COMMISSIONER OF GIFT TAX, GUJARAT versus EXECUTORS & TRUSTEES OF THE ESTATE OF LATE SH. AMBALAL SARABHAI, AHMEDABAD

Citation: [1988] 2 S.C.R. 341 · Decided: 11-12-1987 · Supreme Court of India · Bench: S. NATARAJAN · Disposal: Disposed off

Judgment (excerpt)

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COMMISSIONER OF GIFT TAX, GUJARAT 
v. 
EXECUTORS & TRUSTEES OF THE ESTATE OF 
LATE SH. AMBALAL SARABHAI, AHMEDABAD 
DECEMBER 11, 1987 
[S. NATARAJAN AND M.N. VENKATACHALIAH, JJ.] 
Gift Tax Act, 1958: Section 15(3)-Gift of shares-Correct-
Principles of valuation-Whether a question of law-Shares not quoted 
on stock exchange-What is the method of valuation applicable to. 
The assessee contended in the gift tax assessment proceedings that 
the 480 shares in the English Company acquired as gift were not quoted 
in the stock exchange, that their value be determined ou the average 
break-up value indicated by the balance sheets of the Company as on 
31.3.1964 and 31.3.1965, and that in view of the decision of the General 
Body of the Company dated 4.10.1961 to increase its share capital by 
issue of additional shares the value of the sh~res constituting the subject 
matter of the gifts which were transferred "ex-right" would stand 
depreciated. 
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The Gift Tax Officer valued the shares on the basis of the break· 
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up value yielded by and deducible from the balance sheet as on 
31.3.1964. The Appellate Assistant Commissioner dismissed the asses· 
see's appeal. 
In the further appeal before the Income-tax Appellate Tribunal, 
the Tribunal, relying on the ratio laid down in the English Case, Lynall 
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and another, v. Inland Revenue Commissioner, 83 l.T.R. 563 valued 
the shares at Rs.450 each, said to represent the break-up value on the 
basis of the balance sheet of 31.3.1963, holding that it could not take 
into consideration any other document except the published informa-
tion, which was the aforesaid balance sheet. 
The Tribunal stated a case and referred the matter to the High 
Court, for its opinion. The High Court held that since the only informa· 
lion which was available on the date of the gifts was in the form of the 
balance sheet as of March 31, 1963, the Tribunal was right in taking the 
same into consideration, for the purpose of arriving at the value of the 
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shares by the 'break-up' method. 
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341 
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SUPREME COURT REPORTS 
[ 1988] 2 S.C.R. 
In the appeal to this Court it was contended on behalf of the 
Revenue that the principle of valuation relied upon by the High Court 
was erroneous, and that the case was covered by the decisions of this 
Court in Commissioner of Wealth Tax, Assam v. Mahadeo Jalan & 
Ors., 86 ITR 621 and Commissioner of Gift-Tax, Bombay v. Smt. 
Kusumben D. Mahadevia, 122 ITR 38. 
On behalf of the assessee it was urged that in view of the consensus 
between the parties as to the basis of valuation, it was not now open to 
the Revenue to urge the application of an altogether different principle. 
Disposing of the appeal, 
HELD: !. The correct principle of valuation applicable to a 
given case is a question of law. The parties can agree upon a principle 
permissible and recognised by law. If two or more alternative principles 
are equally valid and available it might be permissible for the parties to 
agree upon one of the alternative modes of valuation in preference to 
D another. [346G-HJ 
In the instant case, the Revenue cannot be precluded from urging 
the correct legal position. [347A] 
2. When the shares in a public limited company are not quoted 
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on the stock exchange, or are in a private limited company the 
proper method of valuation to be adopted would be the profit earning 
mrthod. [3-'6B-C] 
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Commissioner of Gift-Tax. Bombay v. Smt. Kusumben D. Maha-
devia, 122 ITR 38, relied upon. 
Commissioner of Wealth Tax, Assam v. Mahadeo Jalan & Ors., 
86 ITR 62 i and Williams Jin Mc. Cathie v. Federal Commissioner of 
Taxation, 69 C. L.R. I, referred to. 
In the instant case, the view of the High Court as to the principle 
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of valuation in determining the value of the kinds of shares concerned 
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cannot be held to be correct. As a logical consequence, the Tribunal 
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would have to go through, over again, the exercise of determination of 
the value of the shares adopting the correct principle. But, having 
regard to the fact that the matter is already two and a half decades old, 
and that the magnitude of the mechanism for the re-fixation of the value 
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of the gifts by adopting the somewhat intricate process inherent in the 
COMMR. OFG!Ff TAX v. I.ATE SH AMBALAL [VENKATACHALIAll . .1 I .111 
"profit method" of valuation, and the difference in the quantum of ta., 
that might result in, do not bear a reasonable or sensible prop

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