TMI Blog1993 (9) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... of a registered valuer. Apparently, on the insistence of the Gift-tax Officer, the assessee had also furnished the value of the shares on the basis of the break-up method. 3. The Gift-tax Officer took the view that the yield method or the profit earning method of valuation has to be adopted only in respect of shares of an investment company. Since the company, namely, M/s. Metroark Pvt. Ltd. was not an investment company, he held that the yield method cannot be applied and that the break-up value method has embodied in rule 1D of the Wealth-tax Rules alone was applicable. Accordingly, he adopted the value of each share at Rs. 3,985. The total value of the gift was thus taken at Rs. 3,98,500. 4. The assessees questioned the basis of valuation in appeal before the CIT (A). It was contended that since the shares were those of a Pvt. Ltd. Co., which were subject to restrictions on sale thereof, the proper method of valuation was the profit earning method or the yield method. The judgment of the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621 was relied upon. The CIT (A) accepted the contention of the assessee. He referred to the judgment of the Supreme Court in CGT v. Sm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e upheld. Mr. Lahiri's contention that rule 10(2) of the Gift-tax Rules laid down that the value of the shares of a Pvt. Company which are not quoted in the open market and which are subject to restrictions on alienation, has to be determined only on the basis of the value of the total assets of the company, otherwise known as break-up value method, cannot be accepted. Section 6 of the Gift-tax Act, as it stood prior to 1-4-1989, was as under : " 6. (1) The value of any property other than cash transferred by way of gift shall, subject to the provisions of sub-sections (2) and (3) be estimated to be the price which in the opinion of the Assessing Officer it would fetch if sold in the open market on the date on which the gift was made. (2) Where a person makes a gift which is not revocable for a specified period, the value of the property gifted shall be the capitalised value of the income from the property gifted during the period for which the gift is not revocable. (3) Where the value of any property cannot be estimated under sub section (1) because it is not saleable in the open market, the value shall be determined in the prescribed manner." It will be seen that rule 10(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ruled out, because sub-section (3) of section 6 can be brought into play only, if sub-section (1) cannot be applied. We, cannot therefore accept the first contention of Mr. Lahiri that the shares in the present case have got to be valued in accordance with the break-up method as laid down under rule 10(2) of the Gift-tax Rules. 8. The next contention of Mr. Lahiri that the Supreme Court did not consider the applicability or otherwise of rule 10(2) and therefore its judgment cannot be applied to the present case cannot also be accepted. A similar contention was taken by the Revenue before the Bombay High Court in Seth Hemant Bhagubhai Mafatlal v. N. Rama Iyer, GTO [1983] 144 ITR 737. The contention was repelled by the Bombay High Court on the ground that the Supreme Court had clearly laid down that the valuation of the shares can be validly made under sub-section (1) of section 6, and therefore the break-up method was ruled out. The following extract from the judgment of Hon'ble Justice S. P. Bharucha at page 744 of the report will clarify the position : "It was contended by Mr. R.J. Joshi that the Supreme Court in Kusumben D. Mahadevia [1980] 122 ITR 38, had left open the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribed by the said rule while estimating the value of the unquoted shares of a non-investment company. The argument of Mr. Lahiri cannot be accepted, if we read the judgment of the Calcutta High Court cited by him a little more closely. In that case, the argument advanced before the High Court on behalf of the assessee was based on three judgments of the Supreme Court : (i) Mahadeo Jalan's case, (ii) Smt. Kusumben D. Mahadevia's case, and (iii) Executors Trustees of the Estate of Late Sh. Ambalal Sarabhai's case. The Calcutta High Court noticed that the first of the above decisions was delivered in the context of the position prevailing prior to the framing of rule 1D of the Wealth-tax Rules. The High Court, therefore held that the Supreme Court did not have any occasion to go into the question whether rule 1D was mandatory or not. Adverting to the second of the above decisions, the High Court noticed that even after taking note of the provisions of rule 10(2) of the Gift-tax Rules, the Supreme Court had held that the profit-earning method was the appropriate basis of valuing the unquoted shares of a non-investment company. In this context, the Calcutta High Court, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing method or on the break-up value method, as held by the Calcutta High Court in the judgment cited supra. As already seen, the profit earning method has to be preferred in spite of the primacy given to the break-up value method under rule 10(2) of the G.T. rules. This position has been made clear by the Calcutta High Court in the judgment cited supra, and the understanding of the Calcutta High Court regarding the Supreme Court decision in Smt. Kusumben D. Mahadevia's case is binding on us. That apart, as held by the Bombay High Court in Seth Hemant Bhagubhai Mafatlal's case, to which we have already adverted, the valuation in such case is to be made under sub-section (1) itself of section 6 and that is the way in which the Bombay High Court has understood the judgment of the Supreme Court in Smt. Kusumben D. Mahadevia's case. In the light of the aforesaid legal position, it is not open to us to hold that the value of the unquoted equity shares of a non-investment company has to be made on the basis of breakup value method as contained in rule 10(2) of the G.T. Rules. We uphold the order of the CIT (A) directing the Gift-tax Officer to value the shares gifted by the assessee on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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