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2022 (10) TMI 556 - SC - Wealth-taxValuation of gifted shares - valuation of shares in lock-in period as per the provisions of Schedule III of the W.T. Act. - rules for determining the value of a gifted property under Gift Tax Act - HELD THAT - The shares in the lock-in period have market value, which would be the value that they would fetch if sold in the open market. Rule 21 of Part H of Schedule III of the W.T. Act permits valuation of the property even when the right to transfer the property is forbidden, restricted or contingent. Rights and limitations attached to the property form the ingredients in its value. The purpose is to assume that the property which is being valued is being sold, and not to ignore the limitations for the purpose of valuation. This is clear from the wording of Rule 21 of Part H of Schedule III of the W.T. Act, which when read carefully expresses the legislative intent by using the words hereby declared . The Rule declares that the price or other consideration for which any property may be acquired by, or transferred, to any person under the terms of a deed of trust or through any other restrictive covenant, in any instrument of transfer, is to be ignored as per the provisions of the Schedule III of the W.T. Act. The price of such property is the price of the property with the restrictions if sold in the open market on the valuation date. Notwithstanding the restrictions, hypothetically the property would be assumed to be saleable, but the valuation as per the Schedule III of the W.T. Act would be made accounting and taking the limitation and restrictions, and such valuation would be treated as the market value. The rules do not postulate a charge in the nature and character of the property. Therefore, the property has to be valued as per the restrictions and not by ignoring them. Thus, Rule 21 of Part H of Schedule III of the W.T. Act permits valuation and ascertainment of the market value as per the provisions of Schedule III of the W.T. Act, but does not state that the valuation will be done by disregarding the restrictions, or by enhancing the rights which have been transferred, or by revaluation of the asset when provisions of Schedule III are invoked for the purpose of valuation of an asset under the W.T. Act. Explanation to Rule 2(9) of Part A, Schedule III of the W.T. Act. The certificate from the concerned stock exchange is only to state whether an equity share, preference share or debenture, as the case may be, was quoted with the regularity from time to time and whether the quotations of such shares or debentures are based on current transactions made in the ordinary course of business. The explanation does not prohibit the authority, tribunal or the court from examining whether a particular share, be it equity or preference share, is a quoted share or an unquoted share in terms of sub-rules (9) and (11) of Rule 2 of Part A of Schedule III of the W.T. Act. This right which is conferred on the authorities under the W.T. Act or the G.T. Act is not delegated to the stock exchange. A decision of the authority is amenable and can be examined when challenged in an appeal. The present appeal by the Revenue is to be dismissed.
Issues Involved:
1. Valuation of gifted shares under the lock-in period. 2. Applicability and interpretation of the Gift Tax Act and Wealth Tax Act provisions. 3. Determination of whether shares under the lock-in period are "quoted" or "unquoted." 4. Relevance of restrictive covenants in determining market value. 5. Examination of previous judicial precedents on valuation of restricted shares. Issue-wise Analysis: 1. Valuation of Gifted Shares Under the Lock-in Period: The core issue in these appeals revolves around the valuation of shares of M/s. BPL Sanyo Technologies Limited and M/s. BPL Sanyo Utilities and Appliances Limited, which were under a lock-in period when gifted by the respondent-assessee to M/s. Celestial Finance Limited. According to the Gift Tax Act, 1958, the value of the taxable gift should be determined based on the market value on the date of the gift. The shares in question, being under a lock-in period, were not freely tradable, raising the question of their valuation as "quoted" or "unquoted" shares. 2. Applicability and Interpretation of the Gift Tax Act and Wealth Tax Act Provisions: As per Section 4(1)(a) of the G.T. Act, the market value of the property transferred without adequate consideration is deemed a gift. Section 6(1) of the G.T. Act mandates that the value of any property, other than cash, transferred by way of gift, shall be its value on the date of the gift and determined as per Schedule II of the G.T. Act. Schedule II refers to Schedule III of the Wealth Tax Act, 1957, for valuation rules. The mandatory nature of these provisions was emphasized, indicating no deviation from the prescribed valuation method is permitted. 3. Determination of Whether Shares Under the Lock-in Period are "Quoted" or "Unquoted": The judgment clarifies that shares under a lock-in period are not "quoted shares" as defined in Rule 2(9) of Part A of Schedule III of the W.T. Act. The shares were not regularly quoted on any recognized stock exchange, and there were no current transactions in the ordinary course of business. The lock-in period restrictions meant these shares could not be traded, thus classifying them as "unquoted shares." 4. Relevance of Restrictive Covenants in Determining Market Value: Rule 21 of Part H of Schedule III of the W.T. Act states that restrictive covenants should be ignored when determining market value. However, previous judgments, such as Ahmed G.H. Ariff v. Commissioner of Wealth Tax and Purshottam N. Amarsay v. Commissioner of Wealth Tax, establish that while restrictions do not nullify the value of the property, they must be considered in valuation. The market value should reflect what a willing purchaser would pay, considering the restrictions. 5. Examination of Previous Judicial Precedents on Valuation of Restricted Shares: The judgment references several precedents, including Ahmed G.H. Ariff and Purshottam N. Amarsay, which highlight that property should be valued assuming it can be sold in an open market, but the valuation must account for any restrictions. The decision in Commissioners of Inland Revenue v. Crossman and subsequent cases reiterate that restrictions on transferability affect the value but do not render the property valueless. The interpretation of Rule 21 aligns with these precedents, emphasizing that valuation must consider restrictions without disregarding them. Conclusion: The Supreme Court dismissed the Revenue's appeal, agreeing with the lower court's view that shares under a lock-in period are "unquoted shares" and must be valued as per Rule 11 of Part C of Schedule III of the W.T. Act. The judgment underscores that valuation methods prescribed by statutory rules are mandatory and that restrictive covenants must be considered in determining market value. The assessee's appeal was dismissed as not pressed, with no order as to costs.
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