COMMISSIONER OF GIFT TAX Vs. KAILASHPAT JUTHALAL HUF

JUDGEMENT

(1.) BY this application under Section 26(2) of the Gift-tax Act, 1958, the Commissioner of Gift-tax, Kanpur, seeks a direction from this court to the Income-tax Appellate Tribunal, 'B' Bench, Allahabad, to refer the following questions for opinion of this court :

(2.) THE respondent assessee is a Hindu undivided family and held shares in Messrs. M. P. Udyog Ltd, During the previous year relevant to the assessment year in question on May 29, 1985, the assessee sold one lakh thirty thousand one hundred forty shares of Messrs. M. P. Udyog Ltd., for a consideration of Rs. 5,85,630 at the rate of Rs. 4.5 per share. THE Wealth-tax assessment for the year under consideration was made taking the value of shares as per Rule 1D of the Rules under the Wealth-tax Act at Rs. 14.38. per share. At this rate, the value of the shares sold by the assessee worked out to Rs. 18,71,413. THE Gift-tax Officer entertained the view that there was a deemed gift within the meaning of Section 4(1)(a) of the Gift-tax Act, 1958 (for short "the Act"), for the shares had been sold for inadequate consideration to that extent. THE Gift-tax Officer, therefore, sought to assess the difference of Rs. 12,80,780 after allowing deduction of Rs. 5,000 under Section 5(2) of the Act as deemed gift by taking resort to Section 16(1)(a) of the Act because the assessee had not filed any gift-tax return. THE assessment so made was affirmed in appeal by the Commissioner of Income-tax (Appeals), Kanpur, and the appeal filed by the assessee was dismissed. It may be observed that the balance-sheet of Messrs. M. P. Udyog Ltd. (hereinafter referred to as "the company") is drawn up on July 31 each year. It is a company in which the public are not substantially interested and its shares were not listed in any stock exchange. THE Gift-tax Officer was of the view that as the shares were not quoted in the stock exchange, their value was to be determined on the average of the break-up value indicated by the balance-sheet of the company in terms of Rule 1D of the Wealth-tax Rules/10(2) of the Gift-tax Rules read with Section 6(3) of the Act. As the transaction of safe was made during the currency of the previous year relevant to the assessment year in question and in order to determine the intrinsic worth of the shares as on May 29, 1985, the date of the transaction, the Gift-tax Officer adopted the balance-sheet of the company drawn up on July 31, 1985, being in proximity with the date of sale, as the basis to arrive at the break-up value at the rate of Rs. 14.38 per share. THE contentions of the assessee that the value of the shares was to be determined by the yield or profit-earning method and that the balance-sheet as on July 31, 1984, which preceded the date of transfer was the only relevant balance-sheet which could have been taken into account for ascertaining the value of shares, were repelled both by the Gift-tax Officer and the appellate authority. However, the view entertained by the said authorities did not find favour with the Income-tax Appellate Tribunal in second appeal filed by the assessee.

(3.) IT is apparent that the controversy between the contending parties is about the value of unquoted shares and the choice of the relevant balance-sheet which has got to be taken into consideration for the purpose of computation of the company's net worth. We may observe that on the question of the relevant balance-sheet, the view entertained by the Income-tax Appellate Tribunal is at variance with the view expressed by the Madras High Court in CGT v. K. Ramesh [1983] 141 ITR 462 and CGT v. Venu Srinivasan [1985] 156 ITR 679 (Mad). There the view expressed is that if the balance-sheet subsequent to the gift was not far removed from the date of gift then necessarily the second balance-sheet would afford a better guide for the break-up value to be arrived at than the more distant balance-sheet of the earlier date. In CWT v. S. Ram [1984] 147 JTR 278, the Madras High Court has expressed yet another view on the questions under reference. IT was held (at page 291) :