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Issues:
1. Valuation of shares for gift-tax assessment in two cases. 2. Interpretation of statutory provisions in the Gift-tax Act and Rules. 3. Application of principles regarding valuation of shares in private limited companies. 4. Consideration of adjustments towards depreciation in valuation. Analysis: In the present judgment, the High Court of Madras addressed two cases concerning the valuation of shares for gift-tax assessment. The court consolidated both cases due to the similarity of the questions raised. The key issue revolved around determining the correct value of shares of a private limited company for gift-tax purposes. The cases involved gift deeds executed at the end of specific years, with the assessees initially valuing the shares based on balance-sheet figures minus a percentage. Subsequently, they sought further reduction in value based on post-balance-sheet dividends issued by the company. The court examined the relevant statutory provisions, specifically Section 6 of the Gift-tax Act, which outlines the method for determining the value of gifts. Additionally, Rule 10(2) of the Gift-tax Rules, 1958, provided guidance on valuing shares of private companies with restrictive provisions on share transfer. The court emphasized that the value of shares should be estimated based on the hypothetical open market value at the time of the gift. Furthermore, the judgment delved into the principles governing the valuation of shares in private limited companies. It highlighted that even though such companies have restrictions on share transfer, the shares should be assumed to be saleable in an open market scenario. The court cited precedents, including a Supreme Court decision, to support the notion that adjustments for depreciation should be considered due to the limitations on share transferability in private limited companies. The court emphasized the importance of accurately determining the market value of shares at the time of the gift and considering any necessary adjustments for depreciation. It noted that the Tribunal had not thoroughly examined these aspects, particularly the double depreciation adjustment claimed by the assessees. Consequently, the court directed the Tribunal to reevaluate the cases, taking into account all relevant factors and principles outlined in the judgment. The court referenced Supreme Court decisions under the Income-tax Act to support its directive for a fresh assessment by the Tribunal. In conclusion, the High Court of Madras ordered a reevaluation of the cases by the Tribunal, emphasizing the need for a comprehensive assessment considering market value, depreciation adjustments, and relevant factors. The court directed the parties to bear their respective costs, with future expenses to be covered by the Tribunal.
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