1980 (3) TMI 173 - AT - Income Tax

Issues Involved:
1. Jurisdiction of reassessment under Section 16(1)(b) of the Gift Tax Act, 1958.
2. Validity of the method of valuation of shares for gift tax purposes.
3. Impact of revised Board's circulars on the original assessment.
4. Fair market value determination and its adherence to Section 6(1) of the GT Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of Reassessment under Section 16(1)(b) of the Gift Tax Act, 1958:

The Tribunal first addressed the jurisdictional question. It was acknowledged that the original assessment was made based on the existing Board's circular, which mandated the adoption of the Wealth Tax (WT) Rules method. The Tribunal opined that the withdrawal or modification of the original circular could not retroactively affect the legality of the original assessment. The subsequent circulars were deemed to have only prospective application. The Tribunal cited the Supreme Court's decision in Ellerman Lines Ltd. vs. CIT, asserting that the Income Tax Officer (ITO) must follow the Central Board of Revenue's instructions. The Tribunal also referenced the Bombay High Court's decision in Tata Iron and Steel Co. Ltd. vs. N.C. Upadhyaya, which held that the ITO could not alter his position based on the withdrawal of a circular. Thus, the original assessment was considered legally valid.

2. Validity of the Method of Valuation of Shares for Gift Tax Purposes:

The Tribunal examined whether the reassessment was justified based on a change in the method of valuation. It was noted that the original method, based on the WT Rules, was a recognized method of valuation. The Tribunal emphasized that a mere change of opinion on the method of valuation, whether by the Board or the Gift Tax Officer (GTO), did not justify reassessment. The Tribunal cited the Supreme Court's decision in Indian and Eastern Newspaper Society vs. CIT, which clarified that an error discovered on reconsideration of the same material does not grant the power to reopen the assessment. The Tribunal concluded that the reassessment lacked jurisdiction as it was based on a mere change of opinion.

3. Impact of Revised Board's Circulars on the Original Assessment:

The Tribunal discussed the implications of the revised Board's circulars on the original assessment. The Tribunal highlighted that the original assessment followed a well-known method of valuation, recognized by the Board's earlier circular. The Tribunal referred to the Mysore High Court's decision in CED vs. J. Krishna Murthy, which upheld the break-up value method as a recognized method of valuation. The Tribunal asserted that the original assessment, based on the WT method, was valid and could not be discredited merely due to the adoption of a different method in the reassessment.

4. Fair Market Value Determination and Its Adherence to Section 6(1) of the GT Act:

The Tribunal evaluated the merits of the reassessment concerning the fair market value determination. The Tribunal noted that the original assessment adopted the fair market value as per the existing method, and the reassessment's higher valuation did not necessarily justify revision. The Tribunal cited the Supreme Court's decision in CIT vs. Simon Carves Ltd., emphasizing that the taxing authorities must act fairly and not in a partisan manner. The Tribunal concluded that the original assessment was made judiciously and could not be replaced merely because it yielded a lesser tax revenue. The Tribunal also referenced Section 6(1) of the GT Act, which requires the fair market value to be adopted. The Tribunal found that the original assessment adhered to this requirement and dismissed the reassessment on merits.

Conclusion:

The Tribunal upheld the order of the first appellate authority, finding that the reassessment lacked jurisdiction and was not justified on merits. The original assessment was deemed valid, and the Departmental appeal was dismissed.

← Previous Next →