Punjab & Haryana H.C : Whether, on the facts and circumstances of the case, the Tribunal was right in holding that in valuing the unquoted shares of Kakkar Steel Complex (P) Ltd. for the purposes of working out the value of the deemed gift on 20th March, 1979, reference should be made to the balance sheet of the said company as on 31st March, 1978, and not to the balance sheet as on 31st March, 1979 ?

High Court Of Punjab & Haryana

Commissioner Of Gift Tax vs. Smt. Shakuntala Devi

Section GT 6, WT Rule 1D

Asst. year 1979-80

Jawahar Lal Gupta & Ashutosh Mohunta, JJ.

GT Ref. No. 1 of 1985

6th June, 2001 

Counsel Appeared

R.P. Sawhney with Rajesh Bindal, for the Revenue : None, for the Assessee

JUDGMENT

JAWAHAR LAL GUPTA, J.:

The Tribunal has referred the following question for the opinion of this Court : “Whether, on the facts and circumstances of the case, the Tribunal was right in holding that in valuing the unquoted shares of Kakkar Steel Complex (P) Ltd. for the purposes of working out the value of the deemed gift on 20th March, 1979, reference should be made to the balance sheet of the said company as on 31st March, 1978, and not to the balance sheet as on 31st March, 1979 ?”

2. The relevant facts may be briefly noticed. On 20th March, 1979, the assessee sold 250 shares of Kakkar Steel Complex (P) Ltd. to Naval Kumar and Vipan Kumar for a consideration of Rs. 2,50,000. Each share had a face value of Rs. 1,000. The IAC vide his assessment order dt. 5th March, 1993, held that “the market value of the shares even if worked out with yield method would not be less than Rs. 2,199 per share.” Thus, she came to the conclusion that the shares had been “transferred for a consideration, which is much below the market value.” As a result, she held that “gift-tax under s. 4(1)(a) is attracted.” Thus, the assessee was held liable to pay gift-tax.

The assessee filed an appeal before the CGT(A), Jalandhar. The plea of the assessee that the valuation of the shares should have been fixed with reference to the balance sheet available on the date of sale, viz., 20th March, 1979 and not with reference to the balance sheet of a later date was accepted. It was held that the sale having taken place on 20th March, 1979, the value of the shares had to be fixed with reference to the balance sheet as on 31st March, 1978, and not as on 31st March, 1979. The GTO was accordingly directed to determine the element of gift and tax due on the hypothesis that the value of each share was Rs. 1,115.

The Revenue challenged the order of the CGT(A) before the Tribunal. It contended that the sale transaction had taken place on 31st March, 1979, and thus, the value of each share had to be fixed on the basis of the balance sheet as on 31st March, 1979. The Tribunal on a consideration of the matter held that the sale had taken place on 20th March, 1979. It upheld the order of the CGT(A) and dismissed the appeal filed by the Revenue. While doing so, the Tribunal placed reliance on its earlier decision in the case of CGT vs. Ripan Kumar. Aggrieved by the order, the Revenue made a petition for reference. It was allowed. It is in these circumstances that the present reference has been made to this Court.

Shri Sawhney, learned counsel for the Revenue, has vehemently contended that the view taken by the Tribunal is erroneous. The AO had rightly determined the value of the shares on the basis of the balance sheet as on 31st March, 1979.

No one has put in appearance on behalf of the assessee. Sec. 4 of the GT Act, 1958, inter alia, provides that “where property is transferred otherwise than for adequate consideration, the amount by which the value of the property…..exceeds the value of the consideration shall be deemed to be a gift made by the transferor.” Thus, by fiction of law, the difference between the ostensible sale price and the value as determined by the authority, is treated as a gift. The provision has obviously been made by Parliament to impose tax in cases where transfer is made for a value less than the actual value by the transferor. Yet the question that remains is—How is the value to be fixed ?

For the purpose of fixation of value, counsel relied upon the provision of rule 1D of the WT Rules, 1957. The rule at the relevant time, inter alia, provided that “the market value of an unquoted equity shares of any company, other than an investment company or a managing agency company” has to be determined with reference to the balance sheet. Expln. 1 to the rule provided as under : “For the purposes of this rule ‘balance sheet’ in relation to any company, means the balance sheet of such company as drawn up on the valuation date and where there is no such balance sheet, the balance sheet drawn up on a date immediately preceding the valuation date and in the absence of both, the balance sheet drawn up on a date immediately after the valuation date.” A perusal of the above Explanation shows that the relevant balance sheet is the one existing on the valuation date and where there is no such balance sheet, reference has to be made to the one “drawn upon on a date immediately preceding the valuation date . . . ” It is, thus, clear that the valuation has to be fixed on the basis of the balance sheet which exists on the date of the transaction. What is the position in the present case ? It has been held by the Tribunal that the shares had been transferred on 20th March, 1979. Admittedly, the balance sheet as on 31st March, 1979, did not exist on that date. Thus the valuation had to be fixed on the basis of the balance sheet which existed immediately prior to 20th March, 1979. Necessarily, the valuation had to be fixed on the basis of the balance sheet as on 31st March, 1978. This is precisely what the Tribunal has done.

Mr. Sawhney referred to the decision of the Mysore High Court in CED vs. J. Krishna Murthy (1974) 96 ITR 87 (Mys). On a perusal of the judgment, we find that the following question had been referred to the Court for its opinion : “When, for the WT Act, valuation of unquoted shares as on 31st March, 1967, has to be done in accordance with the WT (Amendment) Rules, 1967, taking the last published balance sheet as on 31st Dec., 1966, as the basis, whether the Tribunal is right in placing the same value as on 11th Sept., 1967, the date of the death of the deceased for the purpose of estate duty assessment resulting in non-consideration of other items not covered by the WT Rules going into the determination of the value of shares for estate duty purposes?”

This question was answered in the affirmative and against the Revenue. It was, inter alia, observed that : “The only published information concerning the company on 31st March, 1967, as well as 11th Sept., 1967, is its published balance sheet as at 31st Dec., 1966, which alone could be relied on for purposes of valuation whether on 31st March, 1967, or 11th Sept., 1967.” Similar is the position in the present case. The Tribunal has placed reliance on the balance sheet as on 31st March, 1978, as that was the only existing material on the date of the transaction, viz. 20th March, 1979. This judgment does not support the case of the Revenue in any manner.

Mr. Sawhney then referred to the decision of the Madras High Court in CGT vs. K. Ramesh (1983) 141 ITR 462 (Mad) : TC 36R.401. In this case it was undoubtedly held that “even though the balance sheet as on 31st March, 1972, was subsequent to the date of the gift, it could not be disregarded because it was not far removed from the date of gift and there may have been several developments affecting the net worth of the company and thereby affecting the value of the individual shares between the two balance sheets as on 31st March, 1971, and 31st March, 1972.” The order of the Tribunal which was based on the balance sheet of 31st March, 1971, was, thus, set aside and the matter was remanded for fresh decision. However, we find that a contrary view had been taken in the case of CGT vs. H.H. Sethu Parvathi Bai (1983) 35 CTR (Ker) 284 : (1984) 145 ITR 124 (Ker) : TC 36R.441. In this case it was categorically held that : “for the gift of shares made by the assessee on 25th March, 1971, the value shown in the balance sheet of the company as on 31st March, 1970, should be taken as the proper value.” Similarly, in CGT vs. Executors & Trustees of the Estate of Late Shri Ambalal Sarabhai 1975 CTR (Guj) 1 : (1975) 100 ITR 447 (Guj) : TC 36R.423, it was held that (headnote) : “since the only balance sheet which was available at the date of the gift, namely, 17th Oct., 1964, was the balance sheet of 31st March ,1963, the break-up value method could be applied only in the light of the balance sheet as on 31st March, 1963…..” Reliance was placed by the Bench on the decision of the House of Lords in Lynall vs. IRC (1972) 83 ITR 563 (HL).

We are in respectful agreement with the view expressed by the Kerala and Gujarat High Courts. Why ? Sec. 6 of the Act categorically provides that the “value of any property, other than cash, transferred by way of gift shall . . . . be its value as on the date on which the gift was made . . . .” The provision clearly contemplates that the value has to be as on the date of the gift. It cannot be determined with reference to any evidence relating to a subsequent date. Thus, the view taken by the Madras High Court that reference could be made to the balance sheet prepared on a subsequent date, does not, with respect, commend itself to us. This is the import of r. 1D also. Still further, it deserves mention that in the present case the deemed gift had been made on 20th March, 1979. The value has to be seen on that date. The balance sheet as on 31st March, 1979, did not exist on that date. In fact, learned counsel for the Revenue was unable to refer to any evidence to indicate as to when it had been actually prepared. In this situation, the view taken by the Tribunal is absolutely in conformity with law.

No other point has been raised.

In view of the above, the question as referred by the Tribunal, is answered in the affirmative and in favour of the assessee. It is held that for working out the value of the deemed gift of 20th March, 1979, reference could be made to the balance sheet of the company as on 31st March, 1978, and not to the balance sheet as on 31st March, 1979. Since no one has appeared on behalf of the respondent-assessee, there will be no order as to costs.

[Citation : 250 ITR 677]

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