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TMI Blog2002 (5) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... on 16A of the Wealth-tax Act, 1957, to the Valuation Officer. On receipt of the reference, the Valuation Officer gave a notice to the assessee. After receipt of requisite information, the Valuation Officer took the view that "the value of shares should be based on the balance-sheet as on June 30, 1981, and not on the balance-sheet as on June 30, 1982, because when the shares were gifted, the immediate preceding balance-sheet was that of June 30, 1981". He also noticed the fact that 28 lakhs fresh shares had been issued by the company on December 24, 1981. After examination of the balance-sheet, the Valuation Officer fixed the value of each share at Rs. 383.75. The Gift-tax Officer accepted this valuation and found that the value of the gift made to Satyanand Munjal Trust No. 1 was Rs. 12,36,000. So far as the transfer of 6,000 equity shares to Yogesh Chander and Brothers is concerned, he came to the conclusion that the "gift is wholly void". He further came to the conclusion that "the shares being transferred are of Hero Cycles (P.) Ltd. in whose control and management the assessee is directly interested. These shares have a very high assessable value under the Wealth-tax Act... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residuary interest shall be made. Thus, the assessee's appeal was allowed. The Revenue filed a petition under section 26(177) of the Gift-tax Act, 1958, for reference to this court. The Tribunal, after examination of the matter, has referred the following two questions for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the valuation of the shares gifted by the assessee must be made on the basis of the yield method and not on break-up method under rule 10(2) of the Gift-tax Rules? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the gift made by the assessee with right of revocation during a certain period was a valid gift?" Regarding 1: Mr. Sawhney, learned counsel for the Revenue, has contended that the Gift-tax Officer had rightly accepted the value as determined under rule 10(2) by following the break-up method. The view was affirmed by the appellate authority. The Tribunal has erred in adopting the yield method. The claim made on behalf of the Revenue has been controverted by counsel for the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld show that the value of shares had to be primarily determined "by reference to the value of the total assets of the company". In case, it was not ascertainable by this method, then, the value had to be estimated on the basis of the price that the shares would fetch if on the date of the gift they were to be sold in the open market. In other words, under the rule, the value has to be primarily determined with reference to the total assets of the company. In common parlance, it is called the break-up method. Mr. Mittal, learned counsel for the assessee, contended that it is only in the case of a company in liquidation that the break-up method has to be followed. Otherwise, the yield method was applicable. We have considered the matter. Valuation of the shares has to be normally done by the valuer. Courts not only lack the expertise but are also handicapped by the fact that proper data is not available. Thus, there is a need to normally depend upon the report of the valuer. If the matter is examined from a purely conceptual view point, it may be possible to contend that the balance-sheet gives only the depreciated value of the assets. It is not the prevailing price which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned with reference thereto. Such an objection can be raised only by the Revenue. The company and the individual managing its affairs should be bound by the value of the assets as disclosed in the balance-sheet. What is the position in the present case? The assessee has not even remotely suggested that the company did not have good cash flow. It is not even the assessee's case that the value of the assets as shown in the balance-sheet is not correct. Thus, it cannot object to the view taken by the valuer that the value has to be assessed with reference to the assets. Still further, as observed by the Gift-tax Officer, the assessee is "directly interested" in the "control and management" of Hero Cycles Private Limited. In our view, such being the position, he is bound by the value of the assets as declared in the balance-sheet. In the normal course of events, it would not be open to him to even suggest that the value of the assets is not correct or that the shares cannot be evaluated with reference to the balance-sheet. A fact which deserves mention is that the Valuation Officer had issued a notice to the assessee and asked for the relevant information. Mr. Mittal has produced be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the profit earning method and the break-up method should be taken to be the value of the shares. There was no argument addressed to the Tribunal that the break-up method should be adopted because that was the primary method prescribed by rule 10, sub-rule (2), and the Tribunal had, therefore, no occasion to deal with such argument. This question obviously, therefore, does not arise out of the orders of the Tribunal and it cannot be required to be referred to the High Court." Thus, it is clear that the issue of rule 10 was not involved in Smt. Kusumben D. Mahadevia's case [1980] 122 ITR 38 (SC). We have also perused the decision of the Bombay High Court in Seth Hemant Bhagubhai Mafatlal's case [1983] 144 ITR 737. It was specifically recorded that: "What the Supreme Court said in regard to section 6(3) and rule 10(2) of the Gift-tax Rules, 1958, was that it had not been argued before the Tribunal that the break-up method was the primary method to be applied". Thus, the court had taken the view that the decision in Smt. Kusum ben D. Mahadevia's case [1980] 122 ITR 38 (SC), would mean that the yield method had to be followed unless the company was in liquidation. With respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the Revenue, has also referred to the decision of their Lordships of the Supreme Court in CWT v. Sharvan Kumar Swarup and Sons [1994] 210 ITR 886. He contended that the rules for valuation embody machinery provisions. These can be applied retrospectively. Thus, the rule as existing today in the form of Schedule II which provides for the breakup method should be followed. It is undoubtedly correct that their Lordships of the Supreme Court while dealing with rule 1BB of the Wealth-tax Rules, 1957, have observed that: "The rule is procedural and not substantive and is applicable to all proceedings pending on April 1, 1979, when the rule came into force." Specific observation has been recorded at page 895. Despite this, we are unable to accept the contention of learned counsel in the context of the facts and circumstances of the present case. It is the admitted position that the gift was made in the year 1982. At that time, the unamended provisions of section 6 and rule 10 were in force. The provision of section 6 was amended with effect from April 1, 1989. Schedule II was introduced in 1993. There was nothing in the Schedule to indicate that it was intended to have retrospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. It is undoubtedly correct that under the general law, a gift which is "revocable wholly or in part at the whims of the donor is void". However, the Gift-tax Act embodies a special law. Section 6(2) (as it existed at the relevant time) specifically provided for valuation of "a gift which is not revocable for a specified period". This special provision would override the general law and a gift which is revocable after a specified period cannot be held to be void. Still further, according to the provision, the value has to be fixed by the method of capitalisation. A detailed provision in this behalf has been made in rule 11 of the Gift-tax Rules, 1958. In this situation it cannot be said that the gift made by the assessee which was revocable after 74 months but before the expiry of 82 months was void. Mr. Sawhney contended that a revocable gift is a device to escape assessment. Reliance was placed on the decision of their Lordships of the Supreme Court in the case of McDowell and Co. Ltd. [1985] 154 ITR 148. It is undoubtedly true that in the case of McDowell and Co. Ltd. [1985] 154 ITR 148 (SC), their Lordships have adverted to "the evil consequences of tax avoidance". ..... X X X X Extracts X X X X X X X X Extracts X X X X
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