Judgement

VENKATACHALIAH, J. : - This appeal, by certificate, by the Commissioner of Income-tax, Gujarat, directed against the order dated, 10-10-1974 of the Gujarat High Court in Gift Tax Ref. No. 1of 1973 : (reported in (1975) 39 Taxation 7) raises a question touching the correct principles of valuation of certain shares constituting the subject-matter of a gift, held in a company incorporated in the United Kingdom analogous to a private limited company in India.

2. Shri Ambalal Sarabhai, since deceased, held 480 shares in an English Company M/s. Bakubhai & Ambalal Ltd., London, the share capital of which consisted of 2000 shares of £ 10/- each. On 17-10-1964, under eight deeds of gift, the said Ambalal Sarabhai made gifts of the said 480 shares to certain members of his family. In the proceedings of the assessment to gift-tax respecting said gifts the question of the proper basis for determination of the value of the gift having arisen, the assessee contended that, as the shares were not quoted in the stock-exchange, their value be determined on the average of break-up value indicated by the balance-sheets of the Company as on 31-3-1964 and 31-3-1965, the former figure was Rs. 507 and the latter Rs. 333 per share; the average of the two being Rs. 420 per share.

The assessee also contended that in view of the decision of the General Body of the company, dated, 4-10-1961 to increase its share-capital by issue of additional 2000 shares at £10 each, the value of the shares constituting the subject-matter of the gifts which were transferred "ex-right" would stand depreciated.

The Gift Tax Officer did not accept the contentions of the assessee. He proceeded to value the shares at Rs. 507 per share on the basis of the break-up value yielded by and deducible from the balance-sheet as on 31-3-1964. The Appellate Assistant Commissioner dismissed the assessees appeal. In the further appeal before the Income-tax Appellate Tribunal, the Tribunal, placing reliance on what it considered to be the principles of valuation appropriate to such cases said to be contained in Lynall v. I.R.C., (1972) 83 ITR 563 (H.L.) valued the shares at Rs. 450 each said to represent the break-up value on the basis of the balance-sheet of 31-3-1963. The Tribunal held that it could not take into consideration any other document except the published information which, in this case, was the balance-sheet as on 31-3-1963.

3. The Tribunal, at the instance of both the revenue and the assessee stated a case and referred three questions of law for the opinion of the High Court - the first two at the instance of the revenue and the third at the instance of the assessee. The assessee, it must be observed did not press the question referred at his instance and the High Court, accordingly, did not express any opinion on it. The two questions referred for the opinion of the High Court at the instance of the Revenue were :

(1) Whether on the facts and in circumstances of the case, the finding of the Tribunal based on the ratio of the case decided by the House of Lords in Lynall v. Inland Revenue Commissioner, (1972) 83 ITR 563 and basing the valuation of the shares of Bakubhai and Ambalal Ltd., London, on its balance-sheet as at 31-3-1963 instead of 31-3-1964 is bad in law ?

(2) Whether on the facts and in the circumstances of the case, the tribunal was right in law in accepting the valuation of the shares as returned by the assessee and deleting Rs. 27,360/- added by the Gift-tax Officer under Section 15(3) of the Act ?"

The High Court by its order, now under appeal, answered the questions against the revenue. It held :

"The only information which was available as on October 17, 1964 was in the form of the balance-sheet as of March 31, 1963 and hence the Tribunal was right when it took into consideration for the purpose of arriving at the value of the shares by the break-up method, the balance-sheet as of March 31, 1963 and not as the revenue was contending for the balance-sheet as