Yield method for unquoted shares and revocable gift treatment governed gift-tax valuation of transferred equity interests.

Unquoted equity shares transferred or gifted were required to be valued for gift-tax purposes on the yield method because binding Supreme Court decisions governed the valuation of such shares, and the earlier tribunal approach could not prevail over law declared under Article 141. Gifts made subject to a limited revocation option were treated as revocable for the relevant period, so the statutory valuation rule applicable to revocable gifts was attracted. The result was that both the share valuation and the treatment of the transfers were decided in favour of the assessee.

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Issues: (i) Whether unquoted equity shares transferred or gifted had to be valued for gift-tax purposes on the yield method rather than on the basis adopted by the lower authorities; (ii) whether the gifts, made subject to a limited revocation option, were revocable gifts attracting valuation under the special rule for non-revocable gifts for a specified period.

Issue (i): Whether unquoted equity shares transferred or gifted had to be valued for gift-tax purposes on the yield method rather than on the basis adopted by the lower authorities.

Analysis: The valuation of unquoted equity shares was held to be governed by the binding decisions of the Supreme Court, and not by the earlier tribunal view relied upon by the department. In view of the authoritative rulings on valuation of such shares, the earlier approach could not be followed. The principle applied was that assessment must conform to the law declared by the Supreme Court under Article 141 of the Constitution of India.

Conclusion: The valuation of the unquoted equity shares had to be made on the yield method, in favour of the assessee.

Issue (ii): Whether the gifts, made subject to a limited revocation option, were revocable gifts attracting valuation under the special rule for non-revocable gifts for a specified period.

Analysis: The deed showed that the gifts were not revocable for an initial period but could be revoked thereafter within an outer limit. On that footing, the transfer answered the description of a revocable gift for the relevant period, so the statutory mechanism for capitalised valuation under the applicable gift-tax rule was attracted. The later exercise or non-exercise of the option would bear upon the further treatment of the property at the relevant future stage.

Conclusion: The gifts were treated as revocable for the relevant period and valuation was required under the applicable rule, in favour of the assessee.

Final Conclusion: The appeals succeeded because both the valuation of the shares and the treatment of the transfers were decided in the assessee's favour.

Ratio Decidendi: Unquoted shares must be valued according to the binding Supreme Court method, and a transfer that is not revocable only for a specified period is to be valued under the statutory rule governing such revocable gifts.

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