AI Drafter 
TaxTMI 
TaxTMI 
2004 (4) TMI 49
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....us year relevant to the assessment year 1991-92, the assessee had gifted away 280 shares in the same company to his minor daughter and for the purpose of gift-tax he valued the shares at Rs. 77.85 per share. Since the assessee had sold the other shares in the same previous year, the Assessing Officer took the fair market value of the shares at Rs. 77.85 per share and on that basis he came to the conclusion that there was a gift involved in the sale to the extent of Rs. 3,93,794 and the same was assessed to tax under the Act as deemed gift. The Commissioner of Income-tax (Appeals) confirmed the assessment holding that the market value of the shares was to be taken at 77.85 per share in accordance with Schedule III to the Wealth-tax Act. This was confirmed by the Tribunal in further appeal by the assessee. The assessee then filed a Miscellaneous Petition, M. P. No. 118/Coch. of 1998, stating that a particular ground, namely, the applicability of section 4(1)(a) of the Act in respect of the transaction in view of the restrictions contained in the articles of association of the company which issued shares to the assessee. The Tribunal, after considering the matter, rejected the said....
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....cularly rule 11 thereof. Senior counsel took us to Schedule II to the Act introduced with effect from April 1, 1993, and rule 5 thereof. Senior counsel submitted that rule 1D of the Wealth-tax Rules, 1957, is similar to rule 11 of Schedule III to the Wealth-tax Act and rule 5 of Schedule II to the Act. Senior counsel with reference to the observations of the Tribunal and the decision of the Supreme Court in Bharat Hari Singhania v. CWT [1994] 207 ITR 1 submitted that the method of valuation of a particular asset is a matter of procedure and not a matter of substantive law and therefore such a rule is applicable to assessments pending on the day such rule comes into force even though the assessments relate to the assessment years prior to the coming into force of that rule. Senior counsel has also relied on the decision of the High Court in CWT v. Laxmipat Singhania [1978] 111 ITR 272 (All); CWT v. Smt. Pushpawati Devi Singhania [1991] 188 ITR 364 (All); CWT v. O. P. Tandon [1992] 195 ITR 688 (Delhi) and Manjushree Biswas v. CWT [1988] 171 ITR 348 (Cal). Senior counsel summed up his submissions by stating that the valuation of gift under the Act with effect from April 1, 1989, has t....
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....III to the Wealth-tax Act for valuation of unquoted shares of a private company other than an investment company. Schedule II to the Act introduced with effect from April 1, 1993, by the Finance Act, 1993, rule 1 thereof provides that subject to the provisions of rules 2 to 7, the value of any property, other than cash, transferred by way of gift shall, for the purposes of the Act, be determined in accordance with the provisions of Schedule III to the Wealth-tax Act, 1957, which shall apply subject to modifications contained in the rule. Rule 5 of Schedule II to the Act provides that the value of unquoted shares in companies other than investment companies shall be determined in the manner set out in sub-rule (2). Rule 1D of the Wealth-tax Rules is similar to rule 11 of Schedule III to the Wealth-tax Act and rule 5 of Schedule II of the Act. Thus, according to the Revenue, by virtue of the provisions of Schedule II to the Act read with the provisions of Schedule III to the Wealth-tax Act as it obtained from April 1, 1993, the valuation of unquoted equity shares in companies other than investment companies shall be determined in the manner set out in rule 11 of Schedule III to the W....
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....ion, whether rule 1BB of the Wealth-tax Rules is a provision of substantive law, not expressly rendered applicable to valuation for the earlier years and therefore only prospective or whether it is merely procedural and attracted to a pending case was considered by the Supreme Court in CWT v. Sharvan Kumar Swarup and Sons [1994] 210 ITR 886 wherein it was held that rule 1BB is essentially a rule of evidence as to the choice of one of the well-accepted methods of valuation in respect of certain kinds of properties with a view to achieve uniformity in valuation and avoiding disparate valuation resulting from application of different methods of valuation respecting properties of a similar nature and character. Rule 1BB was thus held to be procedural in nature. The Supreme Court in Gaj Singh v. Settlement Commission [2001] 247 ITR 586 considered the question "Whether the immovable properties referred to in paragraph 7 of the Settlement Commission's order should be valued under rule 1BB even for the assessment year prior to 1979-80" and answered in the affirmative by holding that this question is covered by its earlier decision in Sharvan Kumar Swarup's case [1994] 210 ITR 886. In vi....
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....endment) Act, 1989, with effect from April 1, 1989, prescribing the manner in which the value of gifts has to be determined (Schedule II), for the purpose of determining the difference between the market value of the property on the date of transfer and the value of the consideration, Schedule II has no application. It is by virtue of the amendment to section 4(1)(a) of the Act made by the Finance (No. 2) Act, 1991, with effect from April 1, 1992, the value of the property as on the date of the transfer, for the purposes of section 4(1)(a), can be determined in the manner laid down in Schedule II to the Act. The amendment in paragraph 82 of the said Act says "in section 4 of the Gift-tax Act, 1958 ... in sub-section (1) in clause (a) for the words "market value of the property at the date of the transfer" the words and figures "value of the property as on the date of the transfer and determined in the manner laid down in Schedule II", shall be substituted with effect from the 1st day of April, 1992". Thus, from the assessment year 1992-93 onwards only the value of the property as on the date of the transfer under section 4(1)(a) can be determined in the manner provided in Schedule ....
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....ll be determined in the manner laid down in Schedule II to the Act. Schedule II to the Act in turn says that the value has to be determined in the manner provided in Schedule III to the Wealth-tax Act. So, in respect of the gifts simpliciter, the value of the gift has to be determined on the basis of the provisions of rule 1D of the Wealth-tax Rules. However, this method of valuation of shares will not be available to valuation for the purposes of arriving at the deemed gift. In other words, notwithstanding the amendment to section 6 of the Act made by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989, providing for valuation of the gift in the manner provided in Schedule II to the Act, the valuation for the purpose of arriving at the deemed gift continued to be determined on the basis of the market value of the property as on the date of the transfer. To put it differently, the amendment of section 6 with effect from April 1, 1992, had no impact on section 4(1)(a) of the Act. In the absence of a specific provision regarding the value of the consideration, the principles laid down by the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621 and CGT v. Smt.....
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....ransfer for the purpose of deemed gift provided in section 4(1)(a) of the Act in an integrated whole and which cannot be separated to say that it is procedural in character. Here it must be noted that this was specifically made applicable only with effect from April 1,1992, i.e., in relation to the assessment year 1992-93 and subsequent assessment years. Thus looked at from any angle, the position is clear that the application of Schedule II to the Act inserted by the Direct Tax Laws (Amendment) Act and applied for valuation of gifts by amending section 6 also so far as deemed gifts under section 4(1)(a) of the Act are concerned is only from April 1, 1992, in relation to the assessment year 1992-93 and subsequent years. This is because Schedule II application was provided only by the amended section 4(1)(a) of the Act by the Finance (No. 2) Act, 1991, with effect from April 1, 1992. Here it must be noted that the assessee's contention before the Tribunal was that even after April 1,1989, different methods of valuation are provided; one regarding gifts simpliciter and the other regarding deemed gifts and that it is only from the assessment year 1992-93 the amended provisions of s....