Open market valuation of gifted shares must consider all contemporaneous material on the gift date, or the valuation fails.
Valuation of gifted shares under section 6 of the Gift-tax Act must reflect the price the property would fetch in the open market on the date of gift. Contemporaneous material bearing on that date, including balance-sheet figures and proximate financial indicators, is relevant. The Tribunal erred by considering dividend payments and bonus issue while omitting the company's profits during the relevant year and a balance-sheet valuation made three days after the gift. Those omissions meant relevant factors were ignored, so the valuation could not stand and had to be reconsidered afresh on correct legal principles.
Issues: Whether the valuation of gifted shares under section 6 of the Gift-tax Act, 1958 had been correctly determined by the Tribunal on the basis of the material available as on the date of gift.
Analysis: The valuation under section 6 requires estimation of the price the property would fetch in the open market on the date of the gift. The relevant state of affairs on that date must be ascertained, and contemporaneous material such as balance-sheet figures and other proximate financial indicators is material to that exercise. The Tribunal had taken into account the payment of dividend and issue of bonus shares, but had omitted to consider the company's profits during the relevant year and the valuation reflected in the balance-sheet as on a date only three days after the gift. Those omissions meant that relevant considerations bearing on open market value were not taken into account.
Conclusion: The valuation fixed by the Tribunal could not stand and the matter had to be reconsidered afresh by the Tribunal on the correct legal principles.
Ratio Decidendi: For valuation of gifted shares under the Gift-tax Act, the open market value must be determined on the basis of all relevant contemporaneous material bearing on the date of gift, and failure to consider such material vitiates the valuation.
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