COMMISSIONER OF GIFT TAX Vs. GOPAL SRINIVASAN

JUDGEMENT

(1.) WE are following in the instant case, the method adopted by another Bench in Tax Cases Nos. 943 and 1320 of 1991 (CGT v. Gopal Srinivasan (Minor) [1995] 214 ITR 641) and many other cases, only because we are informed at the Bar that there is a chance of all controversies in this behalf coming to an end and this and other cases, which have already been ordered by the other Bench, constituted the bulk that might dispose of the controversies once for all. WE have not been able to know how in the instant case, the third question of law referred to us, i.e., whether the Appellate Tribunal was right in holding that the break-up value of the shares should be discounted by 30 per cent. because of the restrictions contained in the memorandum and articles of association of the company in the matter of alienation of shares, has arisen. But we see reason for a reference of the second question whether, the Appellate Tribunal was right in holding that the balance-sheet as at March 31, 1970, and not as at March 31, 1971, should be taken into account for determining the value of the shares gifted on March 22, 1971, and the reason why the first question whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the shares of Messrs. T. V. Sundaram Iyengar and Sons (P.) Ltd. should be valued for gift-tax for assessment year 1971-72 at Rs. 107.34. per share and not at Rs. 134.82 per share as worked out by the Income-tax Officer. The assessee, it is not in dispute, had shares in Messrs. T. V. Sundaram Iyengar and Sons (P.) Ltd., which he gifted to others on March 22, 1971. The Gift-tax Officer adopted the break-up value method for assessing the value of the shares of the donor and accepted the balance-sheet value as at March 31, 1971. The Appellate Assistant Commissioner confirmed the gift-tax assessment and the value of the shares as determined by the Gift-tax Officer. The assessee appealed and the Tribunal at the first instance thought that the balance-sheet of the nearest preceding year should be adopted and not of the date subsequent to the date of gift. The matter came up before this court, remanded and again determined by the Tribunal, but, the controversy remained whether it should be the balance-sheet preceding the date of the gift or the one subsequent to the date of gift also could be taken into account. Now, in the case of the assessee, if the balance-sheet as on March 31, 1970, is accepted, the value per share conies to Rs. 134.82. If the date of March 31, 1971, is adopted it comes to Rs. 107.34. What remained as part of the rules under the Gift-tax Act has been deleted by an amendment Act in the year 1989 and incorporated in Schedule II of the Gift-tax Act which says that value of gifted property has to be determined in accordance with the provisions of Schedule III to the WEalth-tax Act subject to the modifications stated therein. Rules as to unquoted equity shares in companies other than the investment companies which alone has to be applied under the WEalth-tax Act, give a procedure which has been indicated in two earlier judgments of this court in CGT v. K. Ramesh [1983] 141 ITR 462 and CGT v. Venu Srinivasan [1985] 156 ITR 679. In the latter judgment, this court has stated as follows (at page 680) :

(2.) WE have an order of a Bench of this court in Tax Cases Nos. 943 and 1320 of 1981, dated January 17, 1994 (CGT v. Gopal Srinivasan [1995] 214 ITR 641), wherein this court has taken the view that the Tribunal has not followed the proper procedure and so, the matter has to be redone by the Tribunal. WE propose to do the same. But before we do so, we may indicate that no authority should entertain any doubt as to the method of determination of the value of unquoted equity shares of a company in accordance with the provisions of the WEalth-tax Act. The Supreme Court has in the case in Bharat Hari Singhania v. CWT [1994] 207 ITR 1 laid down the law saying that rule 1D has to be followed in valuing each and every case of unquoted equity shares of a company other than an investment company or a managing agency company. It is not a matter of choice or option. The rule-making authority has prescribed only one method for valuing the unquoted equity shares. If this method were not to be followed, there is no other method prescribed by the rules. Where there is a rule prescribing the manner in which a particular property has to be valued, the authorities under the Act have to follow it. They cannot devise their own way and means for valuing the assets. It is reiterated and emphasised that merely because the valuation date of the assessee and the date with reference to which the balance-sheet of the company is drawn up do not coincide, it cannot be said that rule 1D is not mandatory or that it need not be followed. The break-up method contained in rule 1D takes the balance-sheet of the company as the basis for working the rule. That rule cannot be worked in the absence of the balance-sheet. But there may be cases where the date of the balance-sheet and the valuation date of the assessee do not coincide. It is to meet such a situation that Explanation I is provided in rule 1D. The Explanation says that where the date on which the balance-sheet is drawn up does not coincide with the valuation date of the assessee, "the balance-sheet drawn up on a date immediately preceding the valuation date" shall be adopted as the basis for working the rule. Yet another situation contemplated by the Explanation is where both the above situations are absent, "the balance-sheet drawn up on a date immediately after the valuation date" shall be adopted as the basis. This is the most reasonable thing to do.