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Issues: Valuation of shares for gift tax purposes under the Gift-tax Act, 1958.
Analysis: The High Court of Madras addressed the issue of valuation of shares for gift tax purposes under the Gift-tax Act, 1958. The case involved shares gifted by the assessee in a company, and the question was whether the valuation fixed by the Tribunal at Rs. 104.30 per share was correct. Initially, the assessee valued the shares at Rs. 139 per share but later revised it to Rs. 104.30 per share, attributing the reduction to the issue of bonus shares and payment of dividends by the company. The Tribunal accepted this submission, leading to the dispute. The method of valuation under the Act is provided by section 6, which emphasizes estimating the price the property would fetch if sold in the open market on the date of the gift. The court emphasized the importance of ascertaining the state of affairs as on the date of the gift to determine the market value of the property accurately. The Court noted that changes post-valuation date could be considered if they were bona fide for the business of the company, as indicated by the balance sheet. The revenue's complaint was that the Tribunal failed to consider the profits made by the company during a specific period and the valuation of shares at Rs. 156 per share on March 31, 1968. The Court held that relevant factors, such as profits and company valuation, should have been taken into account by the Tribunal to determine the accurate market value of the shares on the date of the gift. The Court emphasized the need to consider tangible material, such as balance sheets, in determining the market value of shares. The Court highlighted that the market value of shares in a private limited company, even for gift tax purposes, should be ascertained as if a sale would take place in the open market. Considering the restrictions on share transfer in private limited companies, depreciation from the balance sheet value may be allowed. Referring to previous judgments and principles, the Court directed the Tribunal to reconsider the appeal and make a fresh decision, taking into account the factors and principles outlined in the judgment. The parties were directed to bear their respective costs, and the Tribunal was instructed to pass fresh orders based on the Court's directions.
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