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Issues: Valuation of unquoted shares for gift tax purposes based on yield method versus break-up method.
In this case, the appellant, an individual, made a gift of shares of a company and valued them at Rs. 100 per share. The Gift Tax Officer (GTO) valued the shares at Rs. 233 each based on the break-up value method as the shares were not quoted on any recognized stock exchange. The appellant contested this valuation, arguing that the shares should be valued at Rs. 15 each based on the yield method, citing the decision of the Supreme Court in a similar case. The Appellate Assistant Commissioner (AAC) upheld the valuation based on the break-up method, stating that the yield method was not applicable in this case as the company's profitability indicated a higher value. The AAC also noted that there was no specific provision under the Gift-tax Act for valuing unquoted shares. The appellant further argued that the case was covered by the Supreme Court decision and referenced other relevant cases supporting the yield method. The departmental representative relied on previous judgments to support the break-up value method. The Tribunal considered the submissions and materials presented. It noted that the company was closely-held, unquoted, and engaged in manufacturing activities, making the stock exchange price unavailable. The Tribunal agreed with the appellant, citing the Supreme Court decision that the profit-earning method should be used to value unquoted shares. Upon reviewing the company's balance sheets and profitability, the Tribunal found that the profit-earning method might result in a higher valuation than the break-up method. Therefore, the Tribunal set aside the AAC's order and directed the GTO to assess the shares based on maintainable profits, giving the appellant an opportunity to present their case. The appeal was allowed in part, with the assessment to be framed according to law. Overall, the key issue in this judgment was the appropriate method for valuing unquoted shares for gift tax purposes, with the Tribunal ultimately favoring the profit-earning method over the break-up method based on the specific circumstances of the case and relevant legal precedents.
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