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TMI Blog1993 (1) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... names of the trustees in the name of the trust on December 28, 1976, and by that time, the balance-sheet as at December 31, 1975, was available. He was also of the view that the goodwill was required to be taken into consideration while calculating the total assets. Taking this view, he worked out the value of the shams at Rs. 402.22 and assessed the gift-tax accordingly. The assessee appealed I to the Commissioner of Gift-tax (Appeals). The Commissioner was of the view that gift of the shares can be said to have been made on April 28, 1976, and not on December 28, 1976, as held by the Gift-tax Officer and, therefore, the balance-sheet as at December 31, 1974, was required to be adopted as the basis for valuing the shares. As regards the correct method for valuation of shares, the Commissioner held that shares should be valued by taking the average of the value arrived at on the breakup value method as well as on the yield method and that the value should be discounted by ten per cent. in view of the impediment in transfer of shares. He confirmed the view of the Gift-tax Officer that goodwill was required to be added to the total value of the assets of the company. On this basis, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re aggrieved by the decision of the Tribunal and, therefore, they moved the Tribunal for referring the following questions of law to this court : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in following the method involving the principle of break-up value instead of the method involving the principle of yield value in determining the value of the shares of Gaskets and Radiators Private Limited under section 6 of the Gift-tax Act ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of rule 10(2) of the Gift-tax Rules, 1958, were applicable for the purpose of valuing the shares of Gaskets and Radiators Private Limited and that, therefore, the said shares should be valued by adopting the break-up value method ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the submission of the assessee that the market value of the shares of Gaskets and Radiators Private Limited which was a running concern should have been worked out at Rs. 234 by adopting the profit-earning method ? (4) Whether, on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining the total assets of the company. Before the High Court also, there was no dispute as regards the correct method of valuation. This court, after referring to section 6 of the Act and rule 10(2) of the Gift-tax Rules, 1958, held that the value of shares was required to be ascertained by reference to the value of the total assets of the company. If that could be so ascertained, then it was to be ascertained only in that manner. If it could not be ascertained by valuation of the total assets of the company, then, an estimate has to be made as to at what value the shares would have been valued if, on the date of the gift, they could be sold in the open market. This court further observed that it was not shown as to why in the case of that particular company which was a private company, the articles of association of which contained restrictive provisions as to the alienation of shares, the value of shares is not ascertainable by reference to the value of the total assets of the company. Taking this as the correct legal position, this court observed that it was common ground that the value of the shares was required to be ascertained by following the break-up value method. Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded. " He submitted that, in cases where it is not possible to ascertain the value of the gift by reference to its value in the open market, then subsection (3) of section 6 would be attracted and valuation shall have to be determined in the prescribed manner. He submitted that the manner prescribed in this behalf is as contained in rule 10. Therefore, in cases of this type, the value of the shares has to be, in the first instance, ascertained by reference to the value of the total assets of the company. If it is not possible to ascertain the value in that manner, then only the other method indicated in the rule has to be applied. He further submitted that the Supreme Court, while deciding the appeal in Ambalal Sarabhai's case [1988] 170 ITR 144, did not refer to and consider the effect of rule 10. What has been held by the Supreme Court in that case is on the basis of what it has earlier held in the case of CWT v. Mahadeo Jalan [1972] 86 ITR 621 (SC) and CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38 (SC). The case of Mahadeo Jalan [1972] 86 ITR 621 (SC), arose under the Wealth-tax Act and the relevant provisions of the Wealth-tax Act did not provide for any prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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