DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II versus M/S BPL LIMITED on 13 October 2022

SUPREME COURT REPORTS

[2022] 14 S.C.R.

ADEPUTY COMMISSIONER OF GIFT TAX,CENTRAL CIRCLE-II

v.

M/S BPL LIMITED

(Civil Appeal No. 3265 of 2016)

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OCTOBER 13, 2022

[SANJIV KHANNA AND J. K. MAHESHWARI, JJ.]

Gift Tax Act, 1958 – ss.4, 6 and Schedule II – Wealth TaxAct,1957 – Schedule III, Part A r.2(9) & r.2(11); Part C, rr.9 & 11;Cand Part H, r.21 – “Quoted” shares and “unquoted” shares – Equityshares in lock-in-period – Valuation of – Respondent-assessee gifted29,46,500 shares of M/s. BPL Sanyo Technologies Limited and69,49,900 shares of M/s. BPL Sanyo Utilities and Appliances Limitedto M/s. Celestial Finance Limited –Shares of M/s. BPL SanyoDTechnologies Limited and M/s. BPL Sanyo Utilities and AppliancesLimited, both public limited companies, were listed and quoted onthe stock exchanges – However, these gifted shares being promoterquota shares were under a lock-in period up to 16th November1993 and 25th May 1994 respectively – In the impugned judgment,the High Court observed that the equity shares under the lock-inEperiod were not ‘quoted shares’ – A general circular issued by SEBIhowever stated that shares under the lock-in period can betransferred inter se the promoters – Issue whether such restrictedtransfer would convert the equity shares in the lock-in-period into‘quoted shares’ as defined vide sub-rule (9) to r.2 of Part A ofFSchedule III of the W.T. Act – Answering in negative, the Courtheld: The restricted transfer would not make the equity shares inthe lock-in period into “quoted shares” as the lock-in shares arenot quoted in any recognised stock exchange with regularity fromtime to time and it is not possible to have quotations based uponcurrent transactions made in the ordinary course of business – TheGshares in question being “unquoted shares” have to be valued interms of r.11 of Part C of Schedule III of the W.T. Act as a standalonevaluation method – This would be in accord with sub-section (1) tos.6 of the G.T. Act, which states that the value of a property, otherthan cash, transferred by way of gift, shall be valued on the dateHon which the gift was made and shall be determined in the manner938

as laid down in Schedule II of the G.T. Act, which makes theprovisions of Schedule III of the W.T. Act applicable – Valuationcannot ignore the limitations attached to the shares – r.21 of Part Hof Schedule III of the W.T. Act permits valuation and ascertainmentof the market value as per provisions of Schedule III of the W.T.Act, but does not state that valuation will be done by disregardingthe restrictions, or by enhancing the rights which have beentransferred, or by revaluation of the asset when provisions ofSchedule III are invoked for purpose of valuation of an asset underthe W.T. Act.

Shares and Securities – Wealth Tax Act,1957 – Explanationto r.2(9) of Part A, Schedule III – Effect of – Held: Explanation tor.2(9) of Part A, Schedule III of the W.T. Act does not prohibit theauthority, tribunal or the court from examining whether a particularshare, be it equity or preference share, is a “quoted share” or an“unquoted share” in terms of sub-rules (9) and (11) of r.2 of Part Aof Schedule III of the W.T. Act – This right which is conferred on theauthorities under the W.T. Act or the G.T. Act is not delegated to thestock exchange – A decision of the authority is however amenableand can be examined when challenged in an appeal – Gift Tax Act,1958.

Dismissing the appeals, the Court

Conclusion

Dismissing the appeals, the Court

HELD:1.1. As per the provisions of the Gift Tax Act, 1958, as it was applicable on the date on which the gift was made, gifttax at the applicable rate is chargeable on the value of the taxablegift. Sub-section (1)(a) to Section 43 of the G.T. Act states thatwhere a property is transferred otherwise than for adequateconsideration, the amount by which the market value of theproperty, at the date of the transfer, exceeds the value of theconsideration, shall be deemed to be a gift made by the transferor.Sub-section (1) to Section 64 of the G.T. Act states that the valueof any property, other than cash, which is transferred by way ofgift, shall be its value on the date on which the gift was made andshall be determined in the manner as laid down in Schedule II ofthe G.T. Act. Sub-section (1) to Section 6 is subject to theprovisions of sub-section (2) to Section 6 of the G.T. Act, whichsub-section need not be elucidated as it is not applicable in thecontext of the present case. It is an accepted position that the AB

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Amachinery provision relating to the method of valuation inSchedule II of the G.T. Act is mandatory and cannot bedeviated.[Para 2][944-F-G; 945-A-C]

1.2. Schedule II to the G.T. Act, which incorporates the rulesfor determining the value of a gifted property, states that theBvalue of any property, other than cash, transferred by way of gift,subject to the modifications as stated, shall be determined inaccordance with the provisions of Schedule III of the Wealth TaxAct, 1957. Therefore, the provisions of Part C of Schedule III ofthe W.T. Act, which lays down the method of valuation of sharesand debentures of a company, are required to be referred to andCapplied. For purpose of the present decision, Rules 9 and 11 ofPart C of Schedule III of the W.T. Act, which relate to the valuationof quoted shares and debentures of companies and valuation ofunquoted equity shares in companies other than investmentcompanies respectively, are required to be interpreted. [ParaD3][945-C-E]

2.1. The expressions “quoted share” and “quoteddebentures”, and “unquoted shares” and “unquoted debentures”have been defined vide sub-rules (9) and (11), respectively, toRule 2 of Part A of Schedule III of the W.T. Act. As per theEdefinitions, the expression “quoted share” in case of an equityshare means a share which is quoted on any recognised stockexchange with regularity from time to time and where thequotation of such shares is based on current transactions madein the ordinary course of business. Explanation to sub-rule (9) ofRule 2 of Part A of Schedule III of the W.T. Act states that whenFa question arises on whether a share is a quoted share within themeaning of the rule, a certificate to that effect furnished by theconcerned stock exchange in the prescribed form shall beaccepted as conclusive. The expression “unquoted share”, inrelation to an equity share, means a share which is not a quotedGshare. [Para 4][947-E-F; 948-B-C]

2.2. When the equity shares are in a lock-in period, then asper the guidelines issued by the Securities and Exchange Boardof India (SEBI), there is a complete bar on transfer, which isenforced by inscribing the words “not transferable” in theHrelevant share certificates. This position is accepted by the Revenue, which, however, has relied upon a general circularissued by SEBI, wherein it is stated that the shares under thelock-in period can be transferred inter se the promoters. Thisrestricted transfer would not make the equity shares in the lock-in period into “quoted shares” as defined vide sub-rule (9) toRule 2 of Part A of Schedule III of the W.T. Act, as the lock-inshares are not quoted in any recognised stock exchange withregularity from time to time, and it is not possible to havequotations based upon current transactions made in the ordinarycourse of business. Possibility of transfer to promoters by privatetransfer/sale does not satisfy the conditions to be satisfied toregard the shares as quoted shares. [Para 6][948-F-H]

3. Rule 11 of Part C of Schedule III of the W.T. Act is astatutory rule which prescribes the method of valuation of“unquoted equity shares” in companies, other than investmentcompanies, which prescription and method of valuation ismandatory in nature. The effect of Rule 11 of Part C of ScheduleIII of the W.T. Act is that unquoted shares must be valued as perthe formula prescribed. No other method of valuation is permittedand allowed. [Para 7][949-C-D]

4. Equity shares which are quoted and transferable in thestock exchange are to be valued on the basis of the currenttransactions and quotations in the open market. The marketquotations would reflect the market value of the equity sharesthat are transferable in a stock exchange, but this market pricewould not reflect the true and correct market price of sharessuffering restrictions and bar on their transferability. The sharesin question would become transferable post the lock-in period.It is a fact that the market price fluctuates, and the share pricescan move up and down. Share prices do not remain static. Equally,the restriction or bar on transferability has an effect on the value/price of the shares. Easy and unrestricted marketability areimportant considerations that would normally impact valuation/price of a share. [Para 8][949-D-F]

5. In terms of the Rules, one cannot apply a hybrid methodof valuation while applying Rule 9 of Part C of Schedule III of theW.T. Act, which prescribes the method of valuation for quoted AB

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Ashares. Ad hoc depreciation/reduction from the quoted price ofequity shares transferable in the open market is not permittedand allowed vide Rule 9 of Part C of Schedule III of the W.T. Act.The shares in question being “unquoted shares”, therefore, haveto be valued in terms of Rule 11 as a standalone valuation method.This would be in accord with sub-section (1) to Section 6 of theBG.T. Act, which states that the value of a property, other thancash, transferred by way of gift, shall be valued on the date onwhich the gift was made and shall be determined in the manneras laid down in Schedule II of the G.T. Act, which makes theprovisions of Schedule III of the W.T. Act applicable. [Para 9][949-CG-H; 950-A-B]

6.1. Valuation cannot ignore the limitations attached to theshares. The shares in the lock-in period have market value, whichwould be the value that they would fetch if sold in the open market.Rule 21 of Part H of Schedule III of the W.T. Act permits valuationDof the property even when the right to transfer the property isforbidden, restricted or contingent. Rights and limitationsattached to the property form the ingredients in its value. Thepurpose is to assume that the property which is being valued isbeing sold, and not to ignore the limitations for the purpose ofvaluation. This is clear from the wording of Rule 21 of Part H ofESchedule III of the W.T. Act. [Para 13][953-F-G]

6.2. Rule 21 of Part H of Schedule III of the W.T. Act permitsvaluation and ascertainment of the market value as per theprovisions of Schedule III of the W.T. Act, but does not state thatthe valuation will be done by disregarding the restrictions, or byFenhancing the rights which have been transferred, or byrevaluation of the asset when provisions of Schedule III areinvoked for the purpose of valuation of an asset under the W.T.Act. [Para 14][954-D-E]

7. The certificate from the concerned stock exchange isGonly to state whether an equity share, preference share ordebenture, as the case may be, was quoted with the regularityfrom time to time and whether the quotations of such shares ordebentures are based on current transactions made in the ordinarycourse of business. The explanation to Rule 2(9) of Part A,H

Schedule III of the W.T. Act does not prohibit the authority,tribunal or the court from examining whether a particular share,be it equity or preference share, is a “quoted share” or an“unquoted share” in terms of sub-rules (9) and (11) of Rule 2 ofPart A of Schedule III of the W.T. Act. This right which is conferredon the authorities under the W.T. Act or the G.T. Act is notdelegated to the stock exchange. A decision of the authority isamenable and can be examined when challenged in an appeal.[Para 15][954-F-H]

R. Rathinasabapathy Chettiar v. Commissioner ofWealth-Tax, Madras (1974) 93 ITR 555 – approved.

Ahmed G.H. Ariff and Others v. Commissioner of WealthTax, Calcutta (1969) 2 SCC 471 and Purshottam N.Amarsay and Another v. Commissioner of Wealth Tax,Bombay (1972) 4 SCC 376 – relied on.

S.N. Wadiyar (Dead) through Legal Representative v.Commissioner of Wealth Tax, Karnataka (2015) 15SCC 38 : [2015] 9 SCR 1059 and Commissioner ofWealth Tax, Meerut v. Sharvan Kumar Swarup & Sons(1994) 6 SCC 623 : [1994] 3 Suppl. SCR 750 – referredto.

Commissioner of Wealth Tax, Chennai v. ShriThirupathy Kumar Khemka (2012) SCC OnLine Mad2562 and Commissioner of Income Tax, Chennai v.Sadhana Devi Tax Case No. 788 of 2008 (Decision ofMadras High Court dated 12[th] April, 2019) – referredto.

Commissioners of Inland Revenue v. Crossman (1937)A.C. 26; Lynall and Another v. Inland RevenueCommissioners (1972) A.C. 680 and Abrahams v. TheFederal Commissioner of Taxation (1944) HCA 32 –referred to.

Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3265of 2016.

BFrom the Judgment and Orders dated 15.12.2006 of the HighCourt of Karnataka at Bangalore in GTA No. 01 of 2005.

With

Civil Appeal No. 3272 of 2016

N. Venkataraman, ASG, Nikhil Nayyar, Arijit Prasad, Sr. Advs.,CGautam Narayan, Ms. Asmita Singh, Dhananjay Baijal, Raj BahadurYadav, Sreekumar C W, Anirudh Bhat A, Sughosh Subramanyam, Advs.for the appearing parties.

The Judgment of the Court was delivered by DSANJIV KHANNA, J.

The issue raised in these appeals relates to the valuation of 29,46,500shares of M/s. BPL Sanyo Technologies Limited and 69,49,900 sharesof M/s. BPL Sanyo Utilities and Appliances Limited, which were giftedby the respondent-assessee, M/s. BPL Limited, to M/s. Celestial FinanceELimited on 2[nd] March 1993. The shares of M/s. BPL Sanyo TechnologiesLimited and M/s. BPL Sanyo Utilities and Appliances Limited, both publiclimited companies, were listed and quoted on the stock exchanges.However, these gifted shares, being promoter quota shares, allotted tothe assessee on 17[th] November 1990 and 10[th] July 1991, were under alock-in period up to 16[th] November 1993 and 25[th] May 1994[1], respectively.F

2. As per the provisions of the Gift Tax Act, 1958[2], as it wasapplicable on the date on which the gift was made, gift tax at theapplicable rate is chargeable on the value of the taxable gift. Sub-section(1)(a) to Section 4[3 ]of the G.T. Act states that where a property istransferred otherwise than for adequate consideration, the amount by G

1 There appears to be some discrepancy in the date, which need not be authoritativelycommented as it is not material for adjudication of the present appeals.

2 For short, “G.T. Act”.

3 4. Gifts to include certain transfers. – (1) For the purpose of this Act, –(a) where property is transferred otherwise than for adequate consideration, the amountby which the market value of the property at the date of the transfer exceeds the valueHof the consideration shall be deemed to be a gift made by the transferor:

which the market value of the property, at the date of the transfer, exceedsthe value of the consideration, shall be deemed to be a gift made by thetransferor. Sub-section (1) to Section 6[4] of the G.T. Act states that thevalue of any property, other than cash, which is transferred by way ofgift, shall be its value on the date on which the gift was made and shallbe determined in the manner as laid down in Schedule II of the G.T. Act.Sub-section (1) to Section 6 is subject to the provisions of sub-section(2) to Section 6 of the G.T. Act, which sub-section need not be elucidatedas it is not applicable in the context of the present case. It is an acceptedposition that the machinery provision relating to the method of valuationin Schedule II of the G.T. Act is mandatory and cannot be deviated.[5]

3. Schedule II to the G.T. Act, which incorporates the rules fordetermining the value of a gifted property, states that the value of anyproperty, other than cash, transferred by way of gift, subject to themodifications as stated, shall be determined in accordance with theprovisions of Schedule III of the Wealth Tax Act, 1957[6]. Therefore, weare required to refer to and apply the provisions of Part C of ScheduleIII of the W.T. Act, which lays down the method of valuation of sharesand debentures of a company. For the purpose of the present decision,we are required to interpret Rules 9 and 11 of Part C of Schedule III ofthe W.T. Act, which relate to the valuation of quoted shares and debenturesof companies and valuation of unquoted equity shares in companies otherthan investment companies respectively and read thus:

Provided that nothing contained in this clause shall apply in any case wherethe property is transferred to the Government or where the value of the considerationfor the transfer id determined or approved by the Central Government or the ReserveBank of India; xxxx xx 4 6. Value of gifts, how determined.– (1) Subject to the provisions of sub-section (2),the value of any property, other than cash, transferred by way of gift shall for thepurpose of this Act, be its value as on the date on which the gift was made and shall bedetermined in the manner laid down in Schedule II.

(2) Where a person makes a gift which is not revocable for a specific period, the valueof the property gifted shall be the capitalised value of the income from such propertyduring the period for which the gift is not revocable.

5 See decisions of this Court in relation to the method of valuation when stipulatedunder the rules or the Schedule in S.N. Wadiyar (Dead) through Legal Representative v.Commissioner of Wealth Tax, Karnataka, (2015) 15 SCC 38; and Commissioner ofWealth Tax, Meerut v. Sharvan Kumar Swarup & Sons, (1994) 6 SCC 623.

6 For short, “W.T. Act”.

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“9. Quoted shares and debentures of companies. – The valueof an equity share or a preference share in any company or adebenture of any company which is a quoted share or a quoteddebenture shall be taken as the value quoted in respect of suchshare or debenture on the valuation date or where there is nosuch quotation on the valuation date, the quotation on the dateclosest to the valuation date and immediately preceding such date.

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11. Unquoted equity shares in companies other thaninvestment companies. – (1) The value of an unquoted equityshare in any company, other than an investment company, shallbe determined in the manner set out in sub-rule (2).

(2) The value of all the liabilities as shown in the balance-sheet ofsuch company shall be deducted from the value of all its assetsshown in that balance-sheet; the net amount so arrived at shall bedivided by the total amount of its paid-up equity share capital asshown in the balance sheet; the result multiplied by the paid-upvalue of each equity share shall be the break-up value of eachunquoted equity share, and an amount equal to eighty per cent ofthe break-up value so determined shall be the value of the unquotedequity share for the purposes of this Act.

(3) For the purposes of sub-rule (2),–

(a) the following amounts shown as assets in the balance-sheet shall not be treated as assets, namely:–

(i) any amount paid as advance-tax under the Income-taxAct;

(ii) any amount shown in the balance-sheet including the debitbalance of the profit and loss account or the profit andloss appropriation account which does not represent thevalue of any asset; (b) the following amounts shown as liabilities in the balance-sheet shall not be treated as liabilities, namely:–

(i) the paid-up capital in respect of equity shares;

(ii) the amount set apart for payment of dividends onpreference shares and equity shares where such dividends have not been declared before the valuation date at a generalbody meeting of the company;

(iii) reserves, by whatever name called, other than those setapart towards depreciation;

(iv) credit balance of the profit and loss account;

(v) any amount representing provision for taxation, other thanthe amount referred to in sub-clause (i) of clause (a), tothe extent of the excess over the tax payable with referenceto the book profits in accordance with the law applicablethereto;

(vi) any amount representing contingent liabilities other thanarrears of dividends payable in respect of cumulativepreference shares.

Explanation.– For the purposes of this rule, “balance-sheet”, inrelation to any company, means the balance-sheet of such company(including the Notes annexed thereto and forming part of theaccounts) as drawn up on the valuation date and, where there isno such balance-sheet, the balance-sheet drawn up on a dateimmediately preceding the valuation date, and, in the absence ofboth, the balance-sheet drawn up on a date immediately after thevaluation date.

4. The expressions “quoted share” and “quoted debentures”, and“unquoted shares” and “unquoted debentures” have been defined videsub-rules (9) and (11), respectively, to Rule 2 of Part A of Schedule IIIof the W.T. Act, which read:

“2. Definitions.-… (9) “quoted share” or “quoted debenture”, inrelation to an equity share or a preference share or, as the casemay be, a debenture, means a share or debenture quoted on anyrecognised stock exchange with regularity from time to time, wherethe quotations of such shares or debentures are based on currenttransactions made in the ordinary course of business.

Explanation. – Where any question arises whether a share ordebenture is a “quoted share” or a “quoted debenture” within themeaning of this clause, a certificate to that effect furnished by theconcerned stock exchange in the prescribed form shall be acceptedas conclusive; xx xx xx A

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A(11) “unquoted share” or “unquoted debenture”, in relation to anequity share or a preference share or, as the case may be, adebenture, means a share or debenture which is not a quotedshare or a quoted debenture.”

As per the definitions, the expression “quoted share” in case ofBan equity share means a share which is quoted on any recognised stockexchange with regularity from time to time and where the quotation ofsuch shares is based on current transactions made in the ordinary courseof business. Explanation to sub-rule (9) of Rule 2 of Part A of ScheduleIII of the W.T. Act states that when a question arises on whether ashare is a quoted share within the meaning of the rule, a certificate toCthat effect furnished by the concerned stock exchange in the prescribedform shall be accepted as conclusive. The expression “unquoted share”,in relation to an equity share, means a share which is not a quoted share.

We are in agreement with the view expressed in the impugnedjudgment, which observes that the equity shares under the lock-in periodDwere not “quoted shares”, for the simple reason that the shares in thelock-in period were not quoted in any recognised stock exchange withregularity from time to time. There are no current transactions relatingto these shares made in the ordinary course of business. These equityshares being under the lock-in period could not be traded and, therefore,Eremained unquoted in any recognised stock exchange. There, therefore,would be no current transactions in respect of these shares made in theordinary course of business.

6. When the equity shares are in a lock-in period, then as per theguidelines issued by the Securities and Exchange Board of India (SEBI),there is a complete bar on transfer, which is enforced by inscribing theFwords “not transferable” in the relevant share certificates. This positionis accepted by the Revenue, which, however, has relied upon a generalcircular issued by SEBI, wherein it is stated that the shares under thelock-in period can be transferred inter se the promoters. This restrictedtransfer, in our opinion, would not make the equity shares in the lock-inGperiod into “quoted shares” as defined vide sub-rule (9) to Rule 2 ofPart A of Schedule III of the W.T. Act, as the lock-in shares are notquoted in any recognised stock exchange with regularity from time totime, and it is not possible to have quotations based upon currenttransactions made in the ordinary course of business. Possibility of transferto promoters by private transfer/sale does not satisfy the conditions toHbe satisfied to regard the shares as quoted shares.

7. Rule 11 of Part C of Schedule III of the W.T. Act applies to“unquoted shares” which, as per the definition vide sub-rule (11) to Rule2 of Part A of Schedule III of the W.T. Act, means a share which is nota “quoted share”. Sub-rule (1) to Rule 11 of Part C of Schedule III ofthe W.T. Act, states that other than investment companies, the value ofunquoted equity shares is to be determined in the manner specified insub-rule (2) to Rule 11 of Part C of Schedule III of the W.T. Act. Sub-rule (2) to Rule 11 of Part C of Schedule III of the W.T. Act states themethod of valuation in the case of “unquoted equity shares in anycompany, other than investment companies”, which, in the context ofthe limited controversy raised before us, need not be elaborated. Sufficeit is to observe that Rule 11 of Part C of Schedule III of the W.T. Act isa statutory rule which prescribes the method of valuation of “unquotedequity shares” in companies, other than investment companies, whichprescription and method of valuation is mandatory in nature. The effectof Rule 11 of Part C of Schedule III of the W.T. Act is that unquotedshares must be valued as per the formula prescribed. No other methodof valuation is permitted and allowed.

8. Equity shares which are quoted and transferable in the stockexchange are to be valued on the basis of the current transactions andquotations in the open market. The market quotations would reflect themarket value of the equity shares that are transferable in a stockexchange, but this market price would not reflect the true and correctmarket price of shares suffering restrictions and bar on theirtransferability. The shares in question would become transferable postthe lock-in period. It is a fact that the market price fluctuates, and theshare prices can move up and down. Share prices do not remain static.Equally, the restriction or bar on transferability has an effect on thevalue/price of the shares. Easy and unrestricted marketability areimportant considerations that would normally impact valuation/price of ashare. Therefore, one may have to depreciate the value of the lock-inequity shares, viz. shares that are free from such restriction.

9. In terms of the Rules, we cannot apply a hybrid method ofvaluation while applying Rule 9 of Part C of Schedule III of the W.T.Act, which prescribes the method of valuation for quoted shares. Adhoc depreciation/reduction from the quoted price of equity sharestransferable in the open market is not permitted and allowed vide Rule 9of Part C of Schedule III of the W.T. Act. The shares in question being AB

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A“unquoted shares”, therefore, have to be valued in terms of Rule 11 as astandalone valuation method. This would be in accord with sub-section(1) to Section 6 of the G.T. Act, which states that the value of a property,other than cash, transferred by way of gift, shall be valued on the dateon which the gift was made and shall be determined in the manner aslaid down in Schedule II of the G.T. Act, which, as noticed above, makesBthe provisions of Schedule III of the W.T. Act applicable.10. Faced with the aforesaid position, the Revenue has relied uponRule 21 of Part H of Schedule III of the W.T. Act, which reads thus:

“21. Restrictive covenants to be ignored in determiningCmarket value.–For, the removal of doubts, it is hereby declaredthat the price or other consideration for which any property maybe acquired by or transferred to any person under the terms of adeed of trust or through or under any restrictive covenant in anyinstrument of transfer shall be ignored for the purposes ofdetermining under any provision of this Schedule, the price suchDproperty would fetch if sold in the open market on the valuationdate.”

In order to understand the import of Rule 21 of Part H of ScheduleIII of the W.T. Act, it is necessary to refer to earlier judgments of thisCourt on the valuation of equity shares or property not freely transferrableEor where transfer is restricted. Reference to these decisions is alsorelevant as it supports our interpretation in highlighting the differencebetween “quoted” and “unquoted” shares.

11. In Ahmed G.H. Ariff and Others v. Commissioner of WealthTax, Calcutta[7], a three Judge Bench of this Court, in a matter relatingFto the W.T. Act for a period when Schedule III of the W.T. Act was notapplicable, had observed that the expression ‘property’ is a term of thewidest import as it signifies every possible interest which a person canclearly hold or enjoy. ‘Property’, as a term, should be given a liberal andwide connotation, and extends to those well-recognised types of interestsGthat have the insignia or characteristics of a proprietary right. Havingheld so, this Court rejected the argument of the assessee therein that hisright to receive a specified share of the net income from an estate inrespect of a Wakf-Alal-Aulad was not an asset assessable to wealthtax, on the ground that this asset had ‘nil’ or no value as it was of a non- H7 (1969) 2 SCC 471.

H7 (1969) 2 SCC 471.

transferable nature. It was held that wealth tax under Section 3 of theW.T. Act is imposed on the charge of net wealth, which necessarilyincludes in it every description of property of the assessee, movable orimmovable, barring the exceptions as stated in the provisions of the W.T.Act. More significant for our purposes are the observations that thewords “if sold in the open market” does not contemplate actual sale orthe actual state in the market, but only enjoins that it should be assumedthat there is an open market and the property, even with the restrictions,can be sold in such a market, and on that basis the value has to be foundout. Therefore, the expression “if sold in the open market” refers to ahypothetical case, where, for the purpose of valuation, one must assumethat there is an open market in which an asset with restrictions or bar ontransfer can be sold. This decision was followed in Purshottam N.Amarsay and Another v. Commissioner of Wealth Tax, Bombay[8],which was a case relating to the valuation of the right to property of theassessee in a trust. The argument of the assessee that the right to propertyin a trust, being a personal estate, is incapable of being sold in the openmarket and, therefore, it would have ‘nil’ or no value was rejected. Thisdecision in this context quotes Ahmed G.H. Ariff (supra). At this stage,it would be relevant to refer to the decision of the House of Lords inCommissioners of Inland Revenue v. Crossman[9], which decision wasreferred to with approval in both Ahmed G.H. Ariff (supra) andPurshottam N. Amarsay (supra). The majority decision of the Houseof Lords in Crossman’s case (supra), a case relating to estate duty,holds that where the right to transfer shares of a limited company isrestricted and while its value is not ‘nil’ or ‘0’, it should be valued on thebasis and accounting for the restriction. The contention that in view ofthe bar on transfer no property was actually passed on death, and afresh set of rights in favour of the legatees came into existence wasdisapproved. At the same time, it was held that the shares cannot bevalued ignoring the restrictions on transfer, as contained in the Articlesof Association in that case, as that would be to value the property whichthe deceased as an owner did not own. Even if the shares were nottransferable in the open market in terms of the Articles of Association,the shares had certain privileges and rights, which form the ingredientsin its value. The expression “if sold in the open market” does not alterthe nature of the property. What the expression postulates is to permit 8 (1972) 4 SCC 376.

9 (1937) A.C. 26.

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Athe assessee or the authorities to assume a sale in the open market,which is to limit the property to be valued at the price that a personwould be prepared to pay in the open market with all rights and obligations.The value would not exceed the sum, which a willing purchaser wouldpay, given the fact that the right to purchase is restricted or barred. Thisdoes not imply that the valuation of the shares can be made artificiallyBand by ignoring the restrictions on the property. Valuation cannot ignorethe limitations attached to the shares. This judgment in Crossman’s case(supra) has been subsequently reiterated by the House of Lords in Lynalland Another v. Inland Revenue Commissioners[10]. Referring to thedecision in Crossman’s case (supra) and a decision of the High CourtCof Australia in Abrahams v. The Federal Commissioner of Taxation[11],a Division Bench of the Madras High Court in R. RathinasabapathyChettiar v. Commissioner of Wealth-Tax, Madras[12], in our opinion,has rightly observed:

“13. In Abraham v. Federal Commissioner of Taxation at theDtime of his death a deceased owned shares in five companies,four of which carried on investment business, and the fifth apastoral business. The brother of the deceased who held equalinterest in the whole of the issued capital of the companies wasappointed the sole executor. The memorandum and articles ofassociation of the four companies contained a restriction on transferEof shares whereby the board of directors may refuse to registerany transfer of shares to a transferee who was in their opinion anundesirable person to be admitted as a member of the company.In the fifth company the articles of association provided that thegoverning directors should have a right at any time of purchasingFthe shares of all the-members of the company, the purchase priceto be the amount paid up thereon or, at the option of the governingdirectors, the amount which bore the same proportion to the excessvalue of the assets over the liabilities of the company as the totalamount paid up on the shares bore to the total paid up capital ofthe company. The question arose as to how the shares left by theGdeceased are to be valued for the purpose of estate duty. Thecourt held that the assessment of value of the shares held by thedeceased in the five companies must normally be made principally 10 (1972) A.C. 680.11 (1944) HCA 32.H12 (1974) 93 ITR 555.

on the basis of the income yield including the strong probability ofdistribution of accumulated profits and that the effect of therestrictions on transfer of shares and the right of pre-emptiongiven to the governing directors to purchase the shares must allbe taken note of and depreciation on that account had to be allowedfor in the primary valuation. The above case laid down the principlethat the restrictions contained in the articles of association on thetransfer and also on the price for which the shares could betransferred has to be ignored and the transferability in the openmarket must be assumed, for the purpose of valuation, but thatthe market value of the shares has to be depreciated to a certainextent having regard to the said restrictions contained in the articlesof association, and that if the market value of such shares couldnot be ascertained otherwise, it is possible to value the shares ona break-up basis with reference to the balance-sheet of thecompany for the relevant year.”

12. The aforesaid decision was subsequently followed by theMadras High Court in two other decisions, Commissioner of WealthTax, Chennai v. Shri Thirupathy Kumar Khemka[13], and the decisiondated 12[th] April 2019 in Commissioner of Income Tax, Chennai v.Sadhana Devi[14], which relates to the valuation of shares in lock-inperiod as per the provisions of Schedule III of the W.T. Act.

13. Read in this manner, Rule 21 of Part H of Schedule III of theW.T. Act is a rule which has been enacted to clarify and remove doubts.It has reiterated and affirmed the dictum in Ahmed G.H. Ariff (supra)and Purshottam N. Amarsay (supra) that notwithstanding the negativecovenants prohibiting or restricting transfer, the property should be valuedfor the purpose of the W.T. Act and the G.T. Act, but the valuation is notby overlooking or ignoring the restrictive conditions. The shares in thelock-in period have market value, which would be the value that theywould fetch if sold in the open market. Rule 21 of Part H of Schedule IIIof the W.T. Act permits valuation of the property even when the right totransfer the property is forbidden, restricted or contingent. Rights andlimitations attached to the property form the ingredients in its value. Thepurpose is to assume that the property which is being valued is beingsold, and not to ignore the limitations for the purpose of valuation. This is 13 (2012) SCC OnLine Mad 2562.

14 Tax Case No. 788 of 2008.

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13 (2012) SCC OnLine Mad 2562.

14 Tax Case No. 788 of 2008.

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Aclear from the wording of Rule 21 of Part H of Schedule III of the W.T.Act, which when read carefully expresses the legislative intent by usingthe words “hereby declared”. The Rule declares that the price or otherconsideration for which any property may be acquired by, or transferred,to any person under the terms of a deed of trust or through any otherrestrictive covenant, in any instrument of transfer, is to be ignored as perBthe provisions of the Schedule III of the W.T. Act. However, the priceof such property is the price of the property with the restrictions if soldin the open market on the valuation date. In other words, notwithstandingthe restrictions, hypothetically the property would be assumed to besaleable, but the valuation as per the Schedule III of the W.T. Act wouldCbe made accounting and taking the limitation and restrictions, and suchvaluation would be treated as the market value. The rules do not postulatea charge in the nature and character of the property. Therefore, theproperty has to be valued as per the restrictions and not by ignoringthem.

D14. Thus, Rule 21 of Part H of Schedule III of the W.T. Actpermits valuation and ascertainment of the market value as per theprovisions of Schedule III of the W.T. Act, but does not state that thevaluation will be done by disregarding the restrictions, or by enhancingthe rights which have been transferred, or by revaluation of the assetwhen provisions of Schedule III are invoked for the purpose of valuationEof an asset under the W.T. Act.

15. However, one aspect is required to be clarified, viz. explanationto Rule 2(9) of Part A, Schedule III of the W.T. Act. The certificatefrom the concerned stock exchange is only to state whether an equityshare, preference share or debenture, as the case may be, was quotedFwith the regularity from time to time and whether the quotations of suchshares or debentures are based on current transactions made in theordinary course of business. The explanation does not prohibit theauthority, tribunal or the court from examining whether a particular share,be it equity or preference share, is a “quoted share” or an “unquotedGshare” in terms of sub-rules (9) and (11) of Rule 2 of Part A of ScheduleIII of the W.T. Act. This right which is conferred on the authoritiesunder the W.T. Act or the G.T. Act is not delegated to the stock exchange.A decision of the authority is amenable and can be examined whenchallenged in an appeal.

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DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v.M/S BPL LIMITED [SANJIV KHANNA, J.]

16. In view of the aforesaid discussion, and for the reasons statedabove, the present appeal by the Revenue is to be dismissed. We mustrecord that the assessee has not pressed the ground raised in its appealchallenging the impugned order, which is to be dismissed as not pressed.We order accordingly. There shall be no order as to costs.

Bibhuti Bhushan Bose

Appeals dismissed.

(Assisted by : Neha Sharma, LCRA)

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