COMMISSIONER OF GIFT TAX Vs. K V RAJYALAKSHMI

JUDGEMENT

(1.) The Revenue is seeking, by this application filed under section 26(3) of the Gift-tax Act, 1958, to direct the Income-tax Appellate Tribunal, Hyderabad "B" Bench, Hyderabad, to state the case in respect of the following question for the opinion of this court :

(2.) The assessee had sold 300 shares in S. R. M. T. Limited, Kakinada, on 18/01/1982, at the rate of Rs. 50 per share. Since the S. R. M. T., in which the assessee held these shares, is a closely held company, the shares of which were not quoted in the market, the Gift-tax Officer, adopting the break-up method of valuation, estimated the value of each share at Rs. 178.23 and on that basis, brought to tax a deemed gift of a sum of Rs. 38,469. On appeal, the same was affirmed by the appellate authority Assistant Commissioner (Appeals). The Income-tax Appellate Tribunal, following the decision of the Supreme Court in CGT v. Executors and Trustees of the Estate of the Late Shri Ambalal Sarabhai [1988] 170 ITR 144 as well as the decision of this court in Renuka (D.) (Dr.) v. CWT [1989] 175 ITR 615, held that the correct method to be applied is the yield method and in that view allowed the appeal and set aside the assessment. Aggrieved by that, the Revenue has come up with the present application, as already stated supra, seeking for a direction to the Tribunal to state the case : Learned standing counsel for the income-tax, relying upon the decision of the Supreme Court in Bharat Hari Singhania v. CWT [1994] 207 ITR 1, has endeavored to contend that the decision in Ambalal Sarabhai's case [1988] 170 ITR 144 (SC), as well as the ruling of this court in Dr. D. Renuka's case [1989] 175 ITR 615 (AP) no longer could be held to be holding the field and, therefore, the yield method taken into consideration by the Tribunal was not the proper method. We are not inclined to accept this contention. In the aforesaid Bharat Hari Singhania's case [1994] 207 ITR 1, the Supreme Court after discussing Ambalal Sarabhai's case [1988] 170 ITR 144 (SC) and Dr. D. Renuka's case [1989] 175 ITR 615 (AP), pointed out that they relate to gift-tax eases where the yield method is appropriate and, therefore, they have no bearing in deciding the questions arising under rule 1D of the Wealth-tax Rules, 1957. The Supreme Court observed (at page 23) :

(3.) The definition of "gift" under clause (xii) of section 2 of the Gift-tax Act, 1958, includes a deemed gift under section 4. Section 4(1)(a) of the Act lays down that where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property on the date of the transfer exceeds the value of the consideration, shall be deemed to be a gift. The Revenue is seeking to estimate the market value by applying the break-up method whereas the assessee wants the yield method to be applied. Which of the two methods should be followed yield method or break-up method-although is a question of law, having regard to the fact that the Supreme Court has already upheld the yield method in Ambalal Sarabhai's case [1988] 170 ITR 144, with reference to gift-tax and there being no subsequent decision under the Gift-tax Act, either explaining away or stating a different principle of law, we are not inclined to agree with learned counsel for the Revenue that this is a fit case to direct the Tribunal to refer the matter. The essential question under section 4(1) is whether the shares have been sold otherwise than for adequate consideration. If there is a finding that the price paid by the transferee is inadequate, then the difference between the market value and the sale price can be brought to tax as a deemed gift. By straightway estimating the market value, no inference can be drawn that the price paid was inadequate.