TaxTMI 
TaxTMI 
2010 (10) TMI 1218
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....about July 1985. She expired on 4.10.1985 .She was a member share holder of the company. These shares were transferred to the assessee and thereafter she became member share holder. The shares of the company were in physical form only. The Assessing Officer further observed that in the return of income the assessee has shown the computation of long term capital gain as under :- "Statement of Long term Capital gain on sale of shares Details of shares sold Name of the company:- The Mysore Arts & Woods Works Co. Pvt. Ltd. No. of shares sold - 80 Nature of share sold - Ordinary shares. Name of buyers : Mr. Mohammed Sayeed Kadli Mrs. Sameena Abdul Kadli Date of Acquitsition No. of Shares 18/12/1956 Date of sales 10/01/05. Calculation of Capital gain: 80 1) Sale consideration 2) value as on 01/04/1981 698080 3550000 3) Indexed cost 3350784 Long term capital gain 199216 Less : Benefit under section 54EC of IT Act 500000 ....
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.... per section 55(2)(b) the cost of shares sold shall be at the option of assessee the fair market value of the shares as on 01.04.81. The assessee has determined fair market value of the shares on the basis of values of the assets of the company as per the report of the approved registered valuer given the value of assets on 01.04.81 and copy of the valuation report has already submitted by assessee. The assessee has taken the fair market value as per proper and scientific manner of calculating fair market value. This method is most proper and scientific. This is based on knowledge and science of valuation of shares of unquoted company. This is taken from books of accountancy as taught to the students of commerce and chartered accountancy. This method adopted in return of income (for valuation of the shares sold) is being followed by accountancy professionals and other experts and professionals every where. The company is the owner of the land and building. As on 01.04.81 the amount of fair market value of land and building is much higher to the amount of asset in the balance sheet. The difference in amounts of fair market value and the book value as per balance sheet of the company....
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.... Net surplus over liabilities = (A) - (B) = 64780.82 - 107808.27 = (-) 43027.45 Total No. of fully paid up equity shares = 1280 Break up of each fully paid equity shares = (-)43027.45 = (-) 33.62" 1280 However, the Assessing Officer following the principle of natural justice has taken the cost of shares at Rs. 100/- per share and accordingly computed the long term capital gain Rs. 30,11,600/- after giving benefit u/s.54EC of the Act Rs. 50,000/- and accordingly completed the assessment at an income of Rs. 30,69,210/- vide order dated 18.12.2007 passed u/s.143(3) of the Act. On appeal, the ld. CIT(A) while relying on the decisions relied on by the Assessing Officer has upheld the view taken by the Assessing Officer vide para-4.10 of his order which is extracted as under :- "4.10 ...In view of the above, I am convinced that FMV of shares as on 01.04.1981 in the case of appellant would be Rs. 100 per share as calculated by Assessing Officer and not Rs. 8726 per share. It is beyond common parlance that a loss making company's share would be of Rs. 8726 per share as on 01.04.1981. One has to see the facts of each case whil....
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....further submits as under :- Mysore Arts and Wood Works Co. Pvt. Ltd. ["the Company"] was incorporated on dated 06.09.1941 under the Mysore Companies Act, XVIII of 1938. The first owner of the factory was Mr. H. I. Lalaji. He borrowed and took loan from Bank of Mysore. Mr.Lalaji also took the land on lease in the year 1922 for the period of 50 years @ Rs. 500 p.a. The Bank of Mysore auctioned business of Mr. Lalaji in the year 1941. The Company purchased the business in auction. In the year 1944, by the agreement dated 05.01.1944, the Company purchased the land from Mr. B.M. Chandrashekhara Gowda on ownership basis (freehold) in full. The business of the Company was manufacturing of some wooden parts etc. The Company discontinued the business, because the company suffered continuous losses. To the best of information, the Company did not do any business from the year 1960 onwards. However, the Company was receiving rent income from some of the factory building, which were rented out, which after meeting the expenses resulted in losses. Refer the Statement of losses at page 191 of the Compilation. The sheds and the factory was on a vast strech of land admeasuring ar....
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.... 9. Smt. B. Subhadra v/s. ITA {(2005) 92 ITD 285 (Hyd)} 10.Smt. Madhu Tyagi v/s. Dy. CIT {(2008) 19 SOT 612 (Del)} 11.G.L. Sultania and Anr. v/s. SEBI {(AIR 2007 SC 2172)} 12.ICBI (India) (P.) Ltd. v/s. JCIT {(2008) 166 Taxman 123 (Bang) (Mag.)} 13.Calculation of fair market value of the shares sold, if Rule 1 D applied worked out to a negative figure of Rs.(-)129.60. He therefore, submits that the application of Rule 1D of the Wealth-tax Rules applied by the Assessing Officer and confirmed by the ld. CIT(A) for valuation of fair market value of shares as on 1.4.1981 is not applicable, bad in law and be deleted. 8. On the other hand the ld. DR while relying on the order of the Assessing Officer and the ld. CIT(A) further submits that in view of the decision of the Tribunal in Ayesha Ashok Soni (supra), the Assessing Officer was justified in valuing the fair market value of the unquoted shares as per Rule 1D of the Wealth tax Rules, therefore, the order passed by the Assessing Officer and confirmed by the ld. CIT(A) be upheld. 9. We have carefully considered the submissions of the rival parties and perused the material available on reco....
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....sment Year 2005-06. 11. In the case relied on by the ld. DR in Ayesha Ashok Soni (supra) it has been observed and held by the Tribunal that for determining fair market value of unquoted equity shares as on 1st April, 1981, for the purpose of computing capital gains, the breakup method as per Rule 1D of the wealth tax Rules has to be applied. 12. In Smt. Madhu Tyagi vs. DCIT (2008) 19 SOT 612(Del.) the Tribunal after considering all the cases relied on by the ld. Counsel for the assessee while distinguishing the decisions of the Tribunal in Ayesha Ashok Soni,(supra) and in Sirhind Steels Ltd. supra, relied on by the ld. DR, has held as under (headnote page-613-614):- "The fair market value of a capital asset under the Act is to be taken in terms of section 55(2)(b)(ii), read with section 2(22B). Thus, open market value on the relevant date was required to be taken and not some artificial value as per rules, which had no application. In the instant case, shares had been sold at the rate of Rs. 1,83,250 per share. That value had been accepted but if value of the shares sold on the date of sale as on 28.9.2000 was taken under the rule 1D, it was much less ....