1992 (8) TMI 153 - AT - Income Tax

Tribunal Upholds Yield Method Over Break-Up for Gift-Tax Valuation in Share Assessments

Deputy Commissioner Of Gift-Tax. Versus Vasantrao S. Dempo.

The Tribunal upheld the CGT(A)'s decision to adopt the yield method over the break-up method for valuation in gift-tax assessments. The Tribunal dismissed ... Assessing Officer, Deemed Gift, Market Value, Quoted Equity Shares Issues:- Valuation method for gift-tax assessments- Application of Rule 1D of Wealth-tax Rules- Interpretation of Supreme Court judgments on valuation methods for shares- Decision of the CGT(A) in cancelling Gift-tax assessments- Comparison between yield method and break-up method for valuationAnalysis:The appeals consolidated by the Appellate Tribunal ITAT Pune involve a common issue regarding the valuation method for gift-tax assessments. The appeals are directed against the orders of the CGT(A), Belgaum, who cancelled the Gift-tax assessments made by the Assessing Officer, citing the yield method of valuation as proper over Rule 1D of the Wealth-tax Rules. The CGT(A) based his decision on the Tribunal's ruling in the Chowgule group of cases for wealth-tax purposes, emphasizing consistency in valuation methods for shares to avoid gift tax liability.The revenue contended that the CGT(A) erred in cancelling the assessments, arguing that there are no specific sections and rules in the Gift-tax Act corresponding to those in the Wealth-tax Act. They also highlighted that the Tribunal's decision in the Chowgule group of cases was not final, with a pending reference application. The Assessing Officer had initiated Gift-tax proceedings due to the market value of shares being higher than the sale price, applying Rule 1D for valuation. However, the CGT(A) overturned this decision, aligning with the yield method of valuation.The Tribunal referred to the Bombay High Court's decision in Smt. Kusumben D. Mahadevia v. N. C. Upadhya, emphasizing that Rule 1D of the Wealth-tax Rules is not mandatory but directory. The court outlined that the yield method is generally applicable for valuing unquoted shares, with the break-up method reserved for exceptional circumstances or companies ripe for liquidation. The Supreme Court's criteria for valuing shares of private companies were discussed, highlighting the importance of profit-earning capacity over break-up value for going concerns.Applying these principles to the present cases, the Tribunal upheld the CGT(A)'s decision to adopt the yield method over the break-up method for valuation. Consequently, the Tribunal dismissed all appeals, affirming the cancellation of Gift-tax assessments by the CGT(A) based on consistent valuation principles for shares.