R.V. Easwar, Judicial Member - (1.) IN the only ground, the Revenue in this appeal questions the order of the CIT (A) directing the Gift-tax Officer to apply the profit earning method in valuing the shares that were the subject matter of gift by the assessee.
(2.) The assessee is an individual. She made a gift of 100 fully paid equity shares of M/s. Metroark Pvt. Ltd. to her son Sri Soumitra Ranjan Mukherjee on 22-2-1983. The gift was supported by a deed dated the same day. The face value of the shares was Rs. 1,000 each. In the return, the market value of each share was shown at Rs. 1,500. The assessee explained before the Gift-tax Officer that the value declared by her in the return was based on the profit earning method or the yield method which would be the proper basis of valuation in the case of shares which are not quoted in the market and cannot be sold in the open market. The valuation was sought to be supported by the report of a registered valuer. Apparently, on the insistence of the Gift-tax Officer, the assessee had also furnished the value of the shares on the basis of the break-up method. The Gift-tax Officer took the view that the yield method or the profit earning method of valuation has to be adopted only in respect of shares of an investment company. Since the company, namely, M/s. Metroark Pvt. Ltd. was not an investment company, he held that the yield method cannot, be applied and that the break-up value method has embodied in Rule 1D of the Wealth-tax Rules alone was applicable. Accordingly, he adopted the value of each share at Rs. 3,985. The total value of the gift was thus taken at Rs. 3,98,500.
(3.) THE assessees questioned the basis of valuation in appeal before the CIT (A). It was contended that since the shares were those of a Pvt. Ltd. Co., which were subject to restrictions on sale thereof, the proper method of valuation was the profit earning method or the yield method. THE judgment of the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621 was relied upon. THE CIT (A) accepted the contention of the assessee. He referred to the judgment of the Supreme Court in CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38 and held that since the shares were not quoted in the open market, they have to be valued only on the basis of the profit earning or yield method. He directed the Gift-tax Officer accordingly.;