Valuation of unquoted gifted shares must use the latest available balance-sheet before transfer, not a later one.

For valuing unquoted shares transferred as a deemed gift, the relevant balance-sheet is the one existing on the date of transfer, because section 6 of the Gift-tax Act requires valuation as on the date of the gift and Rule 1D ties share valuation to the valuation-date balance-sheet or, where none exists, the nearest preceding one. Since the transfer occurred on 20 March 1979 and the 31 March 1979 balance-sheet did not exist on that date, the proper basis was the 31 March 1978 balance-sheet. The deemed gift value had therefore to be computed by reference to the latest available balance-sheet preceding the transfer date.

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Issues: Whether, for valuing unquoted shares transferred as a deemed gift, the reference had to be made to the balance-sheet existing on the date of transfer or to a later balance-sheet.

Analysis: Section 4 of the Gift-tax Act, 1958 creates a deemed gift where property is transferred for inadequate consideration, and section 6 requires the value of gifted property to be taken as on the date of the gift. Rule 1D of the Wealth-tax Rules, 1957 likewise ties valuation of unquoted equity shares to the balance-sheet on the valuation date, or, if none exists, to the nearest preceding balance-sheet. On the facts, the transfer took place on March 20, 1979, so the balance-sheet as on March 31, 1979 was not in existence on the relevant date. The proper reference was therefore the balance-sheet as on March 31, 1978, being the latest available balance-sheet preceding the transfer date.

Conclusion: The question was answered in favour of the assessee. The value of the deemed gift had to be worked out with reference to the balance-sheet as on March 31, 1978, and not the balance-sheet as on March 31, 1979.

Final Conclusion: The reference was decided by holding that valuation of the gifted unquoted shares must be made as on the date of gift, using the latest available preceding balance-sheet where no balance-sheet exists on that date.

Ratio Decidendi: For valuation of gifted unquoted shares, the relevant balance-sheet is the one existing on the date of transfer, and if none exists, the latest preceding balance-sheet must be used; a subsequent balance-sheet cannot be relied upon.

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