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Issues:
Valuation of unquoted shares - Treatment of provision for gratuity as a liability and discount percentage allowed. Analysis: The High Court of Madras was tasked with addressing two common questions referred by the Tribunal regarding the assessment year 1972-73 under the Gift-tax Act, 1958. The first issue concerned whether the provision for gratuity should be treated as a liability while valuing unquoted shares and if a 30% discount should be allowed instead of the 15% stipulated in the Wealth-tax Rules, 1957. The assessees had gifted shares in certain companies, and discrepancies were noted in the valuation method used. The Gift-tax Officer reopened the assessments, considering updated balance-sheets and disallowing the provision for gratuity as a liability, resulting in an increased valuation of the gifted shares. Upon appeal, the Commissioner of Income-tax (Appeals) supported the use of the latest balance-sheet for valuation, allowing the provision for gratuity as a liability, and endorsing a 30% discount. However, the Department appealed to the Appellate Tribunal, which relied on a previous decision and dismissed the appeals. The first question was analyzed in light of legal precedents, including CWT v. S. Ram, which emphasized deducting the provision for gratuity based on actuarial valuation while valuing unquoted shares under the break-up method. The Tribunal's decision was supported by the Supreme Court's rejection of a special leave petition against the aforementioned case. The second question pertained to the 30% discount allowed by the Tribunal, which was previously upheld by the High Court in a different case involving Sundaram Industries Ltd. The court referenced legal principles from various Supreme Court decisions, such as Bharat Hari Singhania v. CWT and Vazir Sultan Tobacco Co. Ltd. v. CIT, to justify the deduction of the provision for gratuity as a liability under the break-up method for valuing unquoted equity shares. Ultimately, the court upheld the Tribunal's decision, answering both questions in favor of the assessees and against the Department, with no order as to costs.
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