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TMI Blog1990 (1) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and the profit arising therefrom was to be treated as deemed gift under section 4(1)(a) of the Gift-tax Act. Not accepting the explanation offered by the assessee, the IAC of Gift-tax worked out the value of the shares at Rs. 267 on net wealth basis + Rs. 81 for goodwill making a total of Rs. 348 per share. In doing so, the IAC of Gift-tax applied the provisions of section 6 read with Rule 10(2) of the Gift-tax Rules. Accordingly, the taxable gift was determined at Rs. 1,57,27,850. 4. Aggrieved by the said order of assessment, the assessee took up the matter in appeal before the CIT (A). As many as 22 grounds were raised which were grouped under 3 categories by the learned CIT (A). The first objection was against the validity of the proceedings under section 16(1)(a) of the Act. The second objection was in regard to valuation of shares gifted. The 3rd objection raised was in regard to the estimate of the value of the goodwill at Rs. 81 per share. The learned CIT (A) dealt with each aspect of the grounds raised. He, however, upheld the order of the IAC of Gift-tax. 5. The assessee is still aggrieved and has come up in appeal before the Tribunal. As many as 32 grounds are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he method of valuation, it is submitted that the IAC of Gift-tax himself rejected the yield method of valuation as the value on that basis works out to less than Rs. 200 as per the computation given in the Paper Book. With regard to the method of valuation as prescribed under Rule 1D of the Wealth-tax Rules, it is submitted that the same has since been approved by the Hon'ble Bombay High Court and, therefore, no objection can be raised in this regard. Coming to the valuation on the basis of break up value method, it is submitted that the break up value of the shares of Godrej Soaps Ltd. as on the date of gift was Rs. 267. However, the value for the purpose of Gift-tax Act is to be determined on the basis of the market value and for that purpose, the market value is to be determined following the circular issued by the CBDT. Therefore, the assessee was entitled to deduction of 25% as the company had not declared dividend for a period of more than last six years. Since any willing purchaser will have to consider these aspects of the matter, the deduction on this basis for arriving at the market value of the shares cannot be denied. Even in any case, the Revenue cannot be aggrieved as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of these shares. Since the sale of the entire shares means the transfer of controlling power, the purchaser would definitely agree to pay a much higher price than at the rate at which the assessee acquired 1602 shares. From the very transaction entered into by the assessee immediately before the sale of these entire shares, it is evident that the sale consideration declared by the assessee was not the fair market value as contemplated under the Gift-tax Act. 10. With regard to the valuation adopted by the Inspecting Asstt. Commissioner of Gift-tax, it is submitted that that is the possible way and in view of the goodwill which is inherent in a company like Godrej Soaps Ltd., such value of goodwill has been correctly determined and, therefore, the Inspecting Asstt. Commissioner of Gift-tax was fully justified in adding the said value. Shri A.A. Makhija, learned Departmental Representative fully supported the order of the learned CIT(A) upholding the order of the IAC of Gift-tax which applied the provisions of Rule 10(2) and stated that the learned CIT (A) correctly held that there was no necessity of going to the market value for valuation of the shares as the condition p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gift-tax Act and for this purpose it is necessary to see whether the consideration is adequate vis-a-vis the market value of the shares transferred. Before doing that, it will be useful to examine the relevant provisions as contained in the Income-tax, Wealth-tax, Gift-tax and Estate Duty Act which run as follows : Section 52(2) of the Income-tax Act : " Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount not less than fifteen per cent of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer. " Section 7(1) of the Wealth-tax Act : " Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket value on the basis of which the capital gains, the net wealth, the value of gift or the principal value of estate have to be determined. In the case of section 52(2), the cause of action arises when there is difference between market value and consideration declared due to the understatement by the assessee and that full value of the consideration in respect of the transfer shown is lesser than actually received by the assessee. In this particular case, there is no such allegation of violation of the provisions of section 52(2) of the Income-tax Act in the income-tax assessment of the assessee company and, therefore, it is to be presumed that the assessee declared the actual consideration received for the transfer of the shares which was accepted by the assessing officer. 13. It is the case of the Revenue that though the sale consideration declared by the assessee for the purpose of income-tax may be treated as correct, even then the provisions of section 4(1)(a) of the Gift-tax Act can still be invoked if the market value of the shares is more than the sale consideration. This view is also supported by the decision of the Supreme Court in the case of K.P. Varghese v. ITO [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Seth Hemant Bhagubhai Mafatlal v. N. Rama Iyer, GTO [1983] 144 ITR 737. However, the Inspecting Asstt. Commissioner of Gift-tax ignored this method of valuation on the finding that the value on this basis would be much less than computed under Rule 1D of the Wealth-tax Rules. He, therefore, applied the provisions of section 6(3) of the Gift-tax Act read with Rule 10(2) of the Gift-tax Rules and determined the value of the shares at Rs. 348 per share. This view taken by the Inspecting Asstt. Commissioner of Gift-tax is directly opposed to the decisions cited above. Even if the Inspecting Asstt. Commissioner of Gift-tax refused to follow this correct method of valuation as laid down by the Supreme Court and the jurisdictional High Court, the value arrived at by him cannot be sustained in view of the decisions of the Mysore High Court in the case of J. Krishna Murthy and that of the Bombay High Court in the case of Madhusudan Dwarkadas Vora. The Ahmedabad Bench of the Tribunal in the case of Ambalal Sarabhai (HUF) considered the question of valuation of gift and held that under section 6 of the Gift-tax Act, 1958 read with Rule 10(2) of the Gift-tax Rules, 1958, the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted by the Inspecting Asstt. Commissioner of Gift-tax. However, the Inspecting Assistant Commissioner of Gift-tax has consciously and deliberately rejected this method as the value on this basis comes to a much lower figure than determined by him in the order of assessment. It is now a fait accompli and, therefore, futile to proceed further in this regard. We, accordingly, reject this contention at the threshold itself as the Inspecting Assistant Commissioner of Gift-tax himself has deliberately rejected this method. 17. With regard to the maintainability of the method adopted by the Inspecting Asstt. Commissioner of Gift-tax on the basis of section 6(3) of the Gift-tax Act read with Rule 10(2) of the Gift-tax Rules, it is pointed out earlier that the various Benches of the Tribunal have already considered these provisions and held that while valuing unquoted equity shares under these provisions, the value of goodwill cannot be added. Further, the provisions of section 37 of the Estate Duty Act are held to be analogous to the provisions of Rule 10(2) of the Gift-tax Rules and in that view of the matter, the only possible method of valuation is on the basis of the procedure laid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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