Bhuvana Marni
Published on: October 17, 2022 at 23:11 IST
According to the Supreme Court, the restrictions and limitations must be taken into account when valuing shares for gift tax purposes.
The equity shares subject to the lock-in period were not “quoted shares,” according to the division bench of Justice Sanjiv Khanna and Justice JK Maheshwari, for the simple reason that they were not listed on any recognised stock exchange regularly from time to time.
These shares are not now the subject of any regular business transactions. Due to the lock-in period, the equity shares were unable to be exchanged and remained unquoted on any recognised stock market.
The court recognised that valuation and ascertainment of the market value are permitted under Rule 21 of Part H of Schedule III of the Wealth Tax Act, 1957 (W.T. Act).
However, it is not stated that the valuation would be performed by disregarding the restrictions, boosting the rights that have been transferred, or revaluing the asset for asset valuation.
The issue surrounding the value of shares given by the respondent-assessee to M/s. Celestial Finance Limited was brought up by the appellant, Deputy Commissioner of Gift Tax. On the stock markets, the shares were both listed and quoted.
However, the assessee was subject to a lock-in period for the donated shares, which were promoter quota shares.
The value of the taxable gift is subject to gift tax at the relevant rate by the requirements of the Gift Tax Act, of 1958, as it was in effect on the date the gift was made.
According to the definitions, a share that is regularly quoted on a recognised stock exchange from time to time and whose quotation is based on recent transactions completed in the ordinary course of business is referred to as a “quoted share” in the case of an equity share.
When a question arises as to whether a share is a quoted share within the meaning of the rule, a certificate to that effect provided by the concerned stock exchange in the prescribed form shall be accepted as conclusive, according to the Explanation to sub-rule (9) of Rule 2 of Part A of Schedule III of the W.T. Act.
When referring to an equity share, the term “unquoted share” denotes a share that is not a quoted share.
The government has acknowledged that, by SEBI norms, there is a complete bar on transfer while equity shares are in a lock-in period. This restriction is enforced by inscribing “not transferable” in the appropriate share certificates.
The value of the property is permitted under Rule 21 of Part H of Schedule III of the W.T. Act even where the right to transfer the property is prohibited, constrained, or conditional.
The property’s worth is based on the rights and restrictions that come with it. In order to avoid ignoring the valuation limits, it is necessary to presume that the property being appraised is being sold.
The court stated that the property must be valued in accordance with the restrictions and not by ignoring them.
“The certificate from the concerned stock exchange is only to state whether an equity share, preference share or debenture, as the case may be, was quoted with regularity from time to time and whether the quotations of such shares or debentures are based on current transactions made in the ordinary course of business.”
“The explanation 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 of Part A of Schedule III of the W.T. Act,” the court stated.
Case Title: Deputy Commissioner of Gift Tax Versus M/s BPL Limited
