1973 (4) TMI 11 - HC - Income Tax

Issues Involved:
1. Valuation of shares held by the deceased and the firm.
2. Validity of valuing pledged shares at Rs. 110 instead of the market value.
3. Whether managing agency rights constitute property passing on the death of the deceased.
4. Justifiability of the principles of valuation of managing agency rights.
5. Validity of valuing managing agency rights at Rs. 6 lakhs.

Issue-wise Detailed Analysis:

1. Valuation of Shares Held by the Deceased and the Firm:
The accountable person declared the estate's value at Rs. 2,03,446, but the Assistant Controller valued it at Rs. 7,22,994. The shares of Messrs. Janardana Mills Ltd. were valued at Rs. 140 per share, against the market quotation of Rs. 87 per share on the date of death. The Board reduced the value to Rs. 110 per share, considering the special appeal of acquiring control over the mills. The court found that the market quotation should be the basis for valuation unless extraneous circumstances indicate otherwise. The valuation of Rs. 110 per share was deemed arbitrary and unsupported by evidence. The court held that the shares should be valued at Rs. 87 per share, the market quotation on the relevant date.

2. Validity of Valuing Pledged Shares at Rs. 110 Instead of the Market Value:
The court rejected the contention that the 500 shares pledged with the bank should be valued at the price they were sold in 1959 (Rs. 67 to Rs. 70 per share), as the relevant date for valuation was July 5, 1957. The court emphasized that the market quotation on the date of death should be the basis for valuation and not the subsequent sale price. The valuation of Rs. 110 per share was found to be speculative and unsupported by concrete evidence.

3. Whether Managing Agency Rights Constitute Property Passing on the Death of the Deceased:
The court referred to its previous decision in T.C. No. 275 of 1967, following the Supreme Court's ruling in J. K. Trust, Bombay v. Commissioner of Income-tax, that managing agency rights are considered "property" as they are a business interest and not merely a contract of personal service. The court held that the managing agency rights are indeed property passing on the death of the deceased, answering the question in the affirmative and against the accountable persons.

4. Justifiability of the Principles of Valuation of Managing Agency Rights:
The accountable persons contended that the managing agency rights should be valued considering the provisions of the Companies Act, which terminated such rights by August 15, 1960. The court agreed, stating that the valuation should reflect the reality that the managing agency could only be exploited for about three years. The court found that the Board's assumption that the Central Government might not terminate the managing agency agreement was speculative. The court held that the value should be based on the remuneration for the three years remaining until the statutory termination date.

5. Validity of Valuing Managing Agency Rights at Rs. 6 Lakhs:
The court found that the valuation of Rs. 6 lakhs for the managing agency rights was unjustified. The correct valuation should consider the remuneration the managing agents would have earned for the remaining three years. The court accepted the accountable persons' contention that the maximum value for the managing agency rights should be the total remuneration for the three years, which was Rs. 94,410. The deceased's 1/4th share in the managing agency rights should be valued accordingly.

Conclusion:
The court answered questions Nos. 1 to 3 and 5 and 6 in the negative and against the revenue, holding that the shares should be valued at Rs. 87 per share and the managing agency rights based on the three years' remuneration. The accountable persons were entitled to their costs from the revenue, with counsel's fee fixed at Rs. 250.

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