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TMI Blog1987 (12) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated in the United Kingdom and analogous to a private limited company in India. Shri Ambalal Sarabhai, since deceased, held 480 shares in an English company, M/s. Bakubhai and Ambalal Ltd., London, the share capital of which consisted of 2,000 shares of 10 each. On October 17, 1964, under eight deeds of gift, the said Ambalal Sarabhai made gifts of the said 480 shares to certain members of his family. In the proceedings for assessment to gift-tax respecting the said gifts, the question of the proper basis for determination of the value of the gifts having arisen, the assessee contended that, as the shares were not quoted in the stock exchange, their value be determined on the average of break-up value indicated by the balance-sheets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first two at the instance of the Revenue and the third at the instance of the assessee. The assessee, it must be observed, did not press the question referred at his instance and the High Court, accordingly, did not express any opinion on it. The two questions referred for the opinion of the High Court at the instance of the Revenue were : " (1) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal based on the ratio of the case decided by the House of Lords in Lynall v. Inland Revenue Commissioners [1972] 83 ITR 563 and basing the valuation of the shares of Bakubhai and Ambalal Ltd., London, on its balance-sheet as at March 31, 1963, instead of March 31, 1964, is bad in law ? (2) Whether, on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeded before the authorities as well as before the Tribuna and the High Court. He, however, invited our attention to the following observations of the High Court [1975] 100 ITR 447, 452 (Guj): " As a matter of fact it may be pointed out that before the Tribunal it was common ground that the value of the shares should be ascertained by following the break-up value method and the only difference was as to with reference to the balance-sheet of what date the total value of the assets has to be ascertained. " and urged that in view of the consensus between the parties as to the basis of valuation, it was not now open to the Revenue to turn around and urge the application of an altogether different principle. We are afraid, the basis ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because only a small proportion of the profits is distributed by way of dividends and a large amount of profits is systematically accumulated in the form of reserves, the dividend method of valuation may be rejected and the valuation may be made by reference to the profits. The profit-earning method takes into account the profits which the company has been making and should be capable of making and the valuation, according to this method, is based on the average maintainable profits. Of course, for the purpose of such valuation, the taxing authority is not bound by the figure of profits shown in the profit and loss account because it is possible that the amount of profits may have suffered diminution on account of unreasonable expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermination of the value of the shares adopting the somewhat intricate processes inherent in the " profit-method " of valuation, the difference in the quantum of the tax might, perhaps, not be substantial. The magnitude of the mechanism for refixation of the value of the gifts and the difference in the quantum of the tax it might result in, do not bear a reasonable or sensible proportion. Having regard to the pecuniary involvement in the case, which is obviously small, we think we should not expose the parties to a fresh round of litigation. In this view of the matter, we think the appellant should be content with the declaration of the law on the matter, without disturbing the valuation made by the Tribunal and approved by the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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