1974 (10) TMI 28 - HC - Income Tax

Tribunal values shares based on balance sheet, assessee prevails over Gift-tax Officer. Commissioner to cover costs.

The Tribunal correctly based its valuation of shares on the balance-sheet as of March 31, 1963, following the decision in Lynall v. Inland Revenue ... Gift Tax, Valuation Date Issues Involved:1. Legality of the Tribunal's finding based on the House of Lords' decision in Lynall v. Inland Revenue Commissioners regarding the valuation date of shares.2. Correctness of the Tribunal's acceptance of the assessee's valuation of shares and deletion of Rs. 27,360 added by the Gift-tax Officer under section 15(3) of the Gift-tax Act.3. Whether the Tribunal erred in holding that the valuation of shares should not be made on an ex-right basis for the right shares issued by the company (not pressed by the assessee).Detailed Analysis:Issue 1: Legality of the Tribunal's Finding Based on Lynall v. Inland Revenue CommissionersThe Tribunal's finding was based on the decision of the House of Lords in Lynall v. Inland Revenue Commissioners. The main question was whether the valuation of the shares of Bakubhai and Ambalal Ltd., London, should be based on the balance-sheet as of March 31, 1963, instead of March 31, 1964. The Tribunal held that since the only balance-sheet available at the date of the gift (October 17, 1964) was the one as of March 31, 1963, the break-up value method should be applied using this balance-sheet. The Tribunal distinguished this case from Miss Dhun Dadabhoy Kapadia v. Commissioner of Income-tax and followed the decision in Lynall, which emphasized that a hypothetical purchaser would only have access to information available to all shareholders at the time of the gift. Therefore, the Tribunal was correct in using the balance-sheet as of March 31, 1963, for valuation.Issue 2: Correctness of the Tribunal's Acceptance of the Assessee's Valuation and Deletion of Rs. 27,360The Gift-tax Officer had valued the shares at Rs. 507 per share based on the balance-sheet as of March 31, 1964, while the assessee valued the shares at Rs. 450 per share based on the balance-sheet as of March 31, 1963. The Tribunal accepted the assessee's valuation, reasoning that the balance-sheet as of March 31, 1964, was not available to ordinary shareholders on October 17, 1964. The Tribunal concluded that the break-up value method should be applied using the balance-sheet as of March 31, 1963, which was the latest available balance-sheet at the time of the gift. Consequently, the Tribunal deleted the addition of Rs. 27,360 made by the Gift-tax Officer under section 15(3) of the Gift-tax Act.Issue 3: Valuation of Shares on an Ex-right Basis (Not Pressed)The assessee did not press the question regarding the valuation of shares on an ex-right basis for the right shares issued by the company. Therefore, the court did not address this issue in the judgment.Conclusion:The Tribunal was correct in holding that the shares should be valued based on the break-up value method using the balance-sheet as of March 31, 1963. The Tribunal's acceptance of the assessee's valuation and the deletion of Rs. 27,360 added by the Gift-tax Officer were also upheld. The question regarding the valuation of shares on an ex-right basis was not pressed by the assessee and was not addressed by the court. The judgment was in favor of the assessee for the issues pressed, with the Commissioner ordered to pay the costs of the reference.