Lock-in share valuation must treat restricted shares as unquoted shares and apply the statutory break-up method.

Shares subject to a lock-in period were held not to be quoted shares because they were not regularly traded on a recognised stock exchange in current market transactions. Their valuation under the Gift Tax Act had to follow the statutory valuation scheme in Schedule III of the Wealth Tax Act, treating them as unquoted shares and applying the break-up method under Rule 11. The quoted-share method, ad hoc depreciation, and any approach that ignored transfer restrictions were impermissible. A stock exchange certificate could assist on quotation status, but it did not prevent judicial scrutiny of whether the statutory definition of quoted shares was met.

---

---

Issues: Whether shares subjected to a lock-in period could be treated as quoted shares for valuation under the Gift Tax Act and the Wealth Tax Act, and whether their value could be determined by applying the quoted-share method with ad hoc depreciation or by ignoring the transfer restrictions under the relevant valuation rules.

Analysis: The valuation of a gift under the Gift Tax Act had to be made on the gift date in the manner prescribed in Schedule II, which adopted the valuation rules in Schedule III of the Wealth Tax Act. Under the definition in Rule 2(9) of Part A of Schedule III, a quoted share must be one quoted on a recognised stock exchange with regularity, based on current transactions in the ordinary course of business. Shares under lock-in were not capable of ordinary market trading, had no current transactions in the ordinary course of business, and therefore did not answer that definition. They were consequently unquoted shares within Rule 2(11), and had to be valued under Rule 11 by the prescribed break-up method. The Court also held that Rule 21 did not authorise ignoring restrictive covenants or converting restricted shares into quoted shares for valuation purposes. The certificate of the stock exchange was relevant only to the question whether a share was quoted, and did not oust judicial scrutiny of that issue.

Conclusion: Lock-in shares were unquoted shares and had to be valued under Rule 11 of Part C of Schedule III of the Wealth Tax Act, 1957. The quoted-share valuation method and ad hoc depreciation were not permissible, and the transfer restrictions could not be ignored. The appeal of the Revenue failed.

Ratio Decidendi: Shares that are not regularly quoted on a recognised stock exchange with current market transactions remain unquoted shares, and their valuation must be made only under the statutory formula prescribed for unquoted shares, without resort to hybrid valuation or disregard of restrictive covenants.

---