1981 (8) TMI 99 - AT - Income Tax

Summary

Issues:
1. Valuation of unquoted shares for gift-tax purposes under rule 1D of the Wealth-tax Rules.
2. Inclusion of goodwill value in determining the value of unquoted shares.
3. Allowance of reduction in share value for non-payment of dividends by the company.

Analysis:

1. The appeals before the Appellate Tribunal ITAT BOMBAY-D pertained to the valuation of unquoted shares for gift-tax assessment for the years 1973-74 and 1974-75. The assessee contended that the shares should be valued using the break-up value method under rule 1D of the Wealth-tax Rules. The Gift Tax Officer (GTO) valued the shares based on the balance sheet and average net profit, including goodwill value, resulting in a specific per share value for each assessment year.

2. The Commissioner (Appeals) accepted the assessee's argument, citing the Karnataka High Court ruling that supported the use of rule 1D for valuation and excluded goodwill value from the calculation. The department, in its appeal, challenged this exclusion of goodwill value from the total assets of the company in determining the share value, arguing that it should be included.

3. The assessee also appealed, claiming a 25% deduction from the break-up value due to the company's non-declaration of dividends for six years. The Commissioner (Appeals) acknowledged the need for a reduction under the proviso to rule 1D for cases with no dividend payments but failed to provide a reason for not allowing the reduction in the final valuation. The Tribunal directed the GTO to verify and allow the reduction as per the proviso to rule 1D when determining the share value.

4. The Tribunal referenced the Karnataka High Court ruling and the Supreme Court decision in similar cases, affirming the use of rule 1D for valuing unquoted shares under the Gift-tax Act. It emphasized that the method of valuation should align with recognized practices and that goodwill value should not be added unless specifically purchased for a price. The Tribunal dismissed the department's appeals and allowed the assessee's appeals, directing the GTO to apply the reduction as per the proviso to rule 1D in determining the share value.

In conclusion, the Tribunal upheld the Commissioner (Appeals)'s decision to value the unquoted shares using the break-up value method under rule 1D of the Wealth-tax Rules, excluding the goodwill value. It also directed the GTO to allow the reduction in share value as per the proviso to rule 1D for cases with no dividend payments by the company.