1981 (11) TMI 72 - AT - Income Tax

Issues Involved:
1. Valuation of unquoted shares for gift-tax assessment.
2. Legality of reopening the gift-tax assessment under Section 16(1)(b) of the Gift-tax Act.
3. Consideration of goodwill in the valuation of shares.
4. Applicability of CBDT circulars in the valuation of shares.

Issue-wise Detailed Analysis:

1. Valuation of Unquoted Shares for Gift-tax Assessment:
The primary issue is the correct valuation of the unquoted shares of M/s. Lallubhai Amichand Pvt. Ltd. The assessee valued the shares at Rs. 1,272 per share based on the Wealth-tax assessment for the year 1971-72. However, the GTO revalued the shares at Rs. 2,655 per share. The Tribunal had previously accepted that the break-up value of the shares worked out in accordance with Wealth-tax Rule 1-D should be adopted for gift-tax assessment. The CGT (Appeals) upheld the valuation of Rs. 1,272 per share, rejecting the GTO's higher valuation which included goodwill.

2. Legality of Reopening the Gift-tax Assessment under Section 16(1)(b) of the Gift-tax Act:
The GTO reopened the assessment based on a CBDT circular issued on 29th October 1974, which equated the language of GT Rule 10(2) with Section 37 of the ED Act. The assessee challenged the reopening, arguing there was no failure to disclose material facts and no new information justifying the reopening. The CGT (Appeals) initially upheld the reopening, citing the Board's circular as valid justification. However, the Tribunal found that the Board's circulars did not constitute new information and were merely interpretations of the law, thus invalidating the reopening under Section 16(1)(b).

3. Consideration of Goodwill in the Valuation of Shares:
The GTO included the goodwill of M/s. Lallubhai Amichand Pvt. Ltd. in the valuation of the shares, which increased the value to Rs. 2,655 per share. The CGT (Appeals) disagreed with this inclusion, noting the absence of specific directions regarding goodwill in the Board's circulars and relying on the Supreme Court's principles in CGT vs. Kusumben D. Mahadevia. The Tribunal also rejected the inclusion of goodwill, emphasizing the consistency of using Wealth-tax Rule 1-D for valuation.

4. Applicability of CBDT Circulars in the Valuation of Shares:
The Tribunal examined the applicability of various CBDT circulars. The GTO relied on circulars issued in 1965 and 1974, but the Tribunal noted that these circulars did not specifically address the inclusion of goodwill. The Tribunal referenced the Supreme Court decision in India & Eastern Newspaper Society vs. CIT, which held that opinions from internal audit parties or the Board do not constitute new information for reopening assessments. The Tribunal concluded that the circulars did not provide a valid basis for reopening the assessment or altering the valuation method.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CGT (Appeals) decision to value the shares at Rs. 1,272 per share and rejecting the reopening of the assessment under Section 16(1)(b). The Tribunal upheld the principle that Wealth-tax Rule 1-D should be used for valuing unquoted shares for gift-tax purposes and excluded the consideration of goodwill in such valuations. The Tribunal also clarified that CBDT circulars, being interpretative, do not constitute new information for reopening assessments.

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