January 2023

Glimpses of Supreme Court Rulings

Kishor Karia, Chartered Accountant
Atul Jasani, Advocate

14. Deputy Commissioner of Gift Tax,
Central Circle-II vs. BPL Ltd.
(2022) 448 ITR 739 (SC)

Gift-tax – Equity shares during lock-in period are not ‘quoted shares’ as defined- Valuation of “unquoted equity shares” in companies - Schedule II to the G.T. Act read with Rule 11 of Part C of Schedule III of the W.T. Act is a statutory rule which prescribes the method of valuation of “unquoted equity shares” in companies, other than investment companies, which prescription and method of valuation is mandatory in nature - The effect of Rule 11 of Part C of Schedule III of the W.T. Act is that unquoted shares must be valued as per the formula prescribed - No other method of valuation is permitted and allowed - Ad hoc depreciation/reduction from the quoted price of equity shares transferable in the open market is not permitted and allowed vide Rule 9 of Part C of Schedule III of the W.T. Act.

The assessee company was engaged in the the manufacture and sale of consumer electronic products like television sets, VCR’s, audio and video products, etc.

The assessee had also invested in various other companies manufacturing allied or similar electrical, electronic and engineering goods. On 2nd March, 1993, the assessee transferred its holdings in eight companies to one Celestial Finance Ltd. for a total consideration of Rs. 23,10,03,974 which was equal to the cost of acquisition of the shares to the assessee.

The assessee had transferred the shares to Alpha Securities Pvt. Ltd., a 99.7 per cent subsidiary of the assessee. Alpha Securities Pvt. Ltd., in turn, had transferred the same to the 100 per cent subsidiary of Celestial Finance Ltd.

In the course of the assessment proceedings for A.Y. 1993-94, there was an audit objection dated 17th August, 1995. The assessee satisfied the Department that there was no element of gift.

Thereafter, in August, 1998, a search was carried out u/s 132 of the Income-tax Act. The Deputy Commissioner of Gift Tax issued a notice u/s 16 of the Gift Tax Act, 1958. An assessment order was passed that concluded that there was a deemed gift u/s 4(1)(a) [which provided for deemed gift in a case where the property is transferred for inadequate consideration] and 4(1)(b) [this dealt with the situation where consideration was not intended to be passed] to the extent of Rs. 69,78,49,800. The gift tax with interest u/s 16B (from July, 1993 to January, 2000) was quantified at Rs. 54,01,12,525.

On appeal, the Commissioner of Income-tax (Appeals) upheld the validity of reopening, but reduced the quantum of the gift tax. He held that the shares of BPL Sanyo Utilities & Appliances Ltd. and BPL Sanyo Technologies Ltd. [the transfer of these shares were also the subject matter of gift tax proceedings] had to be treated as unquoted equity shares as they were in the lock-in-period and, therefore, valued under Rule 5 of Gift Tax Rules and directed that the said value


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