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TMI Blog1972 (10) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... he same may be recast. As agreed to by the parties, we recast the question thus : "Whether there was material for the Appellate Tribunal to determine the value of the shares at Rs. 1,69,020 ? " One Mr. William Whitley died on September 11, 1967. At the time of his death he owned certain shares in Senapathy Whitley (Private) Ltd. The subscribed equity share capital of the said company was divided into 15,000 shares of Rs. 100 each, of which the deceased held 1,000 shares. The accounting year of the company ends on 31st December and its balance-sheet as at 31st December, 1966, had been published before the date of death. The shares held by the deceased an on 31st March, 1967, the of valuation date " for the assessment year 1967-68, had been valued by the Wealth-tax Officer at Rs. 1,69,020 in accordance with section 7 of the Wealth-tax Act, 1957, read with rule 1D of the Wealth-tax Rules, 1957. Subsequent to April 1, 1967, but before the date of death, the company had issued 6,000 bonus shares raising its subscribed equity share capital from Rs. 15,00,000 to Rs. 21,00,000. 400 bonus shares were issued to the deceased. Thus, on the date of death, the deceased held 1,400 ordinary shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company was as at December 31, 1966, the balance-sheet as at December 31, 1967, could not have been relied on for the purpose of arriving at the break-up value of the shares. The Tribunal accepting the valuation of the shares as determined for purposes of wealth-tax for the assessment year 1967-68, reduced the value of the shares to Rs. 1,69,020. The question at issue in this case is the proper value of the shares held by the deceased in Senapathy Whitley (Private) Ltd. for estate duty purposes. The shares must be valued as provided for by section 36 of the Act. Sub-section (1) of section 36 states : "The principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch it sold in the open market at the time of the deceased's death." The principles of valuation of property, whether under section 36 of the Act or section 7 of the Wealth-tax Act, 1957, or section 6 of the Gift-tax Act, 1958, is the same. The valuer must decide what the highest bidder would have offered in the hypothetical sale in the open market, which the Act requires us to imagine, at the time of Mr. Whitley's death on September 11, 1967. The sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no material for the Tribunal to value the shares at Rs. 1,69,020. Valuation of stocks and shares quoted on the stock exchange presents little difficulty ; but valuation of unquoted shares has always presented considerable difficulty. In Salvesen's Trustees v. Inland Revenue Commissioners, a leading case on the subject, Lord Fleming pointed out the difficulty of estimating the value of shares in a company whose shares could not be bought and sold in the open market and with regard to which there had not been any sales on ordinary terms and said at page 392: "The problem can only be dealt with by considering all the relevant facts so far as known at the date of the testator's death, and by determining what a prudent investor, who knew these facts, might be expected to be willing to pay for the shares." He then classified the relevant facts under four heads, viz.: (A) The history of the industry. (B) The history of the company from its inception to the date of the death and particularly its position at that date. (C) The prospects of the industry generally of that date and of the company in particular. (D) The extent to which the restrictions in the articles might be expected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation of unquoted shares. The method of valuation directed thereunder was the "break-up value ". The said circular was replaced by rule 1D inserted in the Wealth-tax Rules, 1957, by the Wealth-tax (Amendment) Rules 1967, issued on 6th October, 1967. Rule 1D reads thus : "1D. Market value of unquoted equity shares of companies, other than investment companies and managing agency companies.-The market value of an unquoted equity share of any company, other than an investment company or a managing agency company, shall be determined as follows : The value of all the liabilities as shown in the balance sheet of such company shall be deducted from the value of all its assets shown in that balance-sheet. The net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up Value of each unquoted equity share. The market value of each such share shall be 85 per cent. of the break-up value so determined ......... (Proviso omitted as unnecessary). Explanation I-For the purposes of this rule, 'balance-sheet' in relation to any comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce prevailing in the United Kingdom, the United States of America, etc., requires the goodwill value of a company to be included for arriving at the net value of its assets, so far as India is concerned, the law as provided in rule 1D is that the " break-up value " method does not require the goodwill value of a company to be included. We agree with the learned counsel for the revenue that rule 1D does not govern the manner of valuation of shares for the purposes of estate duty. As already stated, there is no rule made under the Act providing for the manner of valuation of unquoted shares. In the absence of rules, valuation for purposes of the Act has got to be made in accordance with well recognised methods of valuation followed in India. The method of valuation prescribed by rule 1D of the Wealth-tax Rules, 1957, being the only statutorily recognised method of valuation of unquoted equity shares in this country, it would not be wrong to adopt that method of valuation for purposes of estate duty also, though the rule as such is inapplicable. The rule can be looked into only for the purposes of knowing the manner of break-up method of valuation which is one of the recognised metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on II(ii)(b) of rule 1D of the Wealth-tax Rules, the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the " valuation date " at a general body meeting of the company shall not be treated as liabilities. It was not shown before us that the net value of the assets of the company valued at Rs. 26,82,792 does not include the amount set apart for payment of dividends on the shares. If the amount set apart for dividends has already been included in the not value of assets of the company and has been taken into account while arriving at the " break-up value " of the shares, the department cannot contend that an addition will have to be made on account of expected dividend for the year 1967. If what the Assistant Controller intended was the anticipated dividends for 1968, no addition can be made on that account since the accounts up to December 31, 1967, were published long after the date of death. Dividend is not like interest which accrues from day to-day. The right to claim dividends arises only on declaration of dividends and not before. There is another way of looking at the problem before us. The mark ..... X X X X Extracts X X X X X X X X Extracts X X X X
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