Gujarat High Court
Emtici Engineering Ltd vs Asstt.Commissioner Of Gift ... on 4 December, 2014
Author: Ks Jhaveri
Bench: Ks Jhaveri, K.J.Thaker
O/TAXAP/372/2002 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 372 of 2002
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EMTICI ENGINEERING LTD.....Appellant(s)
Versus
ASSTT.COMMISSIONER OF GIFT TAX....Opponent(s)
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Appearance:
MR RK PATEL, ADVOCATE for the Appellant(s) No. 1
MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
Date : 04/12/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1. The I.A.C. has observed in paragraph No.3(vii) as under: vii. The objection to the proposed adoption of fair market value of 9220 equity shares of power Build (Pvt) Ltd of Rs.359.11 per share as against Rs.100/ per share sold is two fold firstly that the fair market value estimated at Rs.84 per share as per the valuation report of the registered valuer was in order and secondly the provisions of Section 52 can not be invoked. S/Sri Talati and Desai vehemently contended that the valuation report of the departmental valuer suffered from gross mistake in that departmental valuer adopted average of profits of power Build (Pvt.) Ltd. for two years only whereas profits of atleast 3 Page 1 of 3 O/TAXAP/372/2002 ORDER years should have been adopted and further that the departmental valuer grossly erred in not reducing tax liability from the adjusted profits. It was submitted that the reasons given by the departmental valuer for not taking average of 3 years were not at all sound. In fact for the purpose of taking average a minimum period of 3 years (if not 5 years), is essential so that the abnormalities would be smoothened. I find considerable force in this submission. According to me, therefore, the period for working out the average profit would be 3 years ending on 31.3.75, 31.3.76 and 31.3.77 as done by the registered valuer. So far as issue of deducting tax liability from the average adjusted profit is concerned Shri Talai refereed to Board's circular No.2 d(WT) of 1964 dated 15.5.1964 wherein in para 2(a) the Board has emphasized that the liability for tax is definitely one of the facts which weighs in the mind of a prospective buyer of shares and thus affects the market value of shares. Shri Talati further referred to Board's Circular F.No.4/28/68 W T dated 27.1.69 wherein in para 2 the Board has mentioned as under: "..........maintainable profits of a company should be calculated as under:
(iv) The development rebate, in case it is debited in the books of account, will be added back.
(v) The appropriate tax liability of the company on the book profits so determined will be deducted."
It was contended that the departmental valuer should have deducted the tax liability of the company on the books profits so determined in the light of Board's above circular, as was done by the registered valuer in his valuation report. I am inclined to agree with the contention of Page 2 of 3 O/TAXAP/372/2002 ORDER Shri Talati. In other words tax liability as worked out by the registered valuer will have to be deducted. After adopting the average profit on the basis of the period of 3 years and after considering the tax liability the fair market value as worked out by the departmental valuer is considered as fair. In other words it cannot be said that the sale of 9220 equity shares of power Build (Pvt) ltd. of Rs.100 per share was low by any manner of means. You should therefore, accept the sale price of Rs.100 per share. Since it has been held by me that the declared sale price of Rs.100/ is in order the issue relating to the applicability of provisions u/s 52 becomes academic and is not discussed.
2. Mr. Parikh, learned advocate for the respondent requests for time to seek instructions from the respondent. S.O. to 17th December, 2014.
(K.S.JHAVERI, J.) (K.J.THAKER, J) pawan Page 3 of 3