SATYA PAUL Vs. COMMISSIONER OF GIFT TAX

JUDGEMENT

(1.) In this reference made at the instance of the assessee, the following questions have been referred by the Tribunal under s. 26(3) of the GT Act, 1958 ('the Act'):

(2.) THE facts as found by the Tribunal are as under: This case relates to the gift-tax assessment of the assessee-HUF for the asst. yr. 1977-78. In course of income-tax proceedings it was found that the assessee-HUF had claimed a short-term capital loss on sale of 3,500 shares of Surendra Overseas Ltd. and 6,696 shares of Associated Wires Accommodation (P) Ltd. The shares of both these two companies were unquoted. The GTO determined the fair market value of 3,500 shares of Surendra Overseas Ltd. on the date of sale, namely, 2nd April, 1956 at Rs. 1,54,350 based on r. 10(2) of the GT Rules, 1958 ('the Rules') as against their sale price of Rs. 35,000 only, He, therefore, as the fall out effect of such valuation computed the deemed gift in the sum of Rs. 1,19,350 under s. 4(1)(a) of the said Act in relation to sale of shares of Surendra Overseas Ltd. by the assessee-HUF. Similarly, the fair market value of 6,696 shares of Associated Wires and Conductors Ltd. on the date of sale was determined by the GTO based on r. 10(2) in the sum of Rs. 7,00,859 as against the sale price thereof amounting to Rs. 1,88,996 only. The GTO, therefore, determined the deemed gift in the sum of Rs. 5,11,863.

(3.) ON appeal, the CGT (A) found that the shares of both the companies were required to be valued on yield method of following the decision of the Supreme Court in Smt. Kusumen D. Mahadevia's case (supra) and that the provision of r. 10(2) were only directory and not mandatory. The CGT (A) found that if the shares of the two companies concerned were valued on yield method, there was no deemed gift since such value did not exceed the sale price in the case of shares of Surendra Overseas Ltd. and in the case of shares of the other company, namely, Associated Wires & Conductors (P) Ltd. The difference between the fair market value determined on yield method and the sale price was Rs. 4,094 only which was less than the minimum exemption limit as laid down in the Act. The CGT (A) accordingly cancelled the assessment made by the GTO and held that there was no deemed gift chargeable to tax in this case.