COMMISSIONER OF GIFT TAX Vs. K MAHESH

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal referred the following two common questions in the cases of three assessees for the assessment year 1972-73 for the opinion of this court under section 26(1) of the Gift-tax Act, 1958."1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that for the purpose of ascertaining the break-up value of the unquoted shares, the provision for gratuity should be treated as a 'liability' and should accordingly be allowed as a deduction ?. 2. Whether the Appellate Tribunal was justified in holding that a discount of 30 per cent. should be allowed from the break-up value as against 15 per cent. stimulated in rule 1D of the Wealth-tax Rules, 1957 ?"The assessees held certain shares in the following companies and gifted them away as detailed belowName of the assessee Shares held in No. of shares gifted and date of gift1. K. Mahesh T. V. S. and Sons (P.)Ltd. 3, 000 28-3-19722. K. Ramesh (1) Sundaram Industries 800 do(2) T. V. S. and Sons(P.) Ltd. 3, 000 do3. Suresh (1) Sundaram Industries 800 do(2) T. V. S. and Sons(P.) Ltd. 3, 000 doAll the assessees as above valued the shares in Sundaram Industries at the rate of Rs. 151.11 per share and the shares in T. V. S. and Sons at Rs. 124.62 per share. The original assessments were completed accepting the gifts as returned by the assessees. However, the Gift-tax Officer later noticed that while arriving at the above figures, the assessees had taken into account the provisions for gratuity as a liability. He also noticed that the assessees had taken up the balance-sheets of the companies as on March 31, 1971, which were the latest available balance-sheets for arriving at the share value by break-up value method. He, therefore, reopened the assessments and arrived at the value of the shares gifted afresh. In doing so, he took into account the balance-sheets of the companies as on March 31, 1972, which was the nearest balance-sheet to the dates of gifts and disallowed the assessees' claim for treating the provisions for gratuity as a liability. He thus arrived at the value of the shares at an enhanced rate and adopted the same for the purpose of gift-tax assessmentsOn appeal, the Commissioner of Income-tax (Appeals) held that the adoption of the balance-sheet as on March 31, 1972, being the nearest one to the date of gifts was justified, that the provision for gratuity should be allowed as a liability while working out the break-up value and that a discount of 30 per cent. should be allowed on the break-up value instead of 15 per cent. allowed by the Gift-tax Officer. Aggrieved by the orders of the Commissioner of Income-tax (Appeals), the Department took up the matter in appeals to the Appellate Tribunal.

(2.) THE Tribunal held that the issues under appeal have already been considered by it in the case of T. S. Srinivasan in G. T. A. No. 6/(Mds) of 1977-78 dated March 4, 1978, and as the orders of the Commissioner of Income-tax (Appeals) are germane to its earlier order cited, there was no force in the appeals filed by the Department. THE Tribunal has accordingly dismissed all the appeals filed by the DepartmentQuestion No. 1 relates to the value of unquoted equity shares according to rule 1D of the Wealth-tax Rules. While valuing the unquoted equity shares, the break-up method should be adopted. In adopting the break-up method, the point for consideration is, whether the provision for gratuity made in the balance-sheet should be treated as a liability or not.