1997 (10) TMI 57 - HC - Income Tax

Summary

Issues:
1. Interpretation of provisions of GT Act and GT Rules regarding valuation of gift shares.
2. Application of yield method vs. market price method for valuation of shares.
3. Consideration of specific provisions under GT Act and GT Rules for valuation of property.

Analysis:
The case involved an application under section 26(1) of the GT Act, 1958 by the Revenue regarding the valuation of 1000 cumulative redeemable preference shares of a company. The Tribunal referred two questions of law to the High Court for consideration. The first question was whether the Assessing Officer (AO) was bound to value the shares in accordance with rule 10 of the GT Rules and section 6(3) of the GT Act. The second question was whether the Tribunal was justified in directing the AO to value the shares using the yield method contrary to the provisions of rule 10 and section 6(3) of the GT Act.

During the relevant assessment year, the assessee gifted the shares and valued them based on the yield method. However, the AO valued the shares as per rule 10 of the GT Rules and section 6(3) of the GT Act, estimating the value based on market price. The Commissioner of Gift Tax (CGT) upheld the AO's findings, but the Tribunal directed valuation based on the yield method. The High Court analyzed section 6 of the GT Act, which determines the value of gifts, and rule 10 of the GT Rules, which provides methods for valuing different types of properties.

The High Court emphasized that rule 10(2) of the GT Rules specifies that if the value of shares cannot be ascertained by reference to the total assets of the company, they should be valued based on what they would fetch in the open market. The Court noted that there are only two methods provided by the rules for valuing gift property, and the yield method is not the sole basis for assessment. Referring to precedent cases, the Court rejected the Tribunal's view that the yield method was the only basis for valuation.

Furthermore, the Court considered a case related to the Wealth Tax Act, highlighting that procedural laws cannot confer vested rights. The Court concluded that the valuation of the gift shares should be assessed in accordance with rule 10 of the GT Rules, utilizing the methods provided therein. The Court also noted that any changes in the rules post the relevant assessment year were not within the scope of the current case. Ultimately, the High Court answered both questions in favor of the Revenue and against the assessee, upholding the valuation based on rule 10 of the GT Rules.