Open market valuation of private company shares governs wealth-tax assessment, not merely balance-sheet break-up figures.

For wealth-tax valuation of shares in a private company, the governing approach under section 7(1) of the Wealth-tax Act, 1957 is the price the shares would fetch in the open market on the valuation date. The break-up method may assist in assessing underlying assets, but the market value of shares is not to vary from assessee to assessee and is not determined merely from balance-sheet figures. On the facts discussed, the Wealth-tax Officer's adoption of market value under section 7(1) was upheld.

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Issues: Whether the break-up value of the shares held in a private company, for wealth-tax valuation, could be determined on the basis of the company's balance-sheet figures or whether the Wealth-tax Officer was justified in adopting the market value under section 7(1) of the Wealth-tax Act, 1957.

Analysis: The valuation question arose in the context of wealth-tax assessments for the relevant assessment years. The governing principle is that shares in the hands of a shareholder-assessee must be valued by recognised methods of valuation, depending on the facts and circumstances of the case. While the break-up method may be relevant in assessing the underlying assets of a company, the market value of shares cannot vary from person to person or from assessee to assessee. Applying section 7(1), the proper approach is to determine the value that the shares would fetch in the open market on the valuation date.

Conclusion: The market value determined by the Wealth-tax Officer under section 7(1) of the Wealth-tax Act, 1957 was upheld and the reference was answered in favour of the revenue.

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