Commissioner of Gift-tax vs K.V. Rajyalakshmi

M.N. Rao, J.—The Revenue is seeking, by this application filed u/s 26(3) of the Gift-tax Act, 1958, to direct the Income Tax Appellate Tribunal, Hyderabad "B" Bench, Hyderabad, to state the case in respect of the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in setting aside the gift-tax assessment order and directing the Assessing Officer himself to reframe the assessment de novo by holding that the market value of unquoted equity shares of a going concern could be determined for gift-tax purposes only according to yield method and not as per the break-up method provided in rule 1D of the Wealth-tax Rules, 1957 ?"

The assessee had sold 300 shares in S. R. M. T. Limited, Kakinada, on January 18, 1982, at the rate of Rs. 50 per share. Since the S. R. M. T., in which the assessee held these shares, is a closely held company, the shares of which were not quoted in the market, the Gift-tax Officer, adopting the break-up method of valuation, estimated the value of each share at Rs. 178.23 and on that basis, brought to tax a deemed gift of a sum of Rs. 38,469. On appeal, the same was affirmed by the appellate authority Assistant Commissioner (Appeals). The Income Tax Appellate Tribunal, following the decision of the Supreme Court in CGT v. Executors and Trustees of the Estate of the Late Shri Ambalal Sarabhai, (1988) 170 ITR 144 (SC) as well as the decision of this court in D. Renuka Vs. Commissioner of Wealth-tax, , held that the correct method to be applied is the yield method and in that view allowed the appeal and set aside the assessment. Aggrieved by that, the Revenue has come up with the present application, as already stated supra, seeking for a direction to the Tribunal to state the case :

Learned standing counsel for the Income Tax, relying upon the decision of the Supreme Court in Bharat Hari Singhania and others Vs. Commissioner of Wealth Tax (Central) and others, , has endeavored to contend that the decision in CGT v. Executors and Trustees of the Estate of the Late Shri Ambalal Sarabhai, (1988) 170 ITR 144 (SC) , as well as the ruling of this court in D. Renuka Vs. Commissioner of Wealth-tax, no longer could be held to be holding the field and, therefore, the yield method taken into consideration by the Tribunal was not the proper method. We are not inclined to accept this contention. In the aforesaid Bharat Hari Singhania and others Vs. Commissioner of Wealth Tax (Central) and others, , the Supreme Court after discussing CGT v. Executors and Trustees of the Estate of the Late Shri Ambalal Sarabhai, (1988) 170 ITR 144 (SC) and D. Renuka Vs. Commissioner of Wealth-tax, , pointed out that they relate to gift-tax eases where the yield method is appropriate and, therefore, they have no bearing in deciding the questions arising under rule 1D of the Wealth-tax Rules, 1957. The Supreme Court observed (at page 23) : "Indeed, the decision of this court in CGT v. Executors and Trustees of the Estate of the Late Shri Ambalal Sarabhai, (1988) 170 ITR 144 (SC), indicates that ''break-up'' method is not always advantageous to the Revenue nor is the ''yield method'' always advantageous to the assessees."

The definition of "gift" under clause (xii) of section 2 of the Gift-tax Act, 1958, includes a deemed gift u/s 4. Section 4(1)(a) of the Act lays down that where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property on the date of the transfer exceeds the value of the consideration, shall be deemed to be a gift. The Revenue is seeking to estimate the market value by applying the break-up method whereas the assessee wants the yield method to be applied. Which of the two methods should be followed yield method or break-up method-although is a question of law, having regard to the fact that the Supreme Court has already upheld the yield method in CGT v. Executors and Trustees of the Estate of the Late Shri Ambalal Sarabhai, (1988) 170 ITR 144 (SC) , with reference to gift-tax and there being no subsequent decision under the Gift-tax Act, either explaining away or stating a different principle of law, we are not inclined to agree with learned counsel for the Revenue that this is a fit case to direct the Tribunal to refer the matter. The essential question u/s 4(1) is whether the shares have been sold otherwise than for adequate consideration. If there is a finding that the price paid by the transferee is inadequate, then the difference between the market value and the sale price can be brought to tax as a deemed gift. By straightway estimating the market value, no inference can be drawn that the price paid was inadequate.

For these reasons, the gift-tax case is dismissed.