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PETITIONER: COMMISSIONER OF GIFT TAX, BOMBAY ETC.

       Vs.

RESPONDENT: SMT. KUSUMBEN D. MAHADEVIA ETC.

DATE OF JUDGMENT05/12/1979

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. PATHAK, R.S.

CITATION:  1980 AIR  769            1980 SCR  (2) 357  1980 SCC  (2) 238  CITATOR INFO :  R          1988 SC 522  (4,6)

ACT:      Gift Tax  and Wealth  Tax Act-the  Tribunal refused  to refer the  case to the High Court and the High Court refused Jo call  for reference  on the  ground that the question was decided by  the Supreme  Court-question of  law  not  raised before the  ’Tribunal and  not dealt Wit/l by it-if could be said arise out of its order. ’

HEADNOTE:      The Chartered  Accountants  of  the  assessee  company, which was  an  investment  company.  VL  ed  its  shares  by applying the  profit earning  method of  valuation of shares without making any adjustment in the profits of the company. The Gift  Tax and  Wealth Tax  officers did  not accept this method and  valued  The  shares  by  applying  the  break-up method.  The  Appellate  Assistant  Commissioner  applied  a different method  called "the rule of three" and reduced the valuation of  the shares;  but the figures determined by him were still   higher  than those claimed by the assessee. The Revenue  preferred  an  appeal  against  the  order  of  the Appellate Assistant  Commissioner because  the valuation  of the shares  made by the Gift Tax and Wealth Tax officers was reduced by him: the assessee preferred an appeal against the order of the Appellate Assistant Commissioner because he did not accept the valuation put forward d by the assessee.      The  Tribunal   accepted  the  valuation  made  by  the Chartered Accountants and rejected the Revenue s appeal. The Department’s request  for making reference to the High Court was rejected on the ground that no referable question of law arose out  of the  order of  the Tribunal.  The  High  Court refused to call for a reference.      It was  contended on behalf of the assessee before this Court that the determination of this question was completely covered by  the decision  of this  Court in  Commissioner of Wealth Tax  v. Mahadeo  Jalan and no useful purpose would be served by calling for  reference.      On the  other hand  the Revenue  contended that (1) the decision in  Mahadeo Jalan’s  case laid  down no  more  than broad guidelines  which did  rot eliminate  the necessity of finding out the appropriate method of valuation in each case

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and therefore  it was  necessary to make a reference so that the proper method of valuation of shares could be determined by the High Court. (2) The break up method according to rule 10(2) of  the Gift  Tax Rules  is the  primary method  to be applied for  arriving at  the valuation  of the  shares  and since in  this case  the articles of association contained a restrictive provision  as to  the alienation  of the shares, the Tribunal  was wrong  in determining the value of I i the shares by  applying the  profit earning method so far as the valuation under the Gift Tax Act was concerned. 358      Dismissing the appeals, ^      HELD: 1.  It is  not every  question  of  law  that  is require to  referred by the Tribunal to he High Court. Where the answer  to the  question of  law is  self-evident or  is concluded by  a decision of this Court no reference would be justified [361 C-D]      The answer  to the  question of  law  relating  to  the method adopted  for valuation  of shares  in the company was clearly concluded  by the  decision in  Mahadeo Jalan’s case and the  High Court  was justified in refusing to call for a reference on this question. [367A-B]      In the  instant case the assessee was a private limited company which  was a  going concern. lt was neither ripe for liquidation nor  were there  any  exceptional  circumstances which should  attract the  applicability or  the break  J up method. The  profit earning  method was, therefore, the only method which  could properly  be applied for arriving at the valuation of  the shares in the company and the Tribunal was right in accepting the figures of valuation in the report of the Chartered  Accountants based  on the  application of the profit earning method. [366G-H, 367A]      2. It  is well settled that no question can be referred to the  High Court  unless it arises out of the order of the Tribunal. A  question of law can be said to arise out of the order of  the Tribunal  only if  it is  dealt  with  by  the Tribunal or  is raised  before it, though not decided by the Tribunal. A  question of  law not  raise before the Tribunal and not dealt with by it in is order cannot be said to arise out of its order, even if on the facts of the case stated in the order, the question fairly arises. [368C-D]      In the instant case the question sought to be raised by the Revenue  was l’  neither raised  before the Tribunal nor decided by  it and  the only  argument t advanced before the Tribunal was  that the  mean of  the values arrived at on an application of  the profit  earning method  and the break up method should  be taken  to be  the value  of the shares. No argument was  addressed to  the Tribunal  that the  break-up method should  be  adopted  because  that  was  the  primary method prescribed  by rule  10(2) and  the Tribunal  had  no occasion to  deal with  such argument.  The question did not arise out  of the  order of the Tribunal and it could not be required to be referred to the High Court. 3(i F]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 129 and 512 of 1 97.      Appeals by  Special Leave  from the  Judgment and order dated 19-6-1975  of  the  Bombay  High  Court  in  Gift  Tax Application Nos. 1 and 2 of 1975.                             AND               CIVIL APPEAL Nos 755-756 OF 1976

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    Appeals by  Special Leave  from the  Judgment and order dated 8-12-1975  of the  Bombay High  Court  in  W.T.A.  No. 15/75.                             AND 359                CIVlL APPEAL No. 1787 OF 1977      Appeal by  Special Leave  from the  Judgment and  order dated 18-12-1976  of the  Bombay High  Court in  W.T.A.  No. 24/76.                             AND             CIVIL APPEALS NOS. 1639-1645 OF 1977      Appeals by  Special Leave  from the  Judgment and order dated 3  1976 of the Bombay High Court in Writ Petition Nos. 16, 1  and 21/76  and Judgment  and order dated 4-11-1976 in W.T.A. Nos. 20 and 23/76.      S.T. Desai,  S. P. Nayar and Miss A. Subhashini for the Appellants.      N. A.  Palkhiwala, S.  P. Mehta,  H. P. Raina, Ravinder Narain, Mrs.  A. K. Verma, Talat Ansari and A. N. Haksar for the Respondents.      The Judgment of the Court was delivered by      BHAGWATI, J.  These appeals  by special  leave raise  a short question  as to  whether a  reference should have been called for by the High Court in each of these cases. Some of these cases  are under  the Gift  Tax Act while others under the Wealth  Tax Act. They all relate to the valuation of the ordinary shares of a private limited company called Mafatlal Gagalbhai  Pvt.  Ltd.  which  is  admittedly  an  investment company. The  assessee in  these cases claimed in the course of assessment to gift tax or wealth tax, as the case may be, that the  value of  the shares  should be  taken to  be  the figure arrived  at by  M/s. C.  C. Chokay  & Co.,  Chartered Accountants,  by  applying  the  profit  earning  method  of valuation of  shares without  making any  adjustment in  the profits of  the company. It is not necessary for the purpose of these  appeals  to  set  out  the  different  figures  of valuation given in the report of M/s. C. C. Chokay & Co. and claimed by  the assessees  as representing the correct value of the  shares on  the material  dates, because the question with which  we are  concerned is  one of  principle and  the actual figures  of valuation  are not relevant. The Gift Tax and the  Wealth Tax  officers did  not accept the figures of valuation given  by the assessees on the basis of the profit earning method  and valued the shares at much higher figures by applying the break-up method. This naturally involved the assessees in  higher tax  liability and hence they preferred appeals  to   the  Appellate   Assistant  Commissioner.  The Appellate  Assistant  Commissioner  applied  what  has  been described in 360 the record  as ’rule  of three  and reduced the valuation of the shares  but  the  figure  determined  by  the  Appellate Assistant Commissioner  were still higher than those claimed by the  assessees. Since the valuation of the shares made by the Gift  Tax and the Wealth Tax officers was reduced by the Appellate   Assistant    Commissioner,   the   Revenue   was dissatisfied and  it, therefore,  preferred  appeals against the orders  of the  Appellate Assistant Commissioner, to the Tribunal. The assessees were also unhappy with the valuation made by  the Appellate  Assistant Commissioner  since he did not accept  the valuation  put forward  on their  behalf and hence they  too preferred  cross objections  in the  appeals filed by  the Revenue.  The appeals and the cross objections in the  cases forming the subject matter of Civil Appeal No. 129/76   ere  heard  together  by  the  Tribunal.  The  only

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controversy before  the Tribunal  was  as  to  which  method should be  followed for  valuing the  shares of the company. The Revenue  contended that  in the  case of  an  investment company like  Mafatlal Gagalbhai Pvt Ltd., the proper method of valuation  would be  to take  the mean of two values, one arrived at  by applying  the profit  earning method  and the other by  applying the  break-up method, while the assessees pleaded for  adopting only  the profit earning method, since in their  submission that was the only method which could be applied for  valuation of  shares of  a  going  concern  The Tribunal by a common judgment accepted the contention of the assessees and  adopted the  valuation of  the shares made by M/s. C.  C. Chokay  and Co.  by applying  the profit earning method and in the result rejected the appeals of the Revenue and allowed  the cross objections of the assessees. We shall discuss in  some detail  the reasons  which weighed with the Tribunal in  coming to  this decision  when we deal with the arguments of  the parties,  but suffice  it to state for the present that  in taking this view, the Tribunal followed the recent decision  of this Court in Commissioner of Wealth-Tax v. Mahadeo  Jalan &  Ors. Similar  orders were passed by the Tribunal in the appeals and cross-objections relating to the other assessees.  The Revenue was obviously aggrieved by the orders of  the Tribunal and, therefore, it made applications to  the  Tribunal  for  referring  to  the  High  Court  the following question of law, namely,           "Whether the  Tribunal is  right in  holding, that      the shares  of an  investment company  has to be valued      only on  the basis  of the  yield without  taking  into      account the  assets owned  and reflected in the balance      sheet 361 could be  said to  arise out  of the orders of the Tribunal. The  applications   for  reference   were  rejected  by  the ’Tribunal on  the ground  that no  referable question of law arose out  of  the  orders  of  the  Tribunal.  the  Revenue thereupon made  applications to  the High  Court for calling for a  reference but  those applications  also met  With the same fate. Hence the Revenue preferred petitions for special leave to appeal in the case of all the assessees and special leave having  been granted  in some  of the  petitions,  the present appeals have come up for hearing before us.      The sole  question that  arises  for  determination  in these appeals  is whether  any question of law arises out of the orders of the Tribunal which needs to be referred to the High Court.  It is true that there must be a question of law arising out  of the order of the Tribunal before a reference can be  made, but  it is  not every  question of law that is required to  be referred  by the Tribunal to the High Court. Where the  answer to  the question of law is self-evident or is concluded by a decision of this Court, it would be futile to make a reference and in such a case the Tribunal would be justified in  refusing to  refer the  question to  the  High Court vide  C.I.T. v. Chander Bhan; Mathura Prasad v. C.I.T. and C.I.T.  v. Indian  Mica Supply Co. Ltd. Now there can be no doubt  that in  the present case the question as to which method should  bf ed for valuation of the shares of Mafatlal Gagalbhai Private  Ltd., a private limited company which was an investment  company and  at all  material times  a  going concern-whether it  should be the profit earning method or a combination of  the break-up  method and  the profit earning method-is clearly a question of law. But the argument of the assessees was  that the  determination of  this question was completely covered  by a  recent decision  of this  Court in Commissioner of  Wealth Tax  v. Mahadeo  Jalan &  others  in

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favour or  the assessees  and no  useful  purpose  would  be served by calling for a reference. The Revenue conceded that the decision  in Mahadeo  Jalan’s case  did lay down certain principles for valuation of shares in a limited company, but its contention  was that  these principles were no more than broad-guidelines and they did not eliminate the necessity of finding out the appropriate method of valuation in each case which came  before the  taxing authority  and hence  it  was necessary to’ make a reference so that the proper method for valuation of  the shares of Mafatlal Gagalbhai Pvt. Co. Ltd. could be determined 362 by the  High Court. The controversy between the parties thus centered round  the question  is to what was decided by this Court in  Mahadeo jalan’s case and whether it laid down what method should  be applied  for  valuation  of  shares  of  a private limited  company which  is an  t investment  company carrying on business as a going concern. If the method to be applied in such  case could be found to have been judicially laid down  by this  Court in  Mahadeo jalan’s case, all that would be  necessary to be done for arriving at the valuation of the  shares in Mafatlal Gagalbhai Company Private Limited would be  to apply  that  method  and  it  would  be  wholly unnecessary to  call for  a reference.  Let  us,  therefore, examine the  decision  in  Madhadeo  jalan’s  case  and  see whether any principle of valuation of shares is laid down in it which  would be  applicable in  case of  a  company  like Mafatlal Gagalbhli Private Limited.      The decision  in  Mahadeo  jalan’s  case  was  rendered under. the  Wealth-tax Act  and the  question was as to what was the  appropriate method  for valuation  of shares  of  a private limited  company for  the purpose of wealth tax. The Tribunal adopted  the break-up  method and  arrived  at  the valuation of  the shares  on that basis? but on a reference, the High Court took the view that in case of a company which is a  going concern  the only  proper method of valuation of shares is  the yield  value method  and  n(lt  the  break-up method. The  Revenue carried  the matter  in appeal  to this Court and  in a  judgment delivered  by Jaganmohan Reddy, J. this Court  examined the  question of valuation of shares in depth and  after  referring  to  various  decisions  of  the English,  Irish   and  Australian  Courts,  laid  clown  the following principles  for valuation  of shares  in a limited company:      "(1) Where the  shares  in  a  public  limited  company           quoted  on   the  stock  exchange  and  there  are           dealings in  them, the  price  prevailing  on  the           valuation date is the value of the shares.       (2)  Where the  shares arc of a public limited company           which are  not quoted  on a stock exchange or of a           private limited company the value is determined by           reference to  the dividends if any, reflecting the           profit earning capacity on a reasonable commercial           basis. But,  where they do not, then the amount of           yield on  that basis  will determine  the value of           the shares.  Tn other words, the profits which the           company has  11 been  making and  should be making           will ordinarily  determine the value. The dividend           and  earning   method  or  yield  method  are  not           mutually exclusive; 363           both  should   help  in  ascertaining  the  profit           earning  capacity   as  indicated  above.  If  the           results of the two methods differ, an intermediate           figure may  have to  be computed  by adjustment of

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         unreasonable expenses  and adopting  a  reasonable           proportion of profits.      (3)   In the  case of  a private  limited company  also           where  the   expenses  are  incurred  out  of  all           proportion to the commercial venture, they will be           added back  to  the  profits  of  the  company  in           computing  the   yield  In   such  companies   the           restriction on  share transfers will also be taken           into  consideration   as  earlier   indicated   in           arriving at a valuation.      (4)   Where the dividend yield and earning method break           down by  reason of the company’s inability-to earn           profits and  declare dividends, if the set-back is           temporary then  it is perhaps possible to take the           estimate of  the value  of the  shares before set-           back and discount it by a percentage corresponding           to the  proportionate fall  in the price of quoted           shares of  companies which  have suffered  similar           reverses. -      (5)   Where the company is ripe for winding up then the           break-up value  method determines  what  would  be           realised by that process.      (6)  As in Attorney-General of Ceylon v.  Mackie [1952]           2 All.  E.R., 775  (P.C.) a valuation by reference           to the  assets would be justified where as in that           case the  fluctuations of  profits and uncertainty           of the  conditions at  the date  of the  valuation           prevented any reasonable estimation of prospective           profits and dividends." Since the  company involved  in  this  case  was  a  private limited  company  which  was  a  going  concern,  the  Court following the  above principles, negatived the applicability of the  break-up method  for valuation  of  the  shares  and upheld the  view taken  by the  High Court  that  the  yield method was  the proper  method for arriving at the valuation of the shares.      It is clear from this decision that where the shares in a public  limited company  are quoted  on the stock exchange and there  are dealings in them, the price prevailing on the valuation date  would represent the value of the shares. But where the shares in a public 364 limited company  are not quoted on the stock exchange or the shares are in a private limited company the proper method of valuation to  be adopted would be the profit earning method. This method  may be  applied  by  taking  the  dividends  as reflecting the  profit earning  capacity of  the company  on reasonable commercial  basis but  if it  is found  that  the dividends  do  not  correctly  reflect  the  profit  earning capacity because  only a  small proportion of the profits is distributed by  way of  dividends  and  a  large  amount  of profits  is   systematically  accumulated  in  the  form  of reserves, the  dividend method  of valuation may be rejected and the  valuation may  be made by reference to the profits. The profit-earning  method takes  into account  the  profits which the  company has  been making and should be capable of making and  the valuation, according to this method is based on the  average maintainable  profits. Of  course,  for  the purpose of such valuation, the taxing authority is not bound by the  figure of  profits shown  in  the  profit  and  loss account because  it is  possible that  the amount of profits may have  suffered diminution  on  account  of  unreasonable expenditure or  the directors  having chosen  to take away a part of  the profits in the form of remuneration rather than dividends. The  figure of  profits in such a case would have

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to be adjusted in order to arrive at the real profit earning capacity of the company. It would, thus, be seen that in the case of  a company which is a going concern and whose shares are not  quoted on the stock exchange, the profits which the company has  been making  and should be capable of making or in other  words, the  profit-earning capacity of the company would ordinarily  determine the value of the shares. That is why in  Mahadeo Jalan’s  case the Court quoted with approval the following  observations of  Williams, J.  in McCathie v. Federal Commissioner  of Taxation.  "...the  real  value  of shares which  a deceased  person holds  in a  company on the date of  his death will depend more on the profits which the company has  been making  and should  be capable of making,. having regard  to the  nature of its business, than upon the amounts which  the shares  would be likely to realise upon a liquidation," and  stated. in  no uncertain  terms that "The general principle  of valuation  in a  going concern  is the yield on the basis of average maintainable profits subject t adjustment etc.  which the  circumstances of  any particular case may  fall for".  The  break  up  method  would  not  be appropriate for  valuation of shares of a company is a going concern, because  as pointed  out by  the Court  in  Mahadeo Jalan’s  case,   "among  the   factors  which   govern   the consideration of  the buyer  and the  seller where  the  one desires to purchase and the other 365 wishes to  sell, the  factor or break-up value of a share as on liquidation  hardly enters  into consideration  where the shares are  of a  going concern". It is only where a company is ripe  for winding  up or  the situation  is such that the fluctuations of profits and uncertainty of conditions at the date of  valuation prevent  any reasonable estimation of the profit earning  capacity of  the company, that the valuation by the  break-up method  would  be  justified.  The  Revenue leaned heavily  on the  observation in  Mahadeo Jalan’s case that the  factors likely  to determine  the valuation  of  a share  include   "in  special   cases  such   as  investment companies, the  asset-backing" and  urged on the strength of this observation  that in the case of an investment company, the asset-backing  was  a  relevant  consideration  and  the break- up  method could  not, therefore,  be  considered  as totally irrelevant. This contention, we are afraid, is based on a wrong reading of the observation of the Court. When the Court said that in case of an investment company, the asset- backing is  a relevant  factor in determination of the value of he shares, what the Court meant was in order to determine the capacity  of the  company to  maintain its  profits  the asset-backing would be a relevant consideration. The profit- earning capacity  of the  company which  would determine the valuation of  the shares  would naturally have to take. into account not  only the  profits which the company is actually making but  also the  profits which  the company  should  be capable of  making and  in  order  to  arrive  at  a  proper estimation of  the latter,  the  asset-backing  would  be  a relevant factor  in case  of an investment company. It would not be  right to  read  the  observation  of  the  Court  as suggesting that  valuation of the assets would be a relevant factor in  determining the valuation of shares. The Revenue, of course,  did not  plead for  exclusive  adoption  of  the break-up method and wanted the mean of the values arrived at by applying  the break-up  method  and  the  profit  earning method to  be taken  as representing  the valuation  of  the shares,  but   we  do  not  see  on  what  principle  can  a combination of  the two  methods be  justified. There  is no authority either in any judicial decision or in any standard

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text book  on  valuation  of  shares  which  recognises  the validity of  a combination of the two methods, though it may sound acceptable  as a  compromise formula. In fact, Adamson has criticised  this  combination  of  the  two  methods  as unscientific in his book on "The Valuation of Company Shares and Businesses",  (Fourth Edition)  at page 55, where he has said:           "The mere  averaging of  two results  obtained  by      quite different basis of approach can hardly be said to      represent any logical approach, whatever its merit as a      compromise. 366      Despite its evident popularity in many quarters, it has      not  been   given  judicial  recognition  in  decisions      involving the fixation of a value by the Court."      The combination  of the two methods advocated on behalf of the  Revenue has,  thus, no  sanction of  any judicial or other authority  and cannot be accepted as a valid principle of valuation of shares.      The Revenue  than pointed  out that  the principles  of valuation set  out by the Court in Mahadeo Jalan’s case were merely  broad  guidelines  and  they  did  not  obviate  the necessity of  considering each  case on  its own  facts  and circumstances and  in support of this contention the Revenue relied on  the observation made by the Court that in setting out these  principles, the  Court had not "tried to L., down any hard  and fast  rule because  ultimately the  facts  and circumstances of  each case, the nature of the business, the prospects of  profitability and  such  other  considerations will have  to be taken into account as will be applicable to the facts  of each case." Now it is true, as observed by the Court, that  there cannot  be any  hard and fast rule in the matter of  valuation of  shares in  a  limited  company  and ultimately the  valuation must  depend upon  the  facts  and circumstances of  each case,  but that  does not  mean  that there are no well settled principles of valuation applicable in specific  fact-situations  and  whenever  a  question  of valuation of  shares arises,  the taxing  authority is in an uncharted  sea  and  it  has  to  innovate  new  methods  of valuation according  to the  facts and circumstances of each case. The principles of valuation as formulated by the Court are clear  and well-defined and it is only in deciding which particular principle  must be  applied in  a given situation that  the   facts  and  circumstances  of  the  case  become material. It  is significant  to note that immediately after making the  above observation  the Court hastened to make it clear, as if in answer to a possible argument which might be advanced on  behalf of  the Revenue  on the  basis  of  that observation  that   the  yield   method  is   the  generally applicable cable method while the break up method is the one resorted  to  in  exceptional  circumstances  or  where  the company is ripe for liquidation.      Here in  the present case Mafatlal Gagalbhai & Co. Pvt. Ltd. was a private limited company which was a going concern and it  was neither  ripe for liquidation nor were there any exceptional   circumstances   which   should   attract   the applicability of  the break-up  method. The  profit  earning method was, therefore, the only method which 367 could properly  be applied  for arriving at the valuation of the shares  ill the  company and  the tribunal  was right in accepting the  figures of valuation in the Report of M/s. C. C. Choksy  Co., based  on  the  application  of  the  profit earning method.  The answer  to the question of law relating to the  method to  be adopted for valuation of shares in the

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company was  clearly concluded  by the  decision in  Mahadeo Jalan’s case and the High Court was, therefore, justified in refusing to call for a reference on this question.      It is true that in the present appeals, the question of valuation arises  not only under the Wealth Tax Act but also under  the  Gift  Tax  Act,  but  since  the  provision  for determining the  value of  an asset is the same in section 6 sub-section (1)  of the  Gift Tax  Act as it is in section 7 sub-section (1)  of the  Wealth Tax  Act, the  principles of valuation laid  down ill  Mahadeo Jalan’s  case  must  apply equally i relation to valuation of shares to be made for the purpose of  the Gift  Tax Act. It was, however, contended on behalf OF  the Revenue  that there  is  a  vital  difference between section   sub-section  (t) of  the Gift  Tax Act and section 7  sub-section (1)  of the Wealth Tax Act in aS much aS section  S sub-section  ( 1  ) of  the Gift  Tax  Act  is subject inter  alia to  the provision  of sub-section (3) of that section and this latter sub-section provides that where the value  of any  property cannot  be estimated  under sub- section ( 1 ) because it is not saleable in the open market, the value  shall be  determined in  the prescribe manner and Rule 10  sub-rule (2)  of the  Gift Tax Rules prescribes the manner of  valuation of  shares in a private limited company where  the   Articles  of  Association  contain  restrictive provision as  to the alienation of shares, by providing that in  such   a  case,   the  value   of  the  shares  "if  not ascertainable by  reference to the value of the total assets of the  company, shall  be estimated  to be  what they would fetch if  on the date of gift they could be sold in the open market on  the terms  of the  purchaser being entitled to be registered as  holder subject  to the articles, but the fact that a  special buyer would for his own special reasons give a higher  price that  the price  in the open market shall be disregarded".      The argument of the Revenue was that Mafatlal Gagalbhai Pvt Ltd,  was a  private limited company and its Articles of Association admittedly contained restrictive provision as to the alienation  of shares  and, therefore,  Rule 10 sub-rule (2) was applicable and according to that sub-rule, the value of the  shares was required to be 1 ascertained by reference to the  value of  the total assets of the company and it was only if the value was not so ascertainable that 368 it could  be determined  in any  other manner.  The break UP method was  thus, according  to this  sub-rule, the  primary method to  be applied  for arriving  at the valuation of the shares and  in the  circumstances the Tribunal was wrong ill determining the  value of  the shares by applying the profit earning method,  atleast so  far as  the valuation under the Gift Ta Act was concerned.      Now it is difficult to see how the question whether the valuation of  the shares  should have been made on the basis of the  break-up method by reason of Rule 10 sub-rule (2) of the Gift  Tax Rules  can be  required to  be referred by the Tribunal to  the High  Court. It  is well  settled  that  no question can  be referred to the High Court unless it arises out of the order of the Tribunal and, as pointed out by this Court  in   Commissioner  of  Income-tax  v.  Scindia  Steam Navigation Co.  Ltd. a  question of law can be said to arise out of the order of the Tribunal only if it is dealt with by the Tribunal  or is  raised before though not decided by the Tribunal and  a  question  of  law  not  raised  before  the tribunal and  not dealt  with by  it in  its order cannot be said to  arise out of its order, even if on the facts of the case stated  in the  order the question fairly arises. It is

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obvious that  this question sought to be raised on behalf of the Revenue  was neither  raised  before  the  Tribunal  nor decided by  it and  the only  argument advanced  before  the Tribunal was  that the  mean of  the values arrived at on an application of  the profit  earning method  and the break-up method should  be taken to be the value of the shares. There was no  argument addressed  to the Tribunal that the breakup method should be adopted because that was the primary method prescribed by  Rule 10  sub-rule (2)  and the  Tribunal had, therefore, no  occasion to  deal with  such  argument.  This question obviously,  therefore, does  not arise  out of  the orders of  the Tribunal  and it  cannot be  required  to  be referred to the High Court.      These were  the only contentions urged on behalf of the Revenue and since there is no substance in them, the appeals fail and are dismissed with costs, N.K.A.    Appeals dismissed. 369