TaxTMI 
TaxTMI 
2005 (6) TMI 202
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....iant Tata Iron & Steel Co. Ltd. is also Rs. 142.45 of Rs. 100 per share." 3. On the sale of 51,252 equity shares of a company known as Panchmahal Steel Ltd. the assessee in its return of income has shown a long-term capital loss at Rs. 1,08,27,497, computation of which is as under:- Sale consideration of 51,252 Equity shares @ Rs.150 per share Rs.76,87,8000 Less: Cost of acquisition of equity shares acquired by the company prior to 1-4-1981. The fair market value of shares is substituted under section 55(2)(b)(i) of the Income-tax Act, 1961. The FMV of shares as on 1-4-1981 works out at Rs. 162 per share as per valuation certificates of M/s. Amal Dutta & Associates, Chartered Accountants & approved valuer Rs.  ....
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....nder Rule 1D of Wealth-tax Rules Base Balance-sheet: For the year ended on 30-9-1980 (immediately preceding date of valuation as on 1-4-1981. ASSETS:- Fixed assets (after depreciation) But including capital work in progress 1,31,01,898 Current Assets: (a) Inventories 1,92,57,909 (b) Sundry Debtors 31,53,789 (c) Cash & Bank Balances 19,355 (d) Loans & advances made to others 16,26,545 -------------  ....
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....tors (excluding liability) 40,79,226 ------------- Rs. 1,00,020 for gratuity 1,26,25,903 ------------- TOTAL OF LIABILITIES &n....
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....p; = Rs. 81.78 Market value of each share: Rs. 81.78 @75% = Rs. 61.33 i.e., 75% of break-up value COST OF ACQUISITION AS ON 1-4-1981 = Rs. 61.33 of equity shares of Panchmahal Steel Ltd." Thus the Assessing Officer worked out long-term capital gain of Rs. 6,78,274 as against long-term loss computed by assessee at Rs. 1,08,27,497. For arriving at a conclusion that the method of valuation shown by the valuer of the assessee would not be accepted in preference to Rule 1D the Assessing Officer ha....
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....nbsp; As on 1-4-1981 1. Tata Iron & Steel Co. Ltd. Rs. 100 Rs. 143.45 2. Usha Ally & Steel Rs. 10 Rs. 35.00 3. Wellcast Steels Rs. 10 Rs. 24.00 4. Somani Steels Rs. 10 Rs. 12.00 5. Mukund Iron &....
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....of yield method should be accepted. The said para 4 is reproduced below for the sake of convenience:- "4. In Smt. K.V Rajyalakshmi (223 ITR 25) the assessee had sold shares of a closely held company which were not quoted in the market. The GTO adopted the break-up method of valuation and thereby estimated the value of each share at Rs. 178.23 instead of Rs. 50 per share which according to the assessee was the worth of the shares as per yield method. The Hon'ble High Court explained that the Supreme Court decision in the case of Bharat Hari Singhania v. CWT 207 ITR 1 does not over rule the decision in Shri Ambalal Sarabhai's case 170 ITR 144 and Dr. D. Renuka's case 175 ITR 615 specifically stated that in a Gift tax case Rule 1D of the Wealth-tax Rules will have no bearing and the yield method is more appropriate. Respectfully following the Hon'ble Andhra Pradesh High Court's decision I agree with the ld. AR for the assessee that rule 1D is appropriate only in Wealth-tax proceedings under the Wealth-tax Act and under the Income-tax Act for the purpose of capital gains in the shares of the going or running concern, the yield method is more appropriate. In this case, the valuation ....
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....e Assessing Officer in his assessment order and the latter by the Supreme Court in the case of Bharat Hari Singhania 207 ITR 1 (SC). We may quote the following passages from the said decision of the Supreme Court in this regard as under:- "... Now, there may be several method of valuing an asset or for the matter an unquoted equity share. The rule-making authority cannot obviously prescribe all of them together. It has to choose one of them which according to it is more appropriate. The rule-making authority has in this case chosen the break up method, which is undoubtedly one of the recognized methods of valuing unquoted equity shares." "We are not satisfied that the break up method adopted by rule 1D does not lead to a proper determination of the market value of the unquoted shares. The argument to this effect, advanced by learned counsel for the appellant, is based upon the assumption/premises that the value determined by applying the yield method is the correct market value. We do not see any basis for this assumption. No empirical data is placed before us in support of his submission or assumption. It may be more advantageous to the appellant but that is not saying the s....
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....d heavy reliance on the following decisions:- (1) Smt. K.V. Rajyalakshmi's case Referring to this decision he contended that it has been held that gift of unquoted equity shares should be valued according to yield method and the question whether such gift should be valued as per yield method and not according to the break up method provided under rule 1D of Wealth-tax Rules, 1957, does not merit reference, there being no subsequent decision under the Gift Tax Act either explaining away or stating a different principle of law. He contended that while taking this decision Their Lordships of Andhra Pradesh High Court have followed the decision of Hon'ble Supreme Court in the case of CGT v. Executors & Trustees of the Estate of late Shri Ambalal Sarabhai [1988] 170 ITR 144 as also the decision of Andhra Pradesh High Court in the case of Dr. D. Renuka v. CWT [1989] 175 ITR 615 [both these decisions have been relied upon by the ld. CIT(A)]. (2) Asstt. CIT v. K.K. Gosain [1998] 66 ITD 26 (Delhi) wherein following the afore-cited decision in the case of Shri Ambalal Sarabhai it was held that unquoted equity shares should be valued on the basis of yield method and not by applying b....
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....ry decision to the decisions relied upon by him in the case of Smt. K.V. Rajyalakshmi. He replied that there is no contrary decision. However, it has come to our notice that Hon'ble Gujarat High Court in the case of CGT v. Mohanlal Chaturbhuj [2002] 123 Taxman 993 (Guj.) has held that Rule 1D of the Wealth-tax Rules, 1957 provided for valuation of unquoted shares by break up method is mandatory, therefore, the Tribunal was not justified in directing the Gift-tax Officer to value the shares according to yield method. The relevant observation of Hon'ble High Court is as under:- "In this reference at the instance of the revenue, the following question is referred for our opinion in respect of assessment year 1982-83: 'Whether the Tribunal is right in law and on facts in directing the GTO to apply the yield method as against applying rule 1D of Wealth-tax Rules, 1957, by the GTO for valuing the unquoted equity shares gifted by the assessee?' 2. Mr. Tanvish Bhatt learned counsel appears for the Revenue. Though served, none appears for the respondent-assessee. 3. The controversy in the reference is about the method of valuation to be applied for valuing the unquoted equity sh....