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TMI Blog1997 (11) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined the value of the shares at Rs. 4,577.94 per share based on the break-up value worked out by substituting the fair market value of Rs. 26,92,400 for land and buildings estimated by the District Valuation Officer of its Department in the reference made under section 15(6) of the Gift-tax Act, 1958 (hereinafter to be referred to as "the Act"), for the balance-sheet figure of Rs, 6,07,348 for the land and buildings as on September 30, 1971. The Gift-tax Officer adopted the market value of the land and buildings and determined the value of the shares transferred by way of gift as well as sale which came to Rs. 2,47,209 as against nil consideration in money's worth in respect of four shares gifted and a consideration of Rs. 61,808 in respect of fifty shares sold. The Gift-tax Officer, accordingly, computed the chargeable gift at Rs. 1,85,401 comprising direct gifts of Rs. 18,312 and deemed gift under section 4(1)(a) of the Act of Rs. 1,67,089. After deducting a sum of Rs. 4,880 which was admitted as gift, the Gift-tax Officer added the difference of Rs. 1,80,521 and completed the assessment for the assessment year 1972-73. For the assessment year 1973-74, the assessee sold sevent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------- 6,61,709 ----------------------- Value of land and buildings 26,92,400 Less: Book value 6,07,348 --------------------- 20,85,052 -------------------- Value of 600 equity shares 27,46,761 -------------------- Value of each share 27,46,761 -------------------- = 4,577.94. 600 The Tribunal found that there have been many transactions between the members of the family with reference to the shares as between them and the Union Motors Company Private Limited and all the transactions were at Rs. 1,288 per share and in this view of the matter, the Tribunal came to the conclusion that the price paid is the real price in the absence of a suggestion that there was any collusion or the transactions were below the market value. The Tribunal, therefore, held that there was no warrant for assuming that the market value would be higher than the sum of Rs. 1,288 per year which was the price when the shares were sold by the assessee. The Tribunal also found that the valuation of the shares was done in consequence of the Board's Circular No. 2(WT) of 1967, dated October 31, 1967, and when the assessee adopted a recognised method of valuation of shares, it is not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case of original assessment and the Tribunal earlier applied the principles which are applicable for reassessment to the gift in the original assessment as well. He also submitted that the Board's circulars made for the Wealth-tax Act are not applicable to the provisions of the Gift-tax Act and, therefore, the Gift-tax Officer was justified in valuing the land and buildings at the market value. Mr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the assessee had valued the shares according to the method authorised by the Board though the circular was withdrawn subsequently and there is no reason to presume that there was any understatement and where the stated consideration of the assessee was justified on the basis of the recognised method of valuation, the value at which the shares were sold would represent the fair market value. We have carefully considered the rival submissions of learned counsel for the respective parties. Mr. C. V. Rajan, is justified by his submission that the assets for the purpose of gift-tax should be valued at the fair market value under the provisions of section 6 of the Act and in the absence of any statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares, shall be excluded. (viii) The average of the company's book profits as adjusted above, will be determined. The maintainable profits thus arrived at will be capitalised, as stated above, by adopting 9 per cent. rate of capitalisation." The Board subsequently issued another circular dated September 15, 1973, modifying some of the original instructions found in the earlier circular. The relevant portion of the subsequent circular dated September 15, 1973, reads as under : "In arriving at the estimated price which a share of such company would fetch if sold in open market on the relevant valuation date, its 'asset backing' must be carefully computed, in accordance with well-settled principles. In other words, the valuation should take into account the complete enterprise consisting of the parent investment company and its wholly owned subsidiary or subsidiaries as if they were only one company. In arriving at such computation, the reserves of the subsidiary company must necessarily be taken into account." The assessee undoubtedly valued the shares in accordance with the circulars of the Board by adopting the average of the break-up value of the shares based on the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee cannot be stated to be inadequate to attract the provisions of section 4 of the Act. In this regard, the decision of the Gujarat High Court in Rajan Ramkrishna v. CWT [1981] 127 ITR 1, would also apply to the facts of the case. Further, this court in CGT v. Indo Traders and Agencies (Madras) P. Ltd. [1981] 131 ITR 313, was dealing with the question of applicability of section 4(1)(a) of the Act and held that the following test should be fulfilled to attract section 4(1)(a) of the Gift-tax Act : "The investigation to be made under section 4(1)(a) of the Gift-tax Act, 1958, can only be to see whether there is any attempt at evasion of tax or whether the relevant transaction is bona fide. If the consideration which passed between the parties can be considered to be reasonable or fair, it cannot be considered to be inadequate. Adequate consideration is not necessarily what is ultimately determined by some one else as market value. Unless the price was such as to shock the conscience of the court, it would not be possible to hold that the transaction is otherwise than for adequate consideration." Therefore, where the consideration which passed between the parties is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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