Commissioner of Gift Tax vs Executor to the Estate of Late H.M. Birla

Ajit K. Sengupta, J.—In this reference u/s 26(1) of the Gift-tax Act, 1958 (''the Act'') for the assessment year 1981 -82 the following questions of law have been raised:

Whether the Tribunal was justified in law in holding that the provision of rule 1D of the Wealth-tax Rules, 1957 is directory and not mandatory?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the Gift-tax Officer to accept the valuation of the unquoted shares, made by the assessee''s approved valuer on yield basis, without adopting the valuation on the basis of the break-up value of the shares as per rule 1D of the Wealth tax Rules, 1957 ?

Shortly stated, the facts are that the assessee, Shri G.P. Birla, Executor to the Estate of Late B.N. Birla, filed a gift-tax return for the assessment year 1981-82 on 26-6-1981 showing a taxable gift of Rs. 9,84,280. As per revised computation of taxable gifts filed by the assessee the value of 200 shares of Birla Bros. (P.) Ltd. was shown at Rs. 955.55 per share as per valuer''s report dated 31-3-1981. The GTO, however, determined the value of the shares at Rs. 1,260.06 per share by adopting the break-up value method as per rule 1D of the Wealth-tax Rules, 1957.

The assessee filed an appeal before the Commissioner (Appeals) who directed the GTO to accept the valuation of the shares of Birla Bros. (P.) Ltd. as shown by the assessee.

Against the order of the Commissioner (Appeals) the department came up in appeal before the Tribunal. It was contended on behalf of the department that rule 1D of the Wealth-tax Rules is mandatory and that the GTO was fully justified in determining the valuation of the shares of Birla Bros. (P.) Ltd. by adopting the break-up value method as prescribed under rule 1D.

The Tribunal following its earlier decisions in the case of Smt. Manarama Devi Birla and in the case of Administrator to the Estate of B.M. Birla (deceased), held that rule 1D is directory and not mandatory. The Tribunal pointed out that the valuation of shares was disclosed by the assessee on the basis of the report of the approved valuer. It was not disputed that the approved valuer determined the valuation of the shares by adopting yield method. The Tribunal found that the valuation determined by the approved valuer and disclosed by the assessee is in accordance with the principles laid down by the Supreme Court in the case of Commissioner of Gift Tax, Bombay Vs. Smt. Kusumben D. Mahadevia, It was held that the Commissioner (Appeals) was justified in directing the ITO to accept the valuation of shares of Birla Bros. (P.) Ltd. as disclosed by the assessee.

The main controversy decided by the Tribunal in this case was whether rule 1D is directory or mandatory. On these facts the following question of law has been referred to this Court:

Whether, the Tribunal was justified in law in holding that the provision of rule 1D of the Wealth-tax Rules, 1957, is directory and not mandatory ?

In view of the decision of this Court in CWT v. Indian Exchange Traders Association [Matter No. 149 of 1987, dated 21-8-1991] this question has to be answered in the negative and in favour of the revenue. But the matter will not rest there. The Tribunal has to dispose of the matter afresh inasmuch as the question of application of rule 1D did not arise at all in this case as the valuation was to be made in terms of the relevant Gift-tax Rules, 1958. The Supreme Court in CGT v. Executors and Trustees of the Estate of the Late Shri Ambalal Sarabhai, (1988) 170 ITR 144 (SC) considered a similar case under the Act and held that the valuation under the Act has to be made on the basis of the yield method having regard to the rules containing an alternative method of valuation. In our view, therefore, since the Tribunal only adverted to the question whether rule 1D is mandatory or directory, the Tribunal will dispose of the matter afresh in the light of the relevant decision(s) of the Supreme Court.

There will be no order as to costs.

Sen, J. -

I agree.