Gift-tax valuation of unquoted equity shares follows the yield method, with break-up value not treated as mandatory.

Under the Gift-tax Act, unquoted equity shares are generally valued on the yield or profit-earning basis, because valuation must fit the statutory context and the facts of the case. The break-up value method may be used in appropriate cases, but it is not mandatory merely because that approach appears in the Wealth-tax valuation rules. The principle stated is that share valuation for gift-tax purposes should follow the method appropriate to the gift-tax regime, with the yield method treated as the normal approach for unquoted equity shares.

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Issues: Whether, for purposes of gift-tax, unquoted equity shares are to be valued on the yield method or on the break-up value method.

Analysis: The statutory scheme under the Gift-tax Act was compared with the Wealth-tax Act and the relevant rules governing valuation of assets. The valuation of unquoted equity shares under the Gift-tax Act was held to be governed by the principles recognised for share valuation in the context of the gift-tax regime, particularly the profit-earning or yield basis. The break-up method, though a recognised mode in appropriate cases, was not treated as the mandatory rule for gift-tax valuation merely because it had been applied under the Wealth-tax Rules. The reasoning emphasised that valuation must follow the method appropriate to the statutory context and the facts, with yield method being the normal approach for unquoted equity shares.

Conclusion: Unquoted equity shares under the Gift-tax Act are to be valued on the yield method and not on the break-up value method.

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