Gift-tax valuation of unquoted going-concern shares generally follows the yield method, not break-up value, absent exceptional circumstances.

Unquoted shares of a private limited company that is a going concern and not ripe for liquidation are ordinarily valued for gift-tax purposes on the yield or profit-earning capacity basis. The break-up value method is confined to exceptional cases, such as where winding up is imminent or profits are too uncertain to assess on a yield basis. On the facts stated, no exceptional circumstance justified departure from the yield method, so the break-up approach was rejected and the valuation on yield basis was affirmed, subject only to limited arithmetical verification.

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Issues: Whether unquoted shares of a private limited company which is a going concern and not ripe for liquidation are to be valued for gift-tax purposes on the yield method or on the break-up value method.

Analysis: The valuation of property under the gift-tax law is governed by the estimate of what it would fetch in the open market, subject to the prescribed manner where open-market sale estimation is not possible. In the case of unquoted shares of a going concern, the profit-earning capacity ordinarily determines value, while the break-up method is confined to exceptional cases, such as where the company is ripe for winding up or where profits are so uncertain that profit-earning capacity cannot reasonably be assessed. The companies whose shares were gifted were found to be going concerns, with no exceptional circumstance shown to justify departure from the yield basis. The authorities relied on for break-up valuation did not govern the present issue.

Conclusion: The unquoted shares had to be valued on the yield method and not on the break-up value method. The Revenue's appeal succeeded and the valuation orders of the Gift-tax Officer were restored, subject to verification of the limited arithmetical objection regarding one share valuation.

Final Conclusion: The decision affirms that, for gift-tax valuation of unquoted shares in a going concern, the ordinary rule is valuation on yield basis and break-up value is confined to exceptional circumstances.

Ratio Decidendi: For unquoted shares of a private company that is a going concern and not ripe for liquidation, gift-tax valuation must ordinarily be based on yield or profit-earning capacity, and the break-up method is not applicable unless exceptional circumstances justify it.

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