth-tax Rules and the selling price as a deemed gift, charging it to gift tax. The appellate officer directed the valuation of the shares using the break-up method based on the company's existing assets. However, the Tribunal overturned this decision, stating that unquoted equity shares should be valued using the yield method, citing relevant judgments. The Commissioner of Gift-tax argued that the valuation should be done under rule 1D of the Wealth-tax Rules, emphasizing the difference between market value and actual consideration for gift tax liability under section 4(1)(a) of the Gift-tax Act, 1958. The Tribunal declined to refer the matter for further review, citing previous judgments by the Supreme Court and the High Court. However, the court noted a change in legal position due to a later Supreme Court judgment in Bharat Hari Singhania v. CWT [1994] 207 ITR 1, which held that rule 1D of the Wealth-tax Rules was mandatory, not directory. This contradicted earlier views that rule 1D was directory. As a result, the court directed the Tribunal to refer the question of law regarding the correct method of valuing unquoted equity shares for gift tax purposes. The court emphasized the need to determine whether the market value of such shares should be determined solely by the yield method or also by the break-up method as provided in rule 1D of the Wealth-tax Rules, 1957. In conclusion, the court allowed the gift-tax case, highlighting the importance of correctly valuing unquoted equity shares of a company for gift tax assessment purposes.
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