TMI Blog1987 (12) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ight in law in accepting the valuation of the shares as returned by the assessee and deleting ₹ 27,360 added by the Gift-tax Officer, under section 15(3) of the Gift-tax Act, 1958 ? Held that:- The correct principle of valuation applicable to a given case is question of law. But the matter is already two-and-a-half decades old. The gift was in the year 1964. The total gift-tax as now assessed is ₹ 5,661. Upon a fresh determination of the value of the shares adopting the somewhat intricate processes inherent in the " profit-method " of valuation, the difference in the quantum of the tax might, perhaps, not be substantial. The magnitude of the mechanism for refixation of the value of the gifts and the difference in the quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift-tax respecting the said gifts, the question of the proper basis for determination of the value of the gifts having arisen, the assessee contended that, as the shares were not quoted in the stock exchange, their value be determined on the average of break-up value indicated by the balance-sheets of the company as on March 31, 1964, and March 31, 1965. The former figure was ₹ 507 and the latter ₹ 333 per share, the average of the two being ₹ 420 per share. The assessee also contended that in view of the decision of the general body of the company dated October 4, 1961, to increase its share capital by issue of additional 2,000 shares at 10 pounds each, the value of the shares constituting the subject-matter of the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the Tribunal based on the ratio of the case decided by the House of Lords in Lynall v. Inland Revenue Commissioners [1972] 83 ITR 563 and basing the valuation of the shares of Bakubhai and Ambalal Ltd., London, on its balance-sheet as at March 31, 1963, instead of March 31, 1964, is bad in law ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in accepting the valuation of the shares as returned by the assessee and deleting ₹ 27,360 added by the Gift-tax Officer, under section 15(3) of the Gift-tax Act, 1958 ? The High Court, by its order, now under appeal, answered the questions against the, Revenue. It held [1975] 100 ITR 447 (Guj) at p. 456: The only information which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to with reference to the balance-sheet of what date the total value of the assets has to be ascertained. and urged that in view of the consensus between the parties as to the basis of valuation, it was not now open to the Revenue to turn around and urge the application of an altogether different principle. We are afraid, the basis adopted by the High Court is clearly unsustainable in the light of the pronouncements of this court referred to earlier. The reference to and reliance upon the principle in Lynall [1972] 83 ITR 563 (HL) was somewhat in apposite and misplaced. That case principally dealt with the impermissibility of reliance on classified information considered confidential and privileged from disclosure. Pointing out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the valuation, according to this method, is based on the average maintainable profits. Of course, for the purpose of such valuation, the taxing authority is not bound by the figure of profits shown in the profit and loss account because it is possible that the amount of profits may have suffered diminution on account of unreasonable expenditure or the directors having chosen to take away a part of the profits in the form of remuneration rather than dividends. The figure of profits in such a case would have to be adjusted in order to arrive at the real profit-earning capacity of the company. The view of the High Court cannot, therefore, be said to reflect the position in law correctly. The correct principle of valuation applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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