Valuation of unquoted gifted shares may rely on the nearest balance-sheet if it best reflects assets and liabilities on the gift date.

For valuing unquoted gifted shares under the break-up method, the relevant enquiry is the correct value on the date of gift. A balance-sheet close to that date may be adopted if it gives the most realistic picture of the company's assets and liabilities, even if it post-dates the transfer, provided appropriate adjustment is made for any intervening variation in asset values. In the stated case, the balance-sheet for the immediately succeeding year was accepted as the basis for ascertaining break-up value as on the gift date, and the valuation adopted by the revenue authority was upheld.

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Issues: Whether, for valuation of unquoted gifted shares under the break-up method, the balance-sheet as on the date of the gift or the balance-sheet for the immediately succeeding accounting year should be taken as the basis.

Analysis: The gift was made on the verge of the close of the accounting year, and the shares were unquoted and not saleable in the open market. Section 6 of the Gift-tax Act, 1958 required valuation in the prescribed manner, and the break-up method was accepted by both sides. The proper enquiry was the correct value of the shares on the date of gift. A balance-sheet close to that date was more realistic than an earlier one, and the later balance-sheet could be used subject to adjustment for any variation in asset values between the date of gift and the balance-sheet date. The Court agreed with the approach that the later balance-sheet could not be ignored merely because it post-dated the transfer.

Conclusion: The balance-sheet as on March 31, 1973, was correctly taken as the basis for ascertaining the break-up value of the shares as on March 28, 1973, subject to any necessary adjustment for intervening variation, and the contention of the assessee failed.

Final Conclusion: The valuation adopted by the revenue authority was upheld and the appeal failed.

Ratio Decidendi: For valuing unquoted gifted shares under the break-up method, the balance-sheet closest to the date of gift may be adopted if it gives the most realistic picture of the company's assets and liabilities, subject to adjustment for any material change between the gift date and the balance-sheet date.

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