TMI Blog1985 (7) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company prior to 1954. The question for the assessment year 1973-74 related to the quantum of capital gains that this transaction of sale entailed. In relation to this problem, the Income-tax Appellate Tribunal has referred the following question of law for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the method of valuation adopted by the Tribunal in valuing the shares in question under section 55(2) of the Income-tax Act, 1961, is sustainable in law ? If not, what would be the correct basis ?" Section 55(2) relates to capital gains. It provides for determining "the cost of acquisition " of a capital asset. It says : " (2) For the purposes of sections 48 and 49, 'cost of acquisition' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule was not warranted. He directed that the fair market value of the shares as on 1st January, 1954, be taken to be the break-up value, i.e., Rs. 237. The Department took the matter in appeal to the Tribunal. The Tribunal reversed the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. Accordingly, the value of the shares was directed to be computed at Rs. 202 per share. The Tribunal, however, adopted a different line of reasoning. It held that in CWT v. Mahadeo Jalan [1972] 86 ITR 621, the Supreme Court held that in a private company the yield method is generally adopted to determine the fair market value of its shares. The break-up method is resorted to in exceptional circumstances or where the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in Mahadeo Jalan's case [1972] 86 ITR 621, has been reiterated by that court in CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38. It was held that in the case of a company which is a going concern and whose shares are not quoted on the stock exchange, the profits which the company has been making and should be capable of making or, in other words, the profit-earning capacity of the company would ordinarily determine the value of its shares. The break-up value will not be appropriate for valuation of shares of such a company, because among the factors which govern the consideration of the buyer and the seller, the factor of break-up value as on liquidation hardly enters into consideration where the shares are of going concern. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied double standards. While computing the fair market value of the shares on the date of sale during 1972-73, he adopted the break-up value without any deduction. But while determining the market value as on January 1, 1954, he applied rule ID. Under this rule, the fair market value is the break-up value less 15%. We are constrained to observe that this submission need not have been made. The Income-tax Officer's adoption of the fair market value at Rs. 202 per share was set aside by the Appellate Assistant Commissioner. The figure of Rs. 245 per share fixed by the Reserve Bank of India was taken as the fair market value. This view was affirmed by the Tribunal. The first part of the question of law referred to us is answered in the af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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