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TMI Blog1986 (6) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of unquoted shares held by each of the four assessees in Abhirami Cotton Mills (P.) Ltd. The claim of each of the assessee was his shares should be valued at the face value of Rs. 100 per share for the reason that such was the value which stood fixed in terms of the memorandum and articles of association. 3. The WTO did not accept the claim but the AAC accepted the claim by relying on a decision of the Tribunal in the case of V. S. Sivalingam Chettiar [WT Appeals Nos. 297 to 299 (Mad.) of 1983 dated 30-8-1983]. The revenue appealed to the Tribunal and at the hearing the learned counsel for the assessee relied on another decision in the case of Smt. V. S. SV. Meenakshi Achi [Reference Application Nos. 334 and 335 (Mad.) of 1985 dated 8-7-1985], wherein the Tribunal by its order had rejected the applications of the revenue that a higher value should be taken than the face value, which, according to the articles of association, were to be taken, in the case of transfers. The Bench before whom these appeals came up originally considered that the matter required consideration by a larger Bench. 4. Before us, the learned departmental representative submitted that the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome bound as aforesaid makes default in transferring the shares the company may receive the purchase money and the proposing transferor shall be deemed to have appointed any one director as his agent to execute a transfer of the share as the purchaser and upon the execution of such transfer, the company shall hold the purchase money in trust for the proposing transferor. The receipt by the company of the purchase money shall be a good discharge to the purchaser and after his name has been entered in the register in purported exercise of the aforesaid power the validity of the proceedings shall not be questioned by any person. If the company shall not within the space of 45 days after being served with transfer notice find a purchaser in the manner aforesaid, the proposing transferor shall at any time within 90 days thereafter be at liberty subject to clause 8 hereof to sell and transfer the shares not so placed to any person and at any price. 8. The company in a General meeting may make and from time to time vary the rules as to the mode in which any shares specified in any transfer notice shall be dealt with by the directors in finding a purchaser or purchasers. Until otherwise d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any price. Regarding the fair price, it was the privilege of the company in general meeting to fix the price from time to time and at least once a year by a majority of not less than three-fourth of the members. Once the value was fixed, till revision, such value would be in force. If at a time when the transfer notice was given there was no existing resolution, then the value would be the nominal paid-up value of the share, i.e., the face value. The plea of the assessee before the earlier Bench was that the fair value had not been fixed in general meeting and, therefore, the face value alone should be taken. The Tribunal eventually had taken the view that the value according to the articles of association should be taken, but since there was no evidence that the fair market value had not been fixed, the Tribunal directed that this matter should be examined and the value in terms of the articles of association should be taken. 6. According to the learned departmental representative, the market value had to be determined and the decision of the Madras High Court in the case of R. Rathinasabapathy Chettiar was a clear authority for this proposition. He submitted that the Madras H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court considered the contention of the assessee that the shares should be valued only at the face value because they were not at all saleable in the market but did not accept the said contention after referring to various judicial pronouncements, in particular, the judgments of the Supreme Court in Ahmed G. H. Ariff v. CWT [1970] 76 ITR 471 and Purshottam N. Amarsay v. CWT [1973] 88 ITR 417. The Madras High Court also referred to the decision of the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621. They stated that the Supreme Court had mentioned that there was no hard and fast rule for valuation of shares and the yield method was generally applicable while break-up method was the one resorted to in exceptional circumstances. On the facts of that case, they stated that they saw no objection to the adoption of the break-up value method, but the Court went on to hold as under : "...... If the shares are sold in open market, the purchaser will certainly take note of the various restrictions contained in the articles of association of the company and offer only a lesser price. It is for this reason Abraham v. Federal Commissioner of Taxation 70 CLR 23 suggested the adoption of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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