RAJKUMARI MATHURAMBA RAJAYEE Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) THE following two questions of law have been referred to this court under the provisions of the E.D. Act (hereinafter referred to as "the Act"), the first at the instance of the accountable person and the second at the instance of the Revenue :

(2.) THE late D. Shanmuga Raja, Raja of Sivaganga, died on March 1, 1963. He owned 225 shares of Rs. 1,000 each in the Shanthi THEatres Private Ltd., hereinafter referred to as "the company", which was carrying on business in exhibition of films. THE company was incorporated on December 19, 1958, and the share capital of the company consisted of 750 shares of Rs. 1,000 each. Of the said 750 shares, 225 shares were held by the deceased, 25 shares by the wife of the deceased, 425 shares by Sri Shanmugam, brother of Shri Sivaji Ganesan, and the balance of shares by the other relatives of Shri Sivaji Ganesan. THE company suffered losses of Rs. 41,753 and Rs. 1,01,527, respectively, in the years 1960 and 1961. THE last balance-sheet prior to the death of the deceased was as on December 31, 1962.

(3.) AS regards the first question, which relates to the valuation of shareas, it is seen that though the accountable person worked out the break-up value of the shares at Rs. 827 per share in her return, she valued the shares at Rs. 1,000 per share taking its face value. It is not in dispute that the break-up value has been adopted on the basis of the balance-sheet prepared for the year 1958 (as on 31-12-1958). The deceased in this case died in 1963, five years after the preparation of the balance-sheet also did not take note of the appreciation of the value of the lands, buildings and machineries possessed by the company. Therefore, the shares cannot be valued on the basis of the break-up value at the rate of Rs. 827 per share, ignoring the considerable appreciation in value of land, building and machinery owned by the company. Even otherwise, it is well established that the break-up value method can properly be adopted only where the company is ripe for winding-up or the situation is such that the fluctuations of profits and uncertainty of conditions at the date of valuation prevent any reasonable estimation of the profit-earning capacity of the company and that the break-up value would not be appropriate for valuation of shares of a going concern. [Vide decisions of the Supreme Court in CWT v. Mahadeo Jalan and CGT v. Smt Kusumben D. Mahadevia [1980] 112 ITR 38 (SC)]. The question then is what is the fair market value of the shares. It is not in dispute that the accountable person has sold her shares of the company at Rs. 1,500 per share two years after the death of the deceased. Though the accountable person says that the sale of shares after two years of the death of the deceased could not be taken into account for the purpose of determining the value of the shares on the date of death of the deceased, we find that there is no evidence to indicate that there was considerabel variation in price between the date of the death of the deceased and the actual date of the sale of the shares by the accountable person. AS pointed out by the Tribunal, after the death of the deceased, the accountable person could not have been in a position to aset as against the other major shareholders who were in management and control of the company and, therefore, the fact that the accountbale person was able to sell at Rs. 1,500 per share on the date of death of the deceased would indicate that the shares would have been more valuable on the date of death of deceased. Therefore, the value of the shares at Rs. 1,500 per share can reasonably be taken as the fair market value especially when there is no evidence adduced by the accountable person that due to certain specified factors there was a rise in price after the death of the deceased and, therefore, the value at Rs. 1,500 per share should not be taken as the value on the date of death of the deceased. In this view, we are inclined to agree with the view taken by the Tribunal and uphold the valuation of the shares by the authorities below. The first question is, therefore, answered in the affirmative and against the accountable person.