Case: S. Viji Vs. Commissioner Of Gift Tax

2. The assessment year involved is 1973-74. The dispute relates to valuation of unquoted 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

Court's reasoning:
6. We are in agreement with this approach of the Madras High Court. In the instant case, the balance-sheetas on 31-3-1972give the picture of the value of the various assets of the Company up to that date. The Company may have flourished thereafter and the value of the assets 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 course, 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 value of the assets will have to be ignored. But the basis of the valuation will have to be the balance-sheet as onWe 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 31-3-1973 the balance-sheet as on 31-3-1973 should be taken as the basis for ascertaining the break-up value of the28-3-1973. 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.