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PETITIONER: S. VIJI

       Vs.

RESPONDENT: COMMISSIONER OF GIFT TAX

DATE OF JUDGMENT:       02/12/1997

BENCH: SUHAS C. SEN, V.N. KHARE

ACT:

HEADNOTE:

JUDGMENT:                THE 2ND DAY OF DECEMBER, 1997 Present:                Hon’ble Mr. Justice Sushas C.Sen                Hon’ble Mr.Justice V.N. Khare A.T.M.Sampath and S.Balaji, Advs. for the appellant Ranbir Chandra, Hemant Sharma and B.K. Prasad, Advs. for the Respondent                       J U D G M E N T      The following Judgment of the Court was delivered: SEN, J      The following  question of  law  was  referred  by  the Tribunal to  the High  Court under Section 26(1) of the Gift Tax Act, 1958.      "Whether, on  the facts  and in the      circumstances  of   the  case,  the      Balance   sheet   figures   as   on      31.3.1972  should   be  taken   for      ascertaining the  break-up value of      the  shares   gifted  and  not  the      balance   sheet   figures   as   on      31.3.1973?"      The assessment  year involved  in 1973-74.  The dispute relates to  valuation of  quoted shares  of a  Company which were transferred on 28.3.1973. Section 6 of the Gift Tax Act lays down the method of valuation of gifts.  Sub-section (3) provides that  where the  value of  the property  cannot  be estimated because it is not saleable in the open market, the value shall  be determined  in the prescribed manner.  There is no  dispute that  the shares  are unquoted  and  are  not saleable in the market.  There was a restriction on the sale of shares  in the  market by  the Articles of Association of the Company.   Both  the department  and the  assessee agree that the  valuation should be made by following the break-up method.  The dispute, however, is as to the balance sheet on the basis  of which  the break-up  value  will  have  to  be calculated.      The case  of the  assessee s  that these shares must be valued by  referring to  the balance  sheet figures  of  the Company as  on 31.3.1972  which  was  the  latest  available balance sheet  on the date of the transfer of shares.  There

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is no question of referring to a balance sheet which was not even in  existence on  the date  of making of the gift.  The department has  taken the  stand that  the valuation must be made with  reference to  the balance  sheet  figures  as  on 31.3.1973 which was the closest proximate date from the date of making  of the  gift.   There is no dispute that break-up method of  valuation must  be followed.   If that be so, the only available  balance sheet figure as on 28.3.1973 was the latest  published  balance  sheet  for  the  year  ended  on 31.3.1972.      We are  unable to uphold the assessee’s contention. The Gift Tax  Officer has  to find  out the correct value of the shares as  on the  date of the gift.  The gift was made only three days  before the  financial year  ending on 31.3.1973. The balance sheet as on 31.3.1973 will give a more realistic picture of  the value  of the assets of the Company than the balance sheet  as on  31.3.1972.  Therefore, for calculating the break-up  value of the shares, the balance sheet figures as on 31.3.1973 would be more relevant.  The contention made on behalf  of the  assessee, if upheld, would lead to absurd result.   If the  gift was made on 28.3.,1973 the value will have to  be computed  in accordance  with the  balance sheet figures as  on 31.3.72.  But if the gift was made three days later on  31.3.73 the valuation made on the basis of balance sheet as  on 31.3.73 may be much higher even though there is no change  in the value of the assets of the Company between 28.3.73 and  31.3.73.   there is no justification for coming to this conclusion.  The break-up value method is adopted to find out  the correct value of the shares on the date of the gift.  The figures of the balance sheet of the year ended on 31.3.1973 will give a more realistic picture of the value of the assets of the Company than the figures as on 31.3.1972.      Our attention  was drawn  to a  decision of  the Madras High Court  in the  case of  Commissioner of  Gift Tax  v. K Ramesh, 141  ITR 462.   In  that case,  a gift  was made  on 28.3.1972.   The Tribunal  held that  as the  gift had taken place before the balance sheet as on 31.3.1972, the break-up value should  be  calculated  with  reference  to  the  last balance sheet  of the  Company before  the date  of the gift which was  of the  year ending on 31.3.1971.  The High Court held that  though the  balance sheet  as  on  31.3.1972  was subsequent to  the  date  of  the  gift,  it  could  not  be disregarded because  it was not so far removed from the date of the  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 31.3.1971 and 31.3.1972.  The Tribunal was, not therefore, justified in ignoring or disregarding the balance sheet as on 31.3.1972.  The High Court held that if anything had happened  to the  assets and  liabilities of the Company between 28.3.1972  and 31.3.1972, that could also taken into consideration by the Tribunal.  The Tribunal was directed to re-examine the question in that light again.      We are  in agreement  with his  approach of  the Madras High Court.,  In the instant case, the balance sheet figures as on 31.3.1972 give the picture of the value of the various assets of  the Company upto that date.  The Company may have increased.   It is also possible that during that period the fortune of  the Company  languished and  the  value  of  its assets had  decreased.  In either event, when a valuation of shares is to be made as on 28.3.1973, it will be unrealistic to ignore the balance sheet for the year ended on 31.3.1973. The assessee,  of curse,  is  entitled  to  point  out  that between 28.3.1973  and 31.3.1973, the value of the assets of the Company  has increased.   If  so, such  variation in the

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value of  the assets will have to be ignored.  But the basis of the  valuation will  have to  be the  balance sheet as on 31.3.1973.      We were also referred to another judgment of the Madras High Court  in the  case of  Commissioner of  Wealth Tax and Others v. S.Ram and Others, 147 ITR 278 where it was held:      "In cases  where gift  of  unquoted      shares has  been  made  during  the      accounting year of the company, the      true principle of valuation of such      unquoted shares  is that if it were      possible to draw a precise balance-      sheet as  on the  date of the gift,      that would afford quite an accurate      basis and  an ideal  solution.  But      in the  absence of  the facility of      drawing   up    a   balance   sheet      precisely on  the date of the gift,      the next  best thing  would  be  to      take  two  of  the  balance  sheets      falling both  before and  after the      date of  the gift  and  arrive,  as      near as  may be,  at  the  break-up      value of the assets and liabilities      of the  company as  on the  date of      the gift, either on a time basis or      on some other basis".      But in this case, the balance sheet as on 31.3.1973 was available to the Gift Tax Officer when he made the valuation of unquoted  shares.   It was not difficult to get a precise picture of the value of the shares as on 28.3.1973 from this balance sheet.      We were referred to a large number of decisions, but it is not necessary to specifically deal with all of them.      We are  of the  view having regard to the fact that the gift was  made on  the verge  of the close of the accounting year ending  on 31.3.73  the balance  sheet as  on 31.3.1973 should be  taken as  the basis for ascertaining the break-up value of  the shares  as on  28.3.1973.   However,  suitable adjustments will  have to  be made  if there  has  been  any variation in  the value of the assets of the Company between 28.3.1973 and  31.3.1973.  That, however, is not the case of the assessee.  Under these circumstances, the judgment under appeal is  upheld.   The appeal is dismissed.  There will be no order as to costs.