Commissioner of Gift-tax vs Venu Srinivasan

N.V. Balasubramanian, J.—At the instance of the Revenue, the following questions of law have been referred for our consideration u/s

26(1) of the Gift-tax Act, 1958.

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that for determining the market value of the shares

of T.V. Sundaram Iyengar and Sons (P.) Ltd., gifted on March 14, 1974, the proper balance-sheet to be taken was as on March 31, 1973, and

not the balance-sheet as on March 51, 1974 ?

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the provisions for gratuity should not be added back

in arriving at the total assets of the company for the purpose of determining the break-up value of the shares ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a net deduction of Rs. 19 lakhs should be made

from the total value of the assets of the company in relation to dividends to arrive at the break-up value of the shares ?

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that a discount of 30 per cent, should be given in arriving

at the break-up value of the shares of the company in the present case ?

Whether, on the facts and circumstances of the case, the Tribunal was justified in examining the contentions raised by the assessee that discount

higher than 15 per cent, should be granted when the appeal before the Tribunal was an appeal by the Revenue ?

Though the assessee was served on October 8, 1997, there was no representation for and on behalf of the assessee.

The assessee made a gift of 3,500 shares in T.V.S. and Sons Private Limited, on March 14, 1974.

The previous year relevant to the assessment year 1974-75 ended on March 31, 1974, The assesses took into account the balance-sheet

available with the assessee i.e., the balance-sheet as on March 31, 1973, and returned the value of the shares after deducting the provision for

gratuity at Rs. 133.63 per share. The Gift-tax Officer, however, in the assessment proceedings took into account the balance-sheet as on March

31, 1974, and without taking into account the provision for gratuity, determined the value of the shares at Rs. 117.89 per share. On appeal by the

assessee, the Appellate Assistant Commissioner, following the earlier order of the Appellate Tribunal in the case of one Mrs. Prema Srinivasan,

Madurai, in G. T. A. No. 10/Mds of 1969 70 held that the balance-sheet to be reckoned should be the balance-sheet prepared as on the date

earlier to the date of the gift instead of the one nearer to it. He also held that the provision for gratuity should be deducted. The Revenue preferred

an appeal to the Income Tax Appellate Tribunal. The Tribunal, following its earlier order in G.T.A. No. 6/77-78, dated March 4, 1978, held that

the value returned by the assessee for the shares gifted in T.V.S. and Sons Private Limited, should be adopted instead of the value determined by

the Gift-tax Officer. It is this order of the Tribunal which is the subject-matter of the present tax case reference.

In so far as the first question of law that is referred to us is concerned, the Supreme Court in S. Viji Vs. Commissioner of Gift Tax, , held that

for calculating the break-up value of the shares, the balance-sheet nearer to the date of gift should be taken into account and that would be the

relevant balance-sheet for determining the value of the shares. Since the gift was made on March 14, 1974, the nearest balance-sheet would be the

balance-sheet as on March 31, 1974, and not the balance-sheet as on March 31, 1973. We are of the opinion that the Tribunal was not correct in

holding that the balance-sheet as on March 31, 1973, should be taken into account for determining the value of the shares under break-up value

method. Since the view of the Tribunal is not in conformity with the view of the apex court in S. Viji Vs. Commissioner of Gift Tax, , the first

question of law referred to us has to be answered in the negative and in favour of the Department and the Tribunal directed to determine the value

of the shares on the basis of the balance-sheet as on March 31, 1974.

In so far as the second question of law is concerned, in view of the decision of this court in Commissioner of Gift-tax Vs. Gopal Srinivasan,

(Appex.), the provision for gratuity should be taken as ascertained liability and should be taken for the purpose of determining the break-up value

of shares. Accordingly, we answer the second question of law in the affirmative and against the Department.

Since we are holding that the Tribunal was not correct in taking into account the balance-sheet as on March 31, 1973, for determining the value

of shares, we are of the opinion that it is not necessary to render any answer to questions Nos. 3 to 5 as the answer to the questions would depend

upon the decision to be rendered by the Tribunal on the first question. The same mode was also adopted by this court in Commissioner of Gift-tax

Vs. Gopal Srinivasan, (Appex.), wherein this court considered five identical questions and has not rendered any answer to questions Nos. 3 to 5,

but directed the Appellate Tribunal to consider the value of the shares on the basis of the decision in Commissioner of Gift-tax Vs. Venu

Srinivasan, , i.e., to determine the value of shares on the basis of the balance-sheet nearer to the date of the gift. Since we are holding that the

Tribunal was not correct in taking into account the balance-sheet as on March 31, 1973, for the purpose of valuation of the shares, the appropriate

course would be not to render any answer to questions Nos. 3 to 5, but for the final determination of the value of the shares to be made by the

Tribunal on the first question. In this view of the matter, we answer the questions of law referred to us as under :

First question : It is answered in the negative and in favour of the Department.

Second question : It is answered in the affirmative and against the Department.

Questions Nos 3 to 5 : No answer is provided as the answer to those questions would depend upon the decision

to be rendered by the Tribunal on the first question.