Gift-tax valuation of unquoted shares: yield method governs where adequacy of consideration is in issue.

For gift-tax valuation of unquoted equity shares, the yield method is treated as the proper basis where the central question is whether consideration was inadequate so that the excess may be taxed as a deemed gift. A break-up valuation may estimate market value, but by itself it does not establish inadequacy of consideration under section 4(1)(a) of the Gift-tax Act, 1958. The commentary distinguishes wealth-tax valuation authorities as arising in a different statutory context and notes that the later Revenue reliance did not displace the settled gift-tax approach. The Tribunal's application of the yield method is therefore presented as correct on the stated facts.

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Issues: Whether, for valuing unquoted equity shares for gift-tax purposes, the market value should be determined by the yield method rather than the break-up method, and whether the Tribunal was right in declining to refer the question to the High Court.

Analysis: The Court noted that the Supreme Court had already approved the yield method in gift-tax matters and that the later decision relied on by the Revenue concerned valuation under the Wealth-tax Rules, where the break-up method issue arose in a different statutory context. Under section 4(1)(a) of the Gift-tax Act, 1958, the central inquiry is whether property has been transferred for inadequate consideration so that the excess over consideration can be treated as a deemed gift. A direct estimation of market value by the break-up method would not, by itself, establish inadequacy of consideration, whereas the yield method remained the appropriate basis in the gift-tax setting.

Conclusion: The Revenue's contention was rejected, and the Tribunal's view applying the yield method was upheld. The reference application was dismissed.

Final Conclusion: In gift-tax valuation of unquoted shares, the yield method continued to govern on the facts presented, and no reference to re-examine that settled position was warranted.

Ratio Decidendi: For gift-tax purposes, unquoted shares are to be valued by the yield method where the issue is adequacy of consideration, and a mere break-up valuation does not establish a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958.

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