1985 (4) TMI 128 - AT - Income Tax

Summary

Issues:
Valuation of gifted shares of Amrutanjan Ltd. and Nageswara Rao Estates (P.) Ltd. for the assessment year 1976-77 under the Gift-tax Act based on the break-up method and application of rule 1-D of the Wealth-tax Rules.

Analysis:
The appeal by the Revenue concerns the valuation of gifted shares of Amrutanjan Ltd. and Nageswara Rao Estates (P.) Ltd. for the assessment year 1976-77. The GTO valued the shares based on the break-up method, resulting in a higher value than the sale price in 1974. The assessee sought a discount under rule 1-D of the Wealth-tax Rules, which the GTO rejected, stating that such discounts are not applicable under the Gift-tax Act. The AAC, referencing precedents, allowed the application of rule 1-D for valuation under the Gift-tax Act, leading to a dispute between the Revenue and the assessee.

Upon examination, the Tribunal considered the restrictive provisions in the articles of association of Nageswara Rao Estates (P.) Ltd., which impact the transferability of shares. Referring to legal precedents, the Tribunal concluded that the break-up value method should be discounted appropriately due to these restrictions, settling on a 25% discount for the shares of Nageswara Rao Estates (P.) Ltd.

Regarding the shares of Amrutanjan Ltd., as it is not a private company, rule 10(2) of the Gift-tax Rules does not apply. The Tribunal noted that the sale price of Rs. 257 per share in 1974 was a free market sale, and no evidence suggested a significant increase in the company's net worth by 1976. Despite the break-up value method yielding Rs. 372 per share, the Tribunal decided to discount it by 15% to Rs. 317 per share, considering the lack of substantial reasons for the Revenue's contention against any discount.

Ultimately, the Tribunal dismissed the appeal for statistical purposes, subject to the actual valuation being conducted by the WTO in line with the Tribunal's directives. The Tribunal refrained from providing a final opinion on whether rule 1-D of the Wealth-tax Rules could be uniformly applied for valuation under the Gift-tax Act, given the specific circumstances of the case.