Dive into the insightful legal analysis of valuing unquoted shares with restrictions in this significant case. The court’s thorough examination of property valuation principles and wealth tax regulations sheds light on the complexities of determining the market value of assets with transfer restrictions. Discover the importance of considering limitations on share transferability in valuation assessments.
Facts
- The shares in question were gifted to the respondent-assessee by M/s. BPL Limited on specific dates in 1990 and 1991.
- These shares were promoter quota shares and subject to a lock-in period until specific dates in 1993 and 1994.
- 29,46,500 shares of M/s. BPL Sanyo Technologies Limited and 69,49,900 shares of M/s. BPL Sanyo Utilities and Appliances Limited were gifted by the respondent-assessee to M/s. Celestial Finance Limited in March 1993.
- The valuation of these gifted shares is the core issue in the appeals.
- M/s. BPL Sanyo Technologies Limited and M/s. BPL Sanyo Utilities and Appliances Limited are listed public limited companies quoted on stock exchanges.
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Analysis
- Unquoted shares must be valued according to Rule 11 of Part C of Schedule III of the W.T. Act, as they do not have current transactions in the ordinary course of business.
- Quotes from recognised stock exchanges are used to determine if shares are quoted or unquoted.
- Lock-in periods restrict the transferability of shares, making them unquoted shares.
- Valuation of shares should consider restrictions and limitations, as per the provisions of the W.T. Act.
- SEBI guidelines enforce restrictions on transfer during lock-in periods.
- Valuation should not ignore limitations on share transferability.
- Valuation based on market value should account for restrictions on transferability and assumed open market sale.
- Certificate from a stock exchange only confirms if shares were quoted with regularity, not the valuation method.
- The rules prescribed for valuation are mandatory and should not be deviated from.
- Market value assessment is done with consideration to restrictions on transferability.
- The value of any property, excluding cash, transferred as a gift should be determined as per Schedule II of the G.T. Act.
- Certain amounts shown as assets in the balance sheet, like advance-tax under the Income-tax Act or debit balance of profit and loss accounts, are not treated as assets.
- In cases where a property is transferred without adequate consideration, the excess of market value over consideration is deemed a gift by the transferor.
- The value of liabilities in the balance sheet should be deducted from the value of assets to determine the net amount.
- The net amount, divided by the total paid-up equity share capital, multiplied by the paid-up value of each equity share gives the break-up value of each unquoted equity share.
- The value of an unquoted equity share in a company is determined as eighty percent of the break-up value as per the Act.
- The expression “if sold in the open market” does not alter the nature of the property.
- The term ‘property’ signifies every possible interest a person can hold or enjoy.
- The valuation of property should account for restrictions or limitations on transfer.
- Rule 21 of Part H of Schedule III of the W.T. Act clarifies valuation despite restrictions.
- Valuation should consider market value even when transfer is forbidden, restricted, or contingent.
- Property should be given a liberal and wide connotation, extending to recognized proprietary rights.
- Assets with restrictions or bar on transfer must be hypothetically valued as if sold in an open market.
- Wealth tax covers every description of property, movable or immovable, of the assessee, except stated exceptions.
- Valuation of shares in companies with restrictions on transfer must consider the restrictions and privileges attached.
- A decision of the authority is amenable and can be examined when challenged in an appeal.
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Decision
- The present appeal by the Revenue is to be dismissed.
- The assessee has not pressed the ground raised in its appeal challenging the impugned order.
- The ground raised by the assessee is to be dismissed as not pressed.
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Case Title: THE DEPUTY COMMISSIONER OF GIFT TAX Vs. M/S BPL LIMITED (2022 INSC 1077)
Case Number: C.A. No.-003265-003265 / 2016
