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TMI Blog1982 (7) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... Chettiar and she is the other appellant as legal representative of her late husband. Sri Karumuthu Thiagarajan Chettiar had another son by his second wife. There were family disputes. The late Sri Karumuthu Thiagarajan Chettiar was a textile magnate in South India and there are a number of textile mills and some other companies under the control of the family. There were family disputes, resulting in a desire to sort out the controls over the various companies between the three wings (the legal heirs of two sons and the third son) and the matter was subject to an arbitration and settlement through a family friend Sri M.S. Chockalinga Chettiar. Consequently, each of the family member had to surrender some shares and receive in return some other shares so that each family member had larger number of shares in smaller number of companies, after the arrangement. It is this sorting out which is alleged to have resulted in gift-tax assessments. The transfers were made at agreed price and the agreed prices were sought to be justified with reference to the capitalisation of yield method. The GTO, however, considered that the method of break-up value of shares stipulated under rule 1D of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the GTO that the fair market value is different from the recorded price and that warrants the treatment of the transaction as a deemed gift. We have no difficulty in accepting the legal proposition as enunciated by the authorities. But we are not satisfied that there is any material to suggest that the fair market value is different from the agreed price. We had occasion to consider a similar case of a deal in shares in another order in IT Appeal Nos. 1082 (Mad.) of 1979 dated 25-4-1981 (to which both of us were parties), wherein we had observed : "We find that the shares were purchased and sold between the various shareholders at a price mutually agreed between them. Best evidence of fair market value of a share is the price at which the shares are purchased and sold. Stock Exchange quotations in respect of quoted shares and comparable sales of shares near about the date of transaction in respect of unquoted shares offer the best guide for market value. R.L. Sidey in Valuation of Shares states that in absence of special circumstances (such as a panic on the day in question) the usual and natural method of value is the market price, and that should be adopted where availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider it necessary to go into the merits of different methods of valuation placed by the different Courts on different occasions. It is in this context, we have not discussed the multiplier for capitalisation as well as the number of years for which average income has to be taken, even in respect of yield method, though we are not impressed by the argument that the higher multiplier or a shorter period of averaging is warranted on the unsupported plea of 'the buoyant conditions in industrial production in the last three years and in the share market and the public clamour for shares as a hedge against inflation' as alleged in the grounds of appeal to justify a larger multiplier or a shorter period for averaging. There is no method which will ensure a better fair market value in respect of unquoted shares as against the actual agreed price between two parties, not dealing at arm's length. There is no material, whatsoever, to assume a bounty liable to be treated as a gift, especially since the variation between 'agreed price' and estimated 'fair market value' is also not of much magnitude. 4. During the course of hearing, it was suggested that there could not be any element of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal right merely on the ground that such a pretended or semblance of a right is a bona fide one, there cannot obviously be a gift-tax liability in the case of the assessee, where the right is undisputable. It was suggested before us that the view of the Supreme Court and the Madras High Court could possibly be taken as a view based upon Hindu Law where the rights of coparceners at any particular point of time prior to family arrangement cannot be predicated. We find that the decision of the Madras High Court was in relation to a settled property and hence, it cannot be stated that the decision of High Court was rendered only in context of the Hindu Law. Further, Gauhati High Court in the case of Ziauddin Ahmed v. CGT [1976] 102 ITR 253 found that a similar family arrangement where there was a transfer at less than full market value, did not give rise to gift-tax liability on the ground that such a bona fide transaction does not amount to a transfer. It does not create an interest and each party takes a share in such an arrangement in pursuance of the pre-existing title. This decision also held that all that is necessary is only to show that the parties are related and have possible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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