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TMI Blog1987 (5) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... s should be adopted for the purpose of valuation of the shares of Mehta Pvt. Ltd. Again, Jagdish Industries Pvt. Ltd. was in liquidation and therefore, Nil value should be adopted on the basis of break-up method. This claim was made on the basis of decision in CGT vs. Smt. Kusumben D. Mahadevia etc.(1980) 14 CTR (SC) 366:(1980) 122 ITR 38 (SC) in the case of Smt. Kusumben D. Mahadevia vs. N.C. Upadhya and Anr. (1980)14 CTR (Bom) 20:(1980)124 ITR 799 (Bom) in the same case. The WTO rejected the claim regarding valuation on yield basis holding that r.1D of the WT Rules is applicable and accordingly valued the shares of both the companies. 2.1. The Commissioner(A) confirmed the valuation holding that the WTO had followed proper and correct method. 3. At the time of hearing, the ld. representative of the assessee relying upon the case of CWT vs. Kasturbhai Mayabhai (1986) 51 CTR (Guj) 309:(1987) 164 ITR 107 (Guj) submitted that r. 1D was directory and therefore, valuation is required to be made on yield basis. In respect of the shares of Jagdish Pvt. Ltd. he was fair enough to submit that since the company is in liquidation, proper method was applied. 4.The ld. Departmental Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the methods. The factors which are likely to determine the value of a share on any particular day or at any particular time are:(i)the profit earning capacity of the company on a reasonable commercial basis;(ii) its capacity to maintain these profits or a reasonable return for the capital invested; and in special cases such as investment companies, the asset backing;(iii)the prospects of capitalisation of its earning in the shape of declaration of bonus shares or where the company is financially and commercially sound, the prospects of issue of further capital where the existing shareholders have a right to apply for and obtain them at a certain price which is generally less than the market value, offering an increased yield on their investment, on the assumption that the company will be able to maintain the same rate or at least increase the aggregate payment of dividends on the increased capital." Simply apply the principles in the light of the above observations, the claim raised by the assessees is required to be accepted. Again, since the decision was rendered by the Supreme Court when r. 1D was on the statute book, can it not be said that r. 1D can be presumed to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of s. 6(3) and r. 10(2) of the GT Act and Rules and this contention was negatived as could be seen from the relevant portion of the judgment at pages 744 and 745 reproduced below: "It was contended by Mr. R.J. Joshi that the Supreme Court in Kusumben D. Mahadevia (1980) 122 ITR 38 (SC) has left open the question as to whether or not the primary method of valuation of the shares of private limited company was the break-up method upon the basis of s. 6(3) and r. 10(2). He submitted that the first respondent had rightly intended to apply the provisions of s. 6(3) and r. 10(2) and to arrive at an assessment upon the basis of the break-up method of valuation of the share of the purpose of gift-tax. I cannot agree. The Supreme Court has in Kusumben D. Mahadevia's case (1980) 122 ITR 38 (SC), laid down that in the case of a private limited company such as Mafatlal Gagalbhai Pvt. Ltd. which is a going concern, which is not ripe for liquidation and regarding which there is no exceptional circumstances, the break-up method cannot be applied; the profit earning method is the only method which can properly be applied for the valuation of its shares. The Supreme Court affirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is not sought to be taken away by the introduction of r. 1BB. If the assessee feels that the value of the property, if sold in the open market on the valuation date would be less than the value worked out by employing the formula of r. 1BB, it would be open to him to claim that the value of his asset may be so estimated. In other words, if the fair market value estimated in accordance with s. 7(1) of the Act works out to a figure below the value derived by the formula of r. 1BB, the assessee would have to be taxed on the basis of that lower value. Rule 1BB, therefore, does not introduce a formula which is likely to adversely affect the interests of the assessee. It is necessary to read the formula accordingly because it is well settled that a rule framed by the rule-making authority under the statute must not transgress or travel beyond the scope of the main provision of the statute, but must confine itself to the scope of the power conferred by the statute which it must be assumed cannot be in excess of the main provision in the statute." The ratio laid down in the above observations should be considered as binding upon us and therefore, we have no hesitation in h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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