1987 (3) TMI 143 - AT - Income Tax

Summary

Issues: Valuation of shares of a private company for estate duty assessment

Comprehensive Analysis:

Issue 1: Valuation method for shares of a private company
The appeals involved a dispute regarding the valuation of shares of a private company held by the deceased individual on the date of his death. The accountable person valued the shares at Rs. 222 per share using the yield basis, while the Assistant Controller of Estate Duty adopted the general break-up method, valuing the shares at Rs. 493.33 per share. The Controller of Estate Duty (Appeals) directed the valuation to be done as per Rule 1D of the Wealth-tax Rules, 1957. The accountable person argued for the yield basis, while the department advocated for the general break-up method.

Issue 2: Statutory provisions for valuation of shares of private companies
The judgment highlighted Section 37 of the Estate Duty Act, 1953, which specifically addresses the valuation of shares of private companies for estate duty purposes. The statute mandates that the primary method for valuation should be based on the total assets of the company. If the value is not ascertainable through this method, alternative valuation approaches can be considered. The judgment emphasized that the statutory provision for valuation of shares of a private company must be adhered to, with the primary method being the break-up method. Rule 1D of the Wealth-tax Rules, 1957, which embodies the break-up method, was deemed suitable for valuation purposes under Section 37 of the Estate Duty Act.

Issue 3: Comparison of valuation methods
The judgment rejected the accountable person's argument for the yield basis valuation, citing previous Supreme Court decisions that supported the break-up method for valuing shares of a private company. While acknowledging the discretionary nature of Rule 1D under the Wealth-tax Act, the judgment clarified that under the Estate Duty Act, the statutory provision necessitates valuation based on the company's total assets. As the value was ascertainable using the asset-based method, the judgment upheld the Controller of Estate Duty (Appeals)'s direction to adopt Rule 1D for valuation. The judgment emphasized that the statutory method for valuation should be followed, dismissing the accountable person's submission for an alternative valuation approach.

Conclusion:
The judgment concluded by dismissing both appeals, affirming the Controller of Estate Duty (Appeals)'s direction to value the shares of the private company as per Rule 1D of the Wealth-tax Rules, 1957. It underscored the importance of adhering to statutory provisions for valuation in estate duty assessments, particularly concerning shares of private companies.