Valuation of gifted shares may reflect real tax liabilities, but proof is required before deducting them from break-up value.

In valuing gifted shares under the Gift-tax Act, the open-market value may be affected by a real and ascertainable taxation liability, and a balance-sheet is not conclusive where cogent evidence shows an omission or misstatement. On the record before it, however, the alleged liability had not been quantified or proved with certainty, and the Tribunal itself indicated that the actual amount required evidentiary proof. The court therefore treated the reference as unsuitable for an effective answer on the existing materials and remitted the matter to the Tribunal for disposal in accordance with its observations.

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Issues: Whether, in valuing gifted shares under the Gift-tax Act, the company's taxation liability not provided for in the balance-sheet was deductible in computing the break-up value.

Analysis: The valuation of shares under the Gift-tax Act is to reflect the price they would fetch in the open market, and in principle a real and ascertainable tax liability is a factor that may affect such valuation. The balance-sheet is not conclusive and may be displaced by cogent evidence showing that an item was omitted or wrongly stated. However, in the present record there was no legal proof that the alleged taxation liability had been quantified or established with certainty, and the Tribunal itself indicated that the actual amount would have to be proved by evidence. In those circumstances, the court treated the reference as not fit for an effective answer on the existing record.

Conclusion: The court declined to answer the referred question and remitted the matter to the Tribunal for disposal in accordance with the observations in the judgment.

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