1987 (12) TMI 31 - SC - Income Tax

Whether on the facts and in the circumstances of the case the finding of the Tribunal based on the ratio of the case decided by the House of Lords in Lynall v. Inland Revenue Commissioners 1971 (7) TMI 155 - House of Lords Court and basing the valuation of the shares of Bakubhai and Ambalal Ltd. London on its balance-sheet as at March 31 1963 instead of March 31 1964 is bad in law ? Whether on the facts and in the circumstances of the case the Tribunal was right in law in accepting the valuation of the shares as returned by the assessee and deleting 27, 360 added by the Gift-tax Officer under section 15(3) of the Gift-tax Act 1958 ? Held that - The correct principle of valuation applicable to a given case is question of law. But the matter is already two-and-a-half decades old. The gift was in the year 1964. The total gift-tax as now assessed is 5, 661. Upon a fresh determination of the value of the shares adopting the somewhat intricate processes inherent in the profit-method of valuation the difference in the quantum of the tax might perhaps not be substantial. The magnitude of the mechanism for refixation of the value of the gifts and the difference in the quantum of the tax it might result in do not bear a reasonable or sensible proportion. Having regard to the pecuniary involvement in the case which is obviously small we think we should not expose the parties to a fresh round of litigation. In this view of the matter we think the appellant should be content with the declaration of the law on the matter without disturbing the valuation made by the Tribunal and approved by the High Court though the principle adopted is not supportable in law. We therefore decline to interfere in the matter. The valuation is therefore left undisturbed.

Summary

Issues:
Valuation of shares for gift-tax assessment based on balance-sheet information and correct principles of valuation.

Analysis:
The case involved a dispute regarding the valuation of 480 shares held in an English company, M/s. Bakubhai and Ambalal Ltd., London, that were gifted to family members. The assessee contended that the value of the shares should be determined based on the average break-up value indicated by the company's balance-sheets as of March 31, 1964, and March 31, 1965, which amounted to Rs. 507 and Rs. 333 per share respectively, with an average of Rs. 420 per share. Additionally, the assessee argued that the value of the shares depreciated due to the company's decision to increase its share capital. The Gift-tax Officer valued the shares at Rs. 507 per share based on the balance-sheet as of March 31, 1964, which was upheld by the Appellate Assistant Commissioner.

The matter was further appealed before the Income-tax Appellate Tribunal, which valued the shares at Rs. 450 each based on the balance-sheet as of March 31, 1963, relying on the principles of valuation from Lynall v. IRC. The Tribunal's decision was challenged through a reference to the High Court, which answered the questions against the Revenue, holding that the value should be determined based on the balance-sheet as of March 31, 1963, rather than March 31, 1964.

However, the Supreme Court found the High Court's basis of valuation to be unsustainable in light of previous judgments. Referring to CWT v. Mahadeo Jalan and CGT v. Kusumben D. Mahadevia, the Court emphasized the profit-earning method as the proper valuation method for unquoted shares. The Court noted that the High Court's reliance on Lynall was misplaced and that the correct principle of valuation is a question of law. The Court held that the High Court's view did not reflect the legal position accurately and directed the Tribunal to reevaluate the shares using the correct principle.

Despite the discrepancies in valuation principles, the Supreme Court declined to interfere with the valuation made by the Tribunal and approved by the High Court due to the age of the matter and the small pecuniary involvement. The Court concluded that the parties should not be exposed to further litigation and left the valuation undisturbed, disposing of the appeal without costs.