1972 (10) TMI 32 - HC - Income Tax

Estate Duty Act 1953 - When for the Wealth-tax Act valuation of unquoted shares as on 31st March 1967 has to be done in accordance with the Wealth-tax (Amendment) Rules 1967 taking the last Published balance-sheet as on 31st December 1966 as the basis whether the Tribunal is right in placing the same value as on September 11 1967 the date of the death of the deceased for the purpose of estate duty assessment resulting in non-consideration of other items not covered by the Wealth-tax Rules going into the determination of the value of shares for estate duty purposes ? - When no matter of valuation of unquoted share was described under Estate Duty Act whether the valuation can be made as per Wealth-tax Act

Summary

Issues Involved:
1. Proper valuation of unquoted shares for estate duty purposes.
2. Applicability of Wealth-tax Rules for estate duty valuation.
3. Consideration of goodwill and expected dividends in share valuation.

Issue-wise Detailed Analysis:

1. Proper Valuation of Unquoted Shares for Estate Duty Purposes:
The core issue pertains to the proper valuation of shares held by the deceased in Senapathy Whitley (Private) Ltd. for estate duty purposes. The shares must be valued as per section 36 of the Estate Duty Act, 1953, which states: "The principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open market at the time of the deceased's death." The valuation must reflect the price a hypothetical bidder would offer based on available information at the time of death.

2. Applicability of Wealth-tax Rules for Estate Duty Valuation:
The judgment explores whether the valuation method prescribed under rule 1D of the Wealth-tax Rules, 1957, can be applied to estate duty valuations. The court noted that while rule 1D is not directly applicable to estate duty, it represents a recognized method of valuation. The court emphasized that the principles of valuation under the Estate Duty Act, Wealth-tax Act, and Gift-tax Act are similar, as they all aim to determine the market value of the property. Therefore, the method prescribed by rule 1D, which is the "break-up value" method, can be adopted for estate duty purposes, even though it is not explicitly mandated by the Estate Duty Act.

3. Consideration of Goodwill and Expected Dividends in Share Valuation:
The Assistant Controller of Estate Duty had included the value of goodwill and expected dividends in the valuation of shares. However, the Appellate Tribunal and the court found that the inclusion of goodwill was not justified under the break-up value method as per rule 1D of the Wealth-tax Rules. The court stated that "the goodwill value of a company ought not to have been included in arriving at the break-up value of the shares." Additionally, the court rejected the inclusion of expected dividends for the year 1967, noting that dividends are not like interest which accrues daily; the right to claim dividends arises only upon declaration.

Conclusion:
The court concluded that the Appellate Tribunal was correct in valuing the shares at Rs. 1,69,020 based on the break-up value method, excluding the value of goodwill and expected dividends. The valuation method under rule 1D of the Wealth-tax Rules, while not directly applicable, was deemed a suitable method for estate duty purposes. The court affirmed the Tribunal's decision and ruled in favor of the accountable person, stating that there was material for the Tribunal to determine the value of the shares at Rs. 1,69,020.

Judgment:
The question referred to the court was answered in the affirmative and against the department. The department was ordered to pay the costs of the accountable person, with an advocate's fee of Rs. 250.