Completed gift of shares and yield-based valuation govern gift-tax treatment of unquoted equity shares.

A transfer of equity shares from a father to his minor son was treated as a completed gift for gift-tax purposes once the share certificates and transfer deeds were delivered and beneficial ownership passed, even though company registration followed later. The minor's signature on the transfer form did not invalidate the transaction because the donor was the absolute owner and could act as natural guardian for the minor donee. For valuation of unquoted equity shares, averaging break-up value and yield value had no legal basis; the proper approach was yield-based valuation on the facts, with the matter remitted for fresh assessment on that basis.

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Issues: (i) Whether the transfer of 495 equity shares by the father to his minor son constituted a completed gift exigible to gift-tax. (ii) Whether the shares were to be valued for gift-tax purposes by averaging the break-up value and yield value, or by adopting the yield method alone.

Issue (i): Whether the transfer of 495 equity shares by the father to his minor son constituted a completed gift exigible to gift-tax.

Analysis: The donor was the absolute owner and, as father and natural guardian, was competent to effect the gift on behalf of the minor donee. The mere fact that the minor signed the transfer form did not invalidate the transaction. The Court distinguished cases involving void transfers of joint family or immovable property and held that the relevant shares belonged to the assessee individually. It further held that a gift of shares is complete for tax purposes when the share certificates and transfer deeds are delivered and the beneficial interest passes, even if registration in the company's books occurs later. On the facts, the donor had delivered the shares and intended to give effect to the transfer, and the subsequent registration process did not defeat the completed transfer.

Conclusion: The transfer constituted a completed gift and was exigible to gift-tax, against the assessee.

Issue (ii): Whether the shares were to be valued for gift-tax purposes by averaging the break-up value and yield value, or by adopting the yield method alone.

Analysis: The Court held that the averaging of break-up value and yield value had no sanction in law. For unquoted equity shares, the relevant valuation had to be made on the yield basis in the circumstances of the case. The rule invoked by the revenue did not justify adoption of a mean of the two methods, and the direction of the first appellate authority to average them was erroneous. The matter was therefore to go back to the assessing authority for valuation on yield basis after giving the assessee an opportunity of being heard.

Conclusion: The valuation had to be made on yield basis alone, in favour of the assessee.

Final Conclusion: The gift was upheld as taxable, but the valuation direction was corrected in favour of the assessee and the matter was remitted for fresh valuation on the proper basis.

Ratio Decidendi: A gift of shares is complete for gift-tax purposes on delivery of the share certificates and transfer deeds when beneficial ownership passes, and unquoted equity shares must be valued on the appropriate yield basis unless the statute clearly warrants another method.

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