Valuation of unquoted shares under gift-tax may use break-up value discounts for marketability, but not as a binding rule.

Unquoted shares gifted under the Gift-tax Act must be valued on open-market principles under section 6, with the assessing authority estimating the price the property would fetch on the date of gift. Where no specific gift-tax valuation rule governs, a cognate formula from another fiscal statute may be used only as guidance. Rule 1D of the Wealth-tax Rules, 1957 did not apply automatically to gift-tax proceedings, but its underlying principle could justify discounting break-up value for reduced marketability. The permissible approach was therefore to adjust valuation for lack of marketability without treating the wealth-tax rule as a binding mandate.

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Issues: Whether rule 1D of the Wealth-tax Rules, 1957 applies by its own force to valuation of unquoted shares in gift-tax proceedings, and whether, in the absence of a specific gift-tax valuation guideline, the Tribunal could use the principle underlying that rule as guidance for fixing market value under section 6 of the Gift-tax Act.

Analysis: Section 6 of the Gift-tax Act requires the value of gifted property other than cash to be estimated at the price it would fetch in the open market on the date of the gift, and where the property is not saleable in the open market, to determine value in the prescribed manner. The relevant gift-tax rule contemplated valuation of shares of private companies by reference to total assets, but it did not make break-up value the statutory market value itself. The Wealth-tax Rule 1D, though not directly applicable to gift-tax assessments, supplied a cognate statutory yardstick for adjusting break-up value to reflect the reduced marketability of unquoted shares. The Court held that discounting from break-up value was a permissible method, and that, in the absence of a specific gift-tax rule, the assessing authority could look to a similar statutory formula as guidance without importing it as an automatic rule of law.

Conclusion: Rule 1D of the Wealth-tax Rules, 1957 did not apply to gift-tax proceedings by its own force, but the Tribunal was justified in using its underlying principle as guidance for adjusting the value of the unquoted shares.

Final Conclusion: The reference was answered by holding that unquoted shares gifted under the Gift-tax Act must be valued on open-market principles, with permissible adjustment for lack of marketability, and that a cognate wealth-tax formula may be used only as a guiding standard and not as a binding statutory mandate.

Ratio Decidendi: In the absence of a specific valuation rule under the Gift-tax Act, the market value of unquoted shares may be determined by discounting break-up value for lack of marketability, and a similar rule under another fiscal statute can be used only as a guide, not as an automatically applicable provision.

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