Yield method governs unquoted share valuation for gift-tax; break-up value applies only in exceptional circumstances.

For unquoted equity shares transferred for gift-tax purposes, the yield method was stated to be the normal basis for valuing shares of a going concern, while the break-up method is reserved for exceptional cases such as likely winding up or where profit-earning capacity cannot be reasonably estimated. Rule 1D of the Wealth-tax Rules, 1957 was treated as directory, not mandatory. On the facts described, no exceptional circumstance justified departing from the yield method, so valuation based on break-up value was not appropriate and the gift-tax assessments founded on that basis were unsustainable.

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Issues: Whether, for valuing unquoted equity shares transferred for gift-tax purposes, the break-up method under Rule 1D of the Wealth-tax Rules, 1957 was mandatory or whether the yield method was the proper method of valuation, and whether the gift-tax assessments based on break-up value were liable to be cancelled.

Analysis: The applicable valuation principle was that, for shares of a going concern not quoted on the stock exchange, the yield method ordinarily represents the market value, while the break-up method is resorted to only in exceptional circumstances, such as where the company is ripe for winding up or where profit-earning capacity cannot reasonably be estimated. Rule 1D of the Wealth-tax Rules, 1957 prescribing the break-up method was treated as directory rather than mandatory. On the facts, no exceptional circumstance justified departure from the yield method, and the Assessing Officer was not justified in substituting break-up value for valuation of the shares.

Conclusion: The yield method was the proper method of valuation, the gift-tax assessments based on the break-up method were unsustainable, and the cancellation of those assessments was correct.

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