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TMI Blog2005 (6) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... is also Rs. 142.45 of Rs. 100 per share." 3. On the sale of 51,252 equity shares of a company known as Panchmahal Steel Ltd. the assessee in its return of income has shown a long-term capital loss at Rs. 1,08,27,497, computation of which is as under:- Sale consideration of 51,252 Equity shares @ Rs.150 per share Rs.76,87,8000 Less: Cost of acquisition of equity shares acquired by the company prior to 1-4-1981. The fair market value of shares is substituted under section 55(2)(b)(i) of the Income-tax Act, 1961. The FMV of shares as on 1-4-1981 works out at Rs. 162 per share as per valuation certificates of M/s. Amal Dutta & Associates, Chartered Accountants & approved valuer Rs. Rs.1,85,15,297 (51252 equity shares X 162 FMV X 223 (index for 1992-93) -------------------------------------------------------- 100 (base cost index) ---------------- Rs. 1,08,27,497 ----------------- The said shares were acquired by assessee on 18th April, 1980 @Rs. 10 per share. While taking the cost of shares as on 1-4-1981, as is mentioned above the assessee has relied upon the valuation certificate given by M/s. Amal Dutt & Associates who is an approved valuer. For making valuation the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nchmahal Steel Ltd. (2) The regd. Valuer Shri Amal Dutt Dhruv is one of the Directors of the assessee-company and hence the valuation arrived at by him on the basis of profit-earning method is not just and fair and is in the benefit of the company in which he is Director. (3) Panchmahal Steel Ltd. has neither declared nor paid any dividend in the three years which are covered for working out profits. (4) The shares of Panchmahal Steel Ltd. were acquired on 18-4-1980 @Rs. 10 per equity share and as on 1-4-1981, the shares are valued at Rs. 162 per equity share, which is on much higher side and without any sound benefits in the hands of the shareholders in the form of dividend or easy liquidity in the market. (5) It is also seen that the assessee-company has acquired the shares at the face value of Rs. 10 on 18-4-1980 and as on 1-4-1981, the shares are valued at Rs. 162 after a period of less than a year. Since Panchmahal Steel Ltd. was not listed on Stock Exchanges as on 1-4-1981 and no dividend was declared or paid since its commencement of business, the shares valued at Rs. 162 by the Registered Valuer is quite on higher side. On closely going through the balance-sheets and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nghania v. CWT 207 ITR 1 does not over rule the decision in Shri Ambalal Sarabhai's case 170 ITR 144 and Dr. D. Renuka's case 175 ITR 615 specifically stated that in a Gift tax case Rule 1D of the Wealth-tax Rules will have no bearing and the yield method is more appropriate. Respectfully following the Hon'ble Andhra Pradesh High Court's decision I agree with the ld. AR for the assessee that rule 1D is appropriate only in Wealth-tax proceedings under the Wealth-tax Act and under the Income-tax Act for the purpose of capital gains in the shares of the going or running concern, the yield method is more appropriate. In this case, the valuation as per the yield method has been worked out by M/s. Anand Dutt & Associates, C.A. and I agree with the same. The Assessing Officer is directed to compute the capital gains/loss as per the yield method as worked out by the A.R." Against the above mentioned findings of ld. CIT(A), the revenue is aggrieved, hence in appeal. 4. Referring to the facts mentioned in the assessment order the sum and substance of which has already been reproduced in the above part of this order, the ld. DR vehemently pleaded that according to the decision of Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is undoubtedly one of the recognized methods of valuing unquoted equity shares." "We are not satisfied that the break up method adopted by rule 1D does not lead to a proper determination of the market value of the unquoted shares. The argument to this effect, advanced by learned counsel for the appellant, is based upon the assumption/premises that the value determined by applying the yield method is the correct market value. We do not see any basis for this assumption. No empirical data is placed before us in support of his submission or assumption. It may be more advantageous to the appellant but that is not saying the same thing that it alone represents the true method value..." "... The decision it bears repetition, recognizes that the break up method "nonetheless is one of the methods". In the circumstances, it is difficult to agree with learned counsel for the appellant either that the break up method is not a recognized method or that the yield method is the only permissible method for valuing the unquoted equity shares. It is not as if the rule-making authority has adopted a method unknown in the relevant circles or has devised an impermissible method. There is no e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision Their Lordships of Andhra Pradesh High Court have followed the decision of Hon'ble Supreme Court in the case of CGT v. Executors & Trustees of the Estate of late Shri Ambalal Sarabhai [1988] 170 ITR 144 as also the decision of Andhra Pradesh High Court in the case of Dr. D. Renuka v. CWT [1989] 175 ITR 615 [both these decisions have been relied upon by the ld. CIT(A)]. (2) Asstt. CIT v. K.K. Gosain [1998] 66 ITD 26 (Delhi) wherein following the afore-cited decision in the case of Shri Ambalal Sarabhai it was held that unquoted equity shares should be valued on the basis of yield method and not by applying break-up method. In the said decision, the decision of Hon'ble Supreme Court in the case of Bharat Hari Singhania has been distinguished. 6. In the alternative, referring to Annexure-1 to the assessment order, he pleaded that in any case Rule 1D per se is not applicable for computing fair market value as on 1-4-1981 for the purpose of capital gain, therefore, the break up value arrived at by the Assessing Officer at Rs. 81.78 per share should be upheld as there is no logic in reducing the same further by 25 per cent to arrive at fair market value to be determined for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - "In this reference at the instance of the revenue, the following question is referred for our opinion in respect of assessment year 1982-83: 'Whether the Tribunal is right in law and on facts in directing the GTO to apply the yield method as against applying rule 1D of Wealth-tax Rules, 1957, by the GTO for valuing the unquoted equity shares gifted by the assessee?' 2. Mr. Tanvish Bhatt learned counsel appears for the Revenue. Though served, none appears for the respondent-assessee. 3. The controversy in the reference is about the method of valuation to be applied for valuing the unquoted equity shares gifted by the assessee. The GTO valued the shares according to rule 1D of the Wealth-tax Rules, 1957, rejecting the assessee's contention that the shares had to be valued as per the yield method. The AAC rejected the assessee's appeal. However, the Tribunal allowed the assessee's appeal and directed the GTO to apply the yield method. 4. At the hearing of this reference, Mr. Tanvish Bhatt for the Revenue has invited our attention to the decision of the Supreme Court in the case of Bharat Hari Singhania v. CWT [1994] 118 CTR (SC) 125/[1994] 207 ITR 1 (SC) in support of his conte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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