Law:

Section:

Section 6 of the Gift-tax Act, 1958, read with rule 10 of the Gift-tax Rules, 1958 – Valuation of Gift – Assessment years 1971-72 and 1973-74 – Whether when there are restrictions in articles of association of company, value of shares that would fetch in open market as ascertained disregarding those restrictions will have to be reduced because in reality shares would not fetch that much of money when transferred – Held, yes FACTS The assessee held certain shares in a private limited company. It valued said shares on the basis of the value shown in the relevant balance-sheets of the company minus 15 per cent because of the restrictions regarding the transfer of said shares in the open market, and filed her gift-tax returns. Thereafter, the assessee further reduced the value on the basis of issue of dividend by the company. The Tribunal accepted the said valuation. On reference : HELD What section 6 speaks of is that the value should be estimated to be the price which, in the opinion of the Gift-tax Officer, the shares would fetch if sold in the open market on the date on which the gift was made. The fact that the company was a private limited company and that there was not the freedom to deal with the shares held in such a company would not affect the question as to the possible value the shares would fetch had they been sold in the open market on the date of the gift, for the principle has been laid down that even in such cases, it should be assumed that the shares were capable of being sold freely in open market and that there would be purchasers for the same. It may often be difficult to find out the value which a share would fetch if sold in open market, which can be termed to be the market value of the share. In such cases, it is not as though the Gift-tax Officer is helpless. In such circumstances, GTO can take the value of the shares as shown in the balance sheet which is based on the break up figures and such value shown in the balance-sheet which is in existence at the time of the gift can very well be taken to be the market value of the shares. The further question would then arise when any adjustment by way of depreciation will have to be made from…

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