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TMI BlogValuation of unquoted equity shares of investment companies, holding companies, etc. - Guidelines thereforX X X X Extracts X X X X X X X X Extracts X X X X ..... 73 , therefore, stand modified as set out in the succeeding paragraphs. 3. In the light of the above-quoted Supreme Court's decision as also its earlier decision in CWT v. Mahadeo Jalan [1972] 86 ITR 621, the following guidelines are issued for the valuation of unquoted equity shares of investment companies referred to in paragraph 1 above. 1. The principle of combination of the two methods, i.e., the average of— ( a ) the break-up value of shares based on the book value of the assets and liabilities disclosed in the balance sheet; and ( b ) the capitalised value arrived at by applying certain rate of yield of the maintainable profits, has to be discarded. 2. In the case of a company which is a going concern and whose shares are not quoted on the stock exchange, the profits which the company has been making and should be capable of making or, in other words, the profit-earning capacity of the company would ordinarily determine the value of its shares. 3. In the case of a company which is ripe for winding up or if the situation is such that the fluctuations of profits and uncertainty of conditions on the date of valuation prevent any reason able ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty. 5. In the case of unquoted equity shares of investment companies which are substantially but not wholly holding companies, the fair market of the shares will be determined by adding a premium of 10 per cent to the value of shares arrived at on the basis as set out in the preceding paragraph. 6. The valuation of unquoted equity shares of an investment company which has a wholly-owned subsidiary should be worked out on the basis that the parent investment company and wholly-owned subsidiary or subsidiaries were, in fact, one single company, on the same lines as laid down in circular dated 15-9-1973. The rates of yield to be applied would be 10 per cent and 8.5 per cent as mentioned in para 4 above. 7. The above may please be brought to the notice of all the Assessing Officers in your charge. These instructions will apply to all pending assessments and will hold the ground until rules for the valuation of above shares, which are under consideration of the Board, come into force. Circular : No. 332A [ F. No. 326/2/80-WT ], dated 31-03-1982 . CLARIFICATION 2 1. Reference is invited to the instructions contained in the Board's Circular No. 2 (WT) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the open market on the relevant valuation date. 3. It is clarified that para 3 of Circular No. 2 (WT) of 1967 [ Clarification 3 ] will not apply in cases of valuation of shares of a parent investment company which has a wholly-owned subsidiary. 4. The above instructions, which are to be read in partial modification of Circular No. 2 (WT) of 1967 are to be followed and implemented in all matters with immediate effect including pending proceedings. Circular : No. 118 [ F. No. 319/16/73-WT ], dated 15-9-1973 . CLARIFICATION 3 1. The method of valuation of unquoted equity shares of ( i ) investment companies, and ( ii ) holding companies has since been further examined and the following instructions regarding the valuation of unquoted equity shares of ( i ) investment companies, ( ii ) holding companies, and ( iii ) managing agency companies are issued in supersesstion of all the earlier instructions for the guidance of the Wealth-tax Officers. 2. Unquoted equity shares of investment companies other than those which are substantially holding companies - An "investment company" has been defined in rule 1A( g ) of the Wealth-tax Rules, 1957, as a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 per cent to the value of the shares arrived at on the basis set out in the preceding paragraph. 4. Unquoted equity shares of managing agency companies - A managing agency company has been defined in rule 1A( h ) of the Wealth-tax Rules, 1957, as a company the entire income of which or any part thereof is derived by way of managing agency. In the case of companies whose income consists wholly or partly of managing agency commission, the higher of the value arrived at according to ( a ) the break-up value method based on the book value of assets and liabilities disclosed in the balance-sheet, and ( b ) capitalisation of income method is to be adopted as the fair market value of the shares. The capitalised value of managing agency commission income and non-commission income will be deter mined separately in the following manner : The capitalised value of the managing agency commission will be taken as the present (that is, discounted) worth of the net income from this source for the unexpired term of the managing agency. From the maintainable managing agency commission (deter mined on the lines stated in para 2 above), the proportionate tax liability will be deducted and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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