Gift-tax valuation must use the prescribed 4 per cent discount rate; courts cannot replace it with market rates.

Gift-tax valuation of property gifted for a specified non-revocable period must follow the statutory method in section 6(2) and rule 11(1), which fixes the discounting rate at 4 per cent per annum for capitalising income. The Tribunal stated that the rule is valid and not redundant, and that an appellate authority cannot substitute a higher commercial or bank rate merely because market rates have changed. Any revision of the prescribed rate lies only with the rule-making authority with Parliamentary sanction. The prescribed 4 per cent rate therefore governs the valuation, and the higher rates claimed were rejected.

---

---

Issues: Whether, in valuing a gift under section 6(2) of the Gift-tax Act, 1958, the discounting rate prescribed in rule 11(1) of the Gift-tax Rules, 1958 could be replaced by a higher commercial rate instead of applying the prescribed 4 per cent rate.

Analysis: Section 6(2) requires valuation of property gifted for a specified non-revocable period by taking the capitalised value of the income from such property during that period. Rule 11(1), made under the rule-making power in section 46, prescribes the method for computing that capitalised value and expressly fixes discounting at 4 per cent per annum. The Tribunal held that there was no conflict between the section and the rule, that the rule was not redundant, and that the prescribed rate could not be substituted by an appellate authority merely because market rates or bank rates had increased. Any change in the prescribed rate could be made only by the rule-making authority with Parliamentary sanction.

Conclusion: The prescribed 4 per cent discounting rate under rule 11(1) was binding, and the assessee was not entitled to have the valuation computed at 12 per cent or 15 per cent. The valuation adopted by the gift-tax authorities was upheld.

Ratio Decidendi: Where a statute authorises delegated rules to prescribe the method of valuation and the rule expressly fixes the relevant discounting rate, the prescribed rate must be applied and cannot be judicially substituted on grounds of hardship or changed market conditions.

---