SUHAS CHANDRA SEN, J. - (1.) THE Tribunal has referred the following question of law to this Court under s. 256(1) of the IT Act r/w s. 26(1) of the GT Act, 1958 : "1. Whether, on the facts and in the circumstances of the case and having regard to the fact that as per cl. (3) of the Articles of Association of M/s East India Commercial Company (P) Ltd. no intimation can be issued to the public to subscribe for any share of the aforesaid company, the Tribunal was justified in law in holding that the shares of the said company were freely transferrable and in that view in directing that in terms of the provisions of r. 10(2) of the GT Rules the value of shares of the aforesaid company should not be computed by reference to the value of the total assets of the company i.e. break-up value method ? 2. Whether, on the facts and in the circumstances of the case and on a correct interpretation of cl. (3) of the Articles of Association of M/s East India Commercial Co. (P) Ltd. the Tribunal was justified in law in upholding the decision of the CGT(A) that the restriction on the alienation of shares of the aforesaid company cannot be equated with the restriction as mentioned in r. 10(2) of the GT Rules and in that view holding that the fair market value of the shares of the aforesaid company as on the date of transfer should be determined on yield basis instead of break-up of value basis ?"
(2.) THE year of assessment is 1979-80 for which the accounting period was year ended 31st Dec., 1978. The dispute is about to the valuation of shares of M/s East India Commercial Co. (P) Ltd. The Tribunal has adopted the yield method of valuation by following the decision of the Supreme Court in the case of the CWT vs. Mahadeo Jalan and Ors. 1972 CTR (SC) 395 : (1972) 86 ITR 621 (SC). This judgment has been followed by the Supreme Court in two other cases CIT vs. Kalyanji and Co. (1980) 15 CTR (SC) 154 : (1980) 122 ITR 49 (SC) and CIT vs. Executors and Trustees to the estate of Late Sh. Ambalal Sarabhai (1988) 67 CTR (SC) 247 : (1988) 170 ITR 144 (SC) : TC36R.415 where the principles laid down in Mahadeo Jalan's case (supra) were reiterated. Mr. Mitra on behalf of the Revenue has sought to argue that the mode of valuation in the instant case must be different because r. 10(2) of the GT Rules, 1958 specifically provides how the shares are to be valued where right to transfer of the share was restricted. This argument was specifically made before the Tribunal and was rejected by the Tribunal. The CGT(A) also dealt with the question and held, after examination of the Articles of Association of the assessee-company, that there was no restriction in the matter of transfer of shares. The right was restricted only in the sense that the number of members of the company was limited to 50. On appeal the Tribunal held that the CGT(A) was justified in holding that the shares in question were fully transferrable and that the yield method was the normal method of valuation which could be adopted to arrive at the fair market value of the shares.
(3.) THE Tribunal has rightly pointed out that there was no restriction on the right to transfer the shares imposed by the Articles of Association in any way. What the Articles of Association had done was only to restrict the membership of the company to 50 and to restrict the public issue of shares but the shareholder was otherwise free to transfer the shares. In that view of the matter, both the questions are answered in the affirmative and in favour of the assessee.;