1995 (10) TMI 69 - AT - Income Tax

Assessing Officer Deemed Gift Fair Market Value Method Of Valuation Of Shares S. 10 Taxable Gift

Summary

Issues Involved:

1. Assessment of deemed gift of Rs. 2,06,700.
2. Applicability of amendments to section 4(1)(a) of the Gift-tax Act.
3. Determination of fair market value of shares transferred.
4. Procedural vs. substantive nature of amendments.
5. Method of valuation of unquoted shares.

Issue-wise Detailed Analysis:

1. Assessment of deemed gift of Rs. 2,06,700:

The assessee transferred 650 shares of M/s. Himachal Engg. Co. Pvt. Ltd. to his son for Rs. 100 per share. The Assessing Officer (AO) valued these shares at Rs. 418 per share, resulting in a deemed gift of Rs. 2,06,700. After a basic exemption of Rs. 20,000, the AO computed the taxable gift at Rs. 1,86,700. This assessment was confirmed by the first appellate authority.

2. Applicability of amendments to section 4(1)(a) of the Gift-tax Act:

The assessee's counsel argued that the amendment to section 4(1)(a) by the Finance (No. 2) Act, 1991, effective from 1-4-1992, should not apply to the assessment year 1990-91. The amendment provided a new method of determining the value of gifts, which was to apply from assessment year 1992-93 onwards. The counsel cited the Supreme Court decision in CIT v. Patel Bros. & Co. Ltd. to support this argument, asserting that the amendment was substantive and not merely clarificatory.

3. Determination of fair market value of shares transferred:

The assessee contended that the AO did not have sufficient evidence to conclude that the market value of the shares was Rs. 418 per share. The assessee had shown this value in his wealth-tax return, but argued that the AO should have determined the fair market value independently. The counsel cited the Tribunal's decision in Rattan Chand Oswal v. GTO, which held that the burden of proving inadequacy of consideration lies with the department.

4. Procedural vs. substantive nature of amendments:

The Tribunal discussed the distinction between substantive and procedural law. Substantive laws establish rights and responsibilities, while procedural laws prescribe the manner of exercising and enforcing these rights. The amendment to section 4(1)(a) was deemed procedural, as it only changed the method of valuation, not the principle of taxing deemed gifts.

5. Method of valuation of unquoted shares:

The Tribunal noted that the value of unquoted shares must be determined using recognized methods. The assessee's valuation based on the yield method was flawed, as it undervalued the shares at Rs. 92.90 each. The AO's valuation at Rs. 418 per share, based on the wealth-tax return, was deemed appropriate. The Tribunal also referenced the Madhya Pradesh High Court decision in Shyamsukh Garg v. CED, which supported using Wealth-tax Act principles for valuing unquoted shares under the Gift-tax Act.

Conclusion:

The Tribunal concluded that the amendment to section 4(1)(a) was procedural and applicable to the case. The AO's valuation of the shares at Rs. 418 per share was justified, and the taxable gift of Rs. 1,86,700 was correctly assessed. The appeal was dismissed.