Summary
In 1993 BPL Limited gifted promoter-quota shares of two listed BPL Sanyo companies while they were still locked in under SEBI rules. For gift tax, Section 6(1) and Schedule II of the Gift Tax Act, 1958 require valuation under Schedule III of the Wealth Tax Act, 1957. Dismissing the Revenue's appeal, the Supreme Court held that the locked-in shares were 'unquoted'. They could not be traded, so they were not quoted with regularity on current transactions in the ordinary course of business, and possible transfers among promoters did not change that. They had to be valued only by the mandatory break-up method in Rule 11, not by an ad hoc discount on the market price under Rule 9. Rule 21 assumes a hypothetical open-market sale but does not allow the restrictions to be ignored. A stock exchange certificate does not bind the authorities on whether a share is quoted.
Issues
- Whether promoter-quota shares of listed companies, gifted while under a SEBI lock-in period, are 'quoted' or 'unquoted' shares for valuation under Schedule III of the Wealth Tax Act, 1957, as applied by the Gift Tax Act, 1958.
Provisions considered
- Sections 4(1)(a) and 6(1) and Schedule II, Gift Tax Act, 1958The gifted property must be valued as on the date of gift in the manner in Schedule II, which applies Schedule III of the Wealth Tax Act; the method is mandatory. (¶¶ 2, 3, 9)
- Schedule III, Part A, Rule 2(9) and 2(11), Wealth Tax Act, 1957Shares under lock-in are not quoted with regularity on current transactions in the ordinary course of business and are therefore unquoted shares; the stock exchange certificate is not binding on the authorities on this question. (¶¶ 4, 6, 15)
- Schedule III, Part C, Rules 9 and 11, Wealth Tax Act, 1957Unquoted equity shares must be valued only by the break-up formula in Rule 11; an ad hoc discount on market quotation under Rule 9 is impermissible. (¶¶ 7, 8, 9)
- Schedule III, Part H, Rule 21, Wealth Tax Act, 1957The rule assumes a hypothetical open-market sale despite restrictive covenants but requires valuation taking account of, not ignoring, the restrictions. (¶¶ 10, 13, 14)
Held
- Equity shares under a SEBI lock-in, marked non-transferable and incapable of trading on a stock exchange, are not 'quoted shares'; the possibility of private transfer among promoters does not make them so. (¶¶ 4, 6)
- Such unquoted shares must be valued under Rule 11 of Part C as a standalone method; a hybrid approach of discounting the quoted price under Rule 9 is not permitted. (¶¶ 7, 9)
- Rule 21 of Part H, read with Ahmed G.H. Ariff, Purshottam N. Amarsay and Crossman, means that restricted property is to be valued as if saleable in a hypothetical open market but with its restrictions taken into account. (¶¶ 11, 13, 14)
- A stock exchange certificate under the Explanation to Rule 2(9) only states whether shares were quoted with regularity; it does not prevent the authorities, tribunals or courts from deciding whether a share is quoted or unquoted. (¶ 15)
Result
Revenue's appeal dismissed; the assessee's appeal dismissed as not pressed; no costs.