Mandatory break-up value method governs unquoted share valuation; preceding balance-sheet may be used when valuation dates differ.

Unquoted equity shares gifted during the relevant year were to be valued under the prescribed statutory break-up value method, rather than any ad hoc alternative, because the valuation rule was treated as mandatory. Where the gift valuation date did not coincide with the company's balance-sheet date, the balance-sheet drawn up immediately preceding the valuation date could be used as the basis for valuation under the governing explanation. The document also notes that a further issue was left for fresh consideration, and the matter was remitted to be dealt with in accordance with law.

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Issues: (i) Whether unquoted equity shares gifted during the relevant year had to be valued by applying the prescribed break-up value method under the wealth-tax valuation rules. (ii) Whether, when the valuation date of the gift and the balance-sheet date did not coincide, the balance-sheet drawn up immediately preceding the valuation date could be adopted for valuation.

Issue (i): Whether unquoted equity shares gifted during the relevant year had to be valued by applying the prescribed break-up value method under the wealth-tax valuation rules.

Analysis: The valuation of unquoted equity shares was held to be governed by the prescribed statutory method and not by any ad hoc or alternative approach. The method was treated as mandatory, and the authorities were bound to follow the rule laid down for valuing such shares. The Court also noted that the later statutory scheme linked gift valuation to the valuation provisions under the Wealth-tax Act.

Conclusion: The prescribed break-up value method was mandatory and had to be applied.

Issue (ii): Whether, when the valuation date of the gift and the balance-sheet date did not coincide, the balance-sheet drawn up immediately preceding the valuation date could be adopted for valuation.

Analysis: The Court applied the statutory explanation to the valuation rule and held that, where the balance-sheet date did not coincide with the valuation date, the balance-sheet drawn up immediately preceding the valuation date was the appropriate basis. The Court accepted that the rule contemplated such a situation and that the later balance-sheet could be considered only within the limits of the statutory scheme and on the available record.

Conclusion: The balance-sheet immediately preceding the valuation date could be adopted in accordance with the rule.

Final Conclusion: The valuation dispute was not finally resolved on the third question and the matter was sent back for fresh consideration in accordance with law.

Ratio Decidendi: Where a statute prescribes a specific valuation method, that method is mandatory, and if the valuation date does not coincide with the company's balance-sheet date, the balance-sheet immediately preceding the valuation date must ordinarily form the basis of valuation under the governing rule.

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