Mandatory share valuation rule under gift tax can raise a referable question of law where earlier discretionary practice no longer applies.

Rule 1D of the Wealth-tax Rules, 1957 was treated as mandatory for valuing unquoted equity shares where that rule applied, following the later Supreme Court ruling in Bharat Hari Singhania. In the gift-tax context, the Revenue's case was that the gap between market value and sale consideration could amount to a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958, and valuation had to follow the statutory break-up method. On that basis, the valuation dispute was held to raise a referable question of law, and the Tribunal could not refuse reference on the footing that earlier law treated the rule as directory.

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Issues: Whether the Tribunal was right in refusing to refer the question of law on valuation of unquoted equity shares for gift-tax purposes, and whether such shares were required to be valued only by the yield method or by the break-up method under rule 1D of the Wealth-tax Rules, 1957.

Analysis: The dispute concerned computation of the value of unquoted equity shares sold by the assessee. The Revenue's case was that the difference between market value and sale consideration constituted a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958, and that valuation had to follow rule 1D. The Tribunal had relied on earlier decisions holding that rule 1D was directory, but the later Supreme Court ruling in Bharat Hari Singhania settled that rule 1D was mandatory and that valuation by the break-up method had to be followed where the rule applied. In that legal position, the question raised from the Tribunal's order was not concluded against the Revenue and did give rise to a referable question of law.

Conclusion: The Tribunal was not right in treating the matter as not giving rise to a question of law. The question was directed to be referred to the High Court, and the Revenue succeeded.

Final Conclusion: The order under challenge was set aside to the extent necessary, and the reference was directed on the valuation issue in favour of the Revenue.

Ratio Decidendi: Where the later binding law makes rule-based valuation mandatory, a valuation dispute on unquoted shares under the Gift-tax Act gives rise to a referable question of law and cannot be declined on the footing that the earlier discretionary approach still governs.

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