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1961 Supreme(Cal) 45
HIGH COURT OF CALCUTTA
D. N. Sinha
KASTUR CHAND JAIN - Appellant
Versus
GIFT TAX OFFICER k WARD, DIST. III (2) - Respondent
Matter 128 Of 1960
Decided On : MARCH 16, 1961
The valuation of shares under the Gift Tax Act should be done based on the value they would fetch in the open market, considering all liabilities, including proposed dividend and provision for taxation, and not based on the method of computation under the Wealth Tax Act.
Headnote:
GIFT TAX - VALUATION OF SHARES - GIFT TAX ACT, 1958, SECTIONS 3, 5, 6, 15(3) - GIFT TAX RULES, 1958, RULE 10(2) - WEALTH TAX ACT, 1957, SECTION 3, 2(m) - COMPANIES ACT, 1956, SCHEDULE VI PART I - INTERPRETATION OF 'LIABILITIES' AND 'DEBTS' - METHOD OF COMPUTATION OF VALUE OF SHARES UNDER GIFT TAX ACT AND WEALTH TAX ACT - DISTINCTION - ERRONEOUS CALCULATION OF VALUE OF SHARES UNDER GIFT TAX ACT BASED ON WEALTH TAX ACT - ASSESSMENT ORDER QUASHED.
Fact of the Case:
The petitioner gifted 250 shares of R. Mcdill and Co. (Private) Ltd. and 100 shares of Misrilall Dharamchand (Private) Ltd. to his daughter. He submitted a voluntary return of Rs. 35,000/- under the Gift Tax Act, based on the face value of the shares. The Gift Tax Officer made an assessment order, valuing the shares at Rs. 1,83,781/- and Rs. 84,722/- respectively, after granting an exemption of Rs. 10,000/-. The petitioner challenged the assessment, arguing that the valuation was arbitrary and not disclosed in the assessment order.
Finding of the Court:
The court found that the valuation of the shares was done based on the balance sheets of the companies, but the method of computation was not disclosed in the assessment order. The Gift Tax Officer filed an affidavit explaining the method of computation, which was in accordance with the Wealth Tax Act. The court held that this method was erroneous as the computation under the Gift Tax Act should be based on the value of the shares in the open market, considering all liabilities, including proposed dividend and provision for taxation.
Issues: 1. Whether the valuation of shares under the Gift Tax Act was done correctly in accordance with the provisions of the Act and the Rules. 2. Whether the method of computation under the Wealth Tax Act can be applied to determine the value of shares under the Gift Tax Act.
Ratio Decidendi: 1. The court interpreted the provisions of the Gift Tax Act, Sections 3, 5, 6, and 15(3), and Rule 10(2) of the Gift Tax Rules, 1958, and held that the value of shares should be estimated based on the price they would fetch in the open market on the date of the gift, considering all liabilities, including proposed dividend and provision for taxation. 2. The court distinguished the method of computation under the Wealth Tax Act, Section 3 and 2(m), from that under the Gift Tax Act, and held that the two Acts have different schemes of computation. Under the Gift Tax Act, liabilities are considered, while under the Wealth Tax Act, only debts are considered.
Final Decision: The court quashed the assessment order and directed the respondents not to give effect to it. It also issued a writ of mandamus directing the respondents to make a fresh assessment in accordance with law, after giving notice to the petitioner.
( 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
