The main legal point established in the judgment is that the valuation of unquoted shares for gift tax purposes should be based on the price they would fetch if sold in the open market, and in the absence of specific rules under the Gift Tax Act, the principles of valuation under the Wealth Tax Rules should be adopted.

1. The assessee. who was a Director of Malayala Manorama Company Limited. gifted 1940 shares of the face value of Rs. 10/- each in that company to one Sri. Jacob Mathew on 1-2-1972. The assessee filed the return giving the value of the gifted shares as Rs. 19.400/- It was his case before the Gift Tax Officer that there were no willing buyers in the market for purchasing those shares since the Central Government had introduced a Bill for diffusion of ownership in newspaper industry which sought to limit the holdings of a Director and his relations to 5 per cent of the total share capital. The Gift Tax Officer. however. held that there was no valid basis for estimating the value of the shares at their face value. Noticing the value of the assets of the Company. the Gift Tax Officer determined the value of the gifted shares as Rs. 73.089/- at the rate of Rs. 40.25 per share. that being the value arrived at on the basis of the last Balance Sheet. Determining the taxable turnover to be Rs. 73.000/- by his order dated 30-11-1973. the Gift Tax Officer levied a tax of Rs. 7464. Annexure A is a copy of that order. Annexure B is the copy of the memorandum of the grounds of appeal before the Appellate Assistant Commissioner who by order dated 30-3-1974. a true copy of which is Annexure C. allowed the appeal substantially by determining the value of the gifted shares at Rs. 12.50 per share holding that there was some force in the argument of the assessee that the shares had not been listed in the stock exchange and were not easily saleable. It was also noted by the Appellate Assistant Commissioner that the company had been declaring 10 per cent dividend on the equity shares On appeal by the Revenue. the Appellate Tribunal determined the value of the gifted shares at Rs. 30/- per share. Annexure D is a copy of the memorandum of appeal before the Tribunal and Annexure F is the copy of the order of the Tribunal dated 28-2-1976. The Tribunal taking due notice of the news reports published in "The Hindu" dated 19-8-1971.30-8-1971 and 6-9-1971 and by the Malayala Manorama dated 20-10-1971. true copies of which are Annexures E. El. E2 and E3 respectively. and the statement made by the responsible Ministers of the Central Government that steps were being taken to have an enactment passed by Parliament for diffusing the ownership in newspaper industry and the Prime Minister had also expressed full faith in the objectives of the Bill. thought that by the provisions of the proposed legislation a structural change in the management and capital was sought to be brought about by limiting the maximum share holdings of an individual to 5 per cent with a view to bring about the workers' participation in the industry. After having considered this and other salient features of the proposed legislation. the Tribunal took the view that the legislation under contemplation had the effect of depressing the value of the shares and accordingly held that it would be proper to fix the value of the gifted shares at Rs. 30/- per share. It is aggrieved by Annexure F order of the Tribunal dated 28th February. 1976 an application for reference of the question of law involved was made before the Tribunal by the Revenue. The Tribunal having rejected the reference application at the instance of the Revenue by order dated 21-8-1976. a copy of which is Annexure H. the Commissioner of Gift Tax filed O. P. No. 5580 of 1976-L before this Court and as per judgment dated 20th December. 1978. a copy of which is Annexure I. this Court directed the following questions of law to be referred to this Court under S.26(3) of the Gift Tax Act. Accordingly. the Income Tax Appellate Tribunal. Cochin Bench. has drawn up a case and referred the following questions of law for our judgment and thus the reference is now before us:

1. "Whether. on the facts and in the circumstances of the case and in view of the provisions in R.1-D of the Wealth Tax Rules. 1957. the Appellate Tribunal i