D.N.Sinha, J. - (1.) The facts in this case are shortly as follows: On or about the 8th August, 1957 the petitioner, Kastur Chand Jain, made a gift of 250 shares of the face value of Rs. 100/- each, of R. McDill and Go. (Private) Ltd. and 100 shares of the face value of Rs. 100/- each, of Misrilall Dharamchand (Private) Ltd., belonging to him, to has daughter, Sm. Padmawati Debi. On or about the 28th July, 1959 the petitioner submitted a voluntary return of Rs. 35,000/- to the respondent No. 1, Gift Tax Officer 'K'--Ward, Dist. III(2) in respect of the aforesaid gift. The return was made on the basis of what the petitioner considered to be the face value of the said shares on the date of the gift. On the 24th February, 1960 the respondent No. 1 made an assessment order, whereby he has calculated the value of 250 shares of R. McDill and Co., (Private) Ltd. to be Rs. 1,83,781/- and the value of 100 shares of Misrilall Dharamchand (Private) Ltd. as Rs. 84,722/-. After granting the statutory exemption of Rs. 10,000/- the taxable amount has been ascertained as Rs. 2,68,503/- and the total tax payable as Rs. 21,020.36 nP. The assessment was done under Section 15(3) of the Gift Tax Act. On the face of the assessment order, it has been stated that the calculation was made on the basis of the latest balance-sheets available for these two Private Ltd. Companies, relevant to the date of the gift, namely the 8th August, 1957, i.e., for the year ending 31st July, 1957; copies of the balance-sheet are Ex. B to the petition. Apart from the fact that it has been stated in the assessment order, which is Exhibit A to the petition, that the calculation has been made on the basis of the balance-sheets, no further details have been given. On the 19th April, 1960 the petitioner was served with a notice of demand under Section 31 of the Gift Tax Act. Thereafter, this application has been made. It has been stated in the petition that the valuation has been made without disclosing the method of valuation, is arbitrary and should be set aside. Indeed, on the face of the assessment order, it is impossible to say what method has been followed, and although reference is made to the balance-sheets, the method is not ascertainable. At the first hearing of this application on the 18th November, 1960, learned counsel for the respondents made an elaborate argument to support the valuation made in the assessment order. As it was very difficult to follow this argument, I directed the respondents to file a competent affidavit setting out the method of computation by which the value of the shares have been arrived at, in the assessment order. Such an affidavit has now been filed by Joseph, Joseph Therattil, the Gift Tax Officer, 'K'-Ward, Dist. III(2), Calcutta, affirmed on the 26th November, 1960. Before I proceed to deal with the said affidavit, I must refer to an earlier affidavit of the said deponent, affirmed on the 13th July, 1960 in which it was stated as follows: "I say that Rule 10(2) of the Gift Tax Rules, 1958, has been duly followed in the valuation of the said shares. The said two companies namely, R. McDill and Co., (Private) Ltd. and Misrilall Dharamchand (Private) Ltd., are both Private Limited Companies and their shares are not sold fin the open market or reported in the Official Stock Exchange Quotation. The face value of the shares of these two companies therefore did not bear any relation to the actual value of the shares and accordingly the valuation had to be made with reference to the total assets of the company on the date of the gift. The assessment records of Wealth-tax for the said two companies were there fore consulted and on the basis of the wealth of these two companies as computed therein the value of each share of the said two companies was arrived at."
(2.) The really important thing to note in the above statement is that the computation was made according to the Wealth-tax assessment of the said two companies, that is to say, the valuation has been made in accordance with the Wealth Tax Act. (3) Coming now to the second affidavit, we find that the method of calculation has been set out in detail. Paragraph 6 states how the valuation of the shares of Misrilall Dharamchand Private Ltd., was arrived at. Briefly speaking, the method is as follows: The total wealth as shown in the asset side of the balance-sheet was first taken, namely Rs. 14,49,954/-. From this was deducted the Advance payment of income-tax and liabilities appearing on the liabilities side, but the amounts under the headings "proposed dividend" and "provision for taxation" were not deducted. It is stated that these two items are not in law deductible liabilities for the purpose of the computation of assets. In paragraph 7, it is admitted that the method of computation followed is in accordance with the wealth-tax assessment of the company for the assessment year 1958-59. In other words, it has been made in accordance with the provisions of the Wealth-tax Act and the net wealth of the company has been computed as Rs. 8,21,801. The number of shares of the company, as on the 31st July, 1957 was 770 ordinary shares. Thus, the value of each share was calculated as the net wealth of the company divided by the number of shares, which works out at Rs. 847.127 per share. The valuation of the shares in Messrs. R. McDill and Co. (Private) Ltd., have been computed, in the manner described in paragraph 8. It has been done in the same manner, that is" to say, the amounts on the liabilities side under the headings "proposed dividend" (Rs. 3,75,000) and "provision for taxation" (Rs. 13,85,000/0 were not deducted on the ground that they are in law, not deductible liabilities. It is admitted that this computation is also in accordance with the Wealth-tax assessment of the company for the assessment year 1958-59. The copies of the Wealth-tax assessments have been annexed to the petition and marked as Exhibit "A". There is no dispute as to figures.
(3.) The point taken by Mr. Choudhury appearing on behalf of the petitioner is that the entire computation is wrong because the computation under the Gift-tax Act has been made according to the provisions of the Wealth-tax Act, although the method of computation under the two Acts are entirely different.;