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Issues: (i) whether the cost of acquisition of unquoted shares sold by the assessees had to be determined by adopting the same fair market value as on 1-4-1981 that had been accepted in the cases of similarly placed co-owners, and whether rule 1D of the Wealth-tax Rules governed such valuation under the Income-tax Act; (ii) whether the assessees who had acquired shares by gift or inheritance were entitled to treat those shares as held prior to 1-4-1981 for purposes of indexed cost of acquisition; and (iii) whether the claims for deduction under section 54F required fresh consideration on the evidence produced.
Issue (i): whether the cost of acquisition of unquoted shares sold by the assessees had to be determined by adopting the same fair market value as on 1-4-1981 that had been accepted in the cases of similarly placed co-owners, and whether rule 1D of the Wealth-tax Rules governed such valuation under the Income-tax Act.
Analysis: The valuation had to be approached consistently for the same asset and the Revenue could not adopt different values for identical shares as on the same date in the hands of different co-owners. The earlier valuation accepted in the cases of other co-owners was relevant and the record did not justify a different value for the present assessees. The method based on rule 1D of the Wealth-tax Rules was held inapplicable to computation of capital gains under the Income-tax Act, because fair market value for capital gains had to be determined under section 55(2)(b)(ii) read with section 2(22B), using the open market value concept, and the wealth-tax valuation rule could not be imported into the income-tax context.
Conclusion: The same fair market value as on 1-4-1981, as adopted in the cases of the other co-owners, had to be applied, and rule 1D could not be used for this purpose under the Income-tax Act.
Issue (ii): whether the assessees who had acquired shares by gift or inheritance were entitled to treat those shares as held prior to 1-4-1981 for purposes of indexed cost of acquisition.
Analysis: The documentary material showed that Smt. Madhu Tyagi had received the shares by gifts long before the relevant date and the gifts had been subjected to gift-tax. In the case of Shri Shekhar Tyagi and Shri Sagar Tyagi, the shares had devolved on them by inheritance from predecessors who had held the shares before 1-4-1981, and the company had confirmed transfer of the shares in their names. The objection that they could not claim the 1-4-1981 value was therefore without substance.
Conclusion: The assessees were entitled to adopt the fair market value of the shares as on 1-4-1981 for computing indexed cost of acquisition.
Issue (iii): whether the claims for deduction under section 54F required fresh consideration on the evidence produced.
Analysis: The material placed before the Tribunal on investment in residential property and on the nature of the society membership and transfer documents had not been properly examined by the lower authorities. Since the issue turned on evidence that was not fully considered below, the matter required objective reconsideration in accordance with law after giving the assessees a reasonable opportunity of hearing.
Conclusion: The section 54F claims were set aside for fresh adjudication by the Assessing Officer.
Final Conclusion: The assessees succeeded on the valuation and ownership issues, while the section 54F claims were reopened for reconsideration, and the appeals stood disposed of in that manner.
Ratio Decidendi: For computing capital gains under the Income-tax Act, the fair market value of unquoted shares must be determined on income-tax principles under section 55(2)(b)(ii) read with section 2(22B), and the valuation mechanism under rule 1D of the Wealth-tax Rules cannot be imported as a mandatory standard.
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