Law:

Section:

Section 28(1) of Gift-tax Act, 1958 read with rule 10(2) of Gift-tax Rules, 1958 - Gift-tax - Valuation of unquoted shares - In respect of gift of shares of a company made by assessee to his son - GTO found that these shares were not quoted in stock exchange - Held, yes - Valued these shares on break-up value method in which liabilities were deducted from total cost of assets available on balance-sheet without deducting liability for income-tax - In balance-sheet of company no provision for deduction of income-tax was made - Whether taxation liability of company, either ascertained by assessment or being ascertainable on basis of provisions of relevant Finance Act, would be allowable as a deduction in computing break up value of shares of company. - Held, yes [Matter remanded for fresh disposal] FACTS The assessee made a gift of shares of a company to his son and valued those shares at their face value. The GTO having found that the shares were not quoted in the stock exchange, valued those shares on the break-up value method on the basis of the latest balance-sheet of the company. He deducted liabilities from cost of assets and arrived at net wealth which was divided by total number of shares to arrive at cost of each share. In appeal before the AAC the assessee extended that the income-tax liabilities of the company was to be deducted from the value of the assets. The AAC rejected the claim on the ground that the amount was neither paid nor charged as a liability by creating a taxation reserve in the balance-sheet. On second appeal, the Tribunal accepted the assessee's claim, holding that the liability to taxation must be allowed as a deduction in computing the break-up value. On reference : HELD It was for the assessee to satisfy the taxing authorities that the estimates made in regard to certain items had turned out to be wrong and placing the actual figures before the authorities for the rectification of such estimates. It was for the company to satisfy the taxing authorities as to the reasonableness of the provisions it had made. If no provisions were at all made, then also it would be for the assessee to satisfy the taxing authorities as to the…

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