1981 PLP (Trib (PTD)

MUHAMMAD MAZHAR ALI (MEMBER).‑This Appeal is directed from th6 order of the learned Deputy Controller of Estate Duty, . . . . . The deceased A . . . . . died at K . . . . on 6‑5‑1976. He, inter alia, held 82 shares of the face value of Rs. 1,000 each share of S . . . Textile and Printing Mills Ltd. The accountable persons declared the value of shares at Rs. 82,000 whereas the Deputy Controller of Estate Duty through notice under section 58‑A of the Estate Duty Act, proposed its value at Rs. 1,08,486, i.e. at the rate of Rs. 1,323 per share as per Balance‑Sheet for 30th June 1976. While calculating break up value of these shares at Rs. 1,323 each share, the Deputy Controller of Estate Duty enhanced the value of assets as shown in the Balance‑Sheet by Rs. 2,93,930 besides adding a sum of Rs. 58,740 towards appreciation of closing stock and another sum of Rs. 22,189 for taxation reserve. Assailing the order, the appellant's Authorised Representative drew our attention to section 39 of the Estate Duty Act, which enacts that "Where the Articles of Association of a private company contain restrictive provisions as to the alienation of shares, the value of shares, if not ascertainable by reference to value of total assets of the company, shall be estimated to be what they would fetch if they could be sold in the open market on the terms of the purchaser being entitled to be registered as holder subject to the Article but the fact that a special buyer would for his own special reasons give a higher price than the price in the open market shall be disregarded' and contended that in the instant case admittedly the value of the shares was ascertainable by reference to the value of the total assets of the company. But in his submission the Deputy Controller of Estate Duty acted improperly and beyond his jurisdiction in enhancing the value of assets and the closing stocks of the company as value of assets and the closing stocks of the company as well as adding taxation reserve to the value of assets as shown in the balance‑sheet. He argued that taxation reserve was in fact a liability and it was not an asset of the company so as to be included in total assets for working out the break up value. Regarding the additions made for the alleged appreciation of fixed assets and closing stock, be vehemently urged that the relevant provisions of law, viz. section 39 of the Estate Duty Act does not empower the Deputy Controller of Estate Duty to do so. The learned Departmental Representative, on the other hand, advanced an interesting and intelligent argument that the scheme of the Act is that the value of the assets and property are to be estimated on the basis of open market value at the time of the deceased's death. He, therefore, submitted that the assets of the company were also to be estimated on the basis of open market value for purposes of working out the break‑up value. He, however, on our enquiry, candidly admitted that the basis applicable to the instant case for valuing the shares in question was the `break up value method' and not the `open market method'.

2. We have given due consideration to the submissions made at the bar and we are clearly of the view that section 39 of the Estate Duty Act does not empower the Controller of Estate Duly to make his own estimate of the total assets of the company for working out the value of shares of Private Companies held by the deceased instead of accepting their valuation as per Companies Books of Accounts. In our opinion he is under a legal obliga tion to proceed on the basis of the balance‑sheet of a Company of which the deceased held the shares. It is pertinent to note that section 38 of the Estate Duty Act, which lays down that the principal value of any property shall be estimated to be the price which in the opinion of the Controller it would fetch in the open market at the time of the deceased's death, does not apply to the shares of Private Company those Articles contain restrictive provisions as to alienations of shares. On the contrary, they have specifically been excluded from the purview of section

38. For the valuation of such shares, section 39 has been enacted which, as already stated primarily provides that market value basis is not to be adopted in valuing the shares of private Company, if their value is ascertainable by reference to the value of total assets of the Company. It is the common ground of both the parties before us that the value of the shares in question is ascertainable by reference to the value of the total assets of the Company. And the Income- tax Officer has actually proceeded on this basis. The only fallacy in his order is that he has enhanced the balance‑sheet value of certain assets. We are also clearly of the view that the taxation reserves amounting to Rs. 22,189 does not really from part of the reserves but it is actually a liability of Company. The Deputy Controller of Estate Duty was, therefore, definitely wrong in treating it to be a reserve.

3. For the foregoing reasons, we would allow the appeal and direct the Deputy Controller of Estate Duty to adopt the break‑up value of the shares in question on the basis of the value assets and liabilities as per balance- sheet of the Company, which we are told comes to Rs. 1,183.30 per share. Before parting with this issue, we may add that the appellant's Authorised Representative, on our enquiry, stated at the bar that the break up value of these shares for wealth tax assessment of the relevant assessment year has also been taken @ Rs. 1,183.30 per share.

4. Next objection agitated before us was against the valuation of the 50 share of S . . . . . Taxtile and Printing Mills which the assessee had gifted to his grandson, S . . . . . . The accountable person had declared value of gifted shares while the Controller has adopted their at Rs. 21,

150. Here also, the break up value of these shares has been taken by the Controller at Rs: 1,323 per share instead of Rs. 1,118.13 per share as per the break‑up value worked out on the basis of the balance‑sheet of the Company for the year ending 30‑6‑1976. Since we have already held that the break‑up value of the shares of the private Limited Company in question is to be adopted per balance‑sheet of the Company, we would direct the Deputy Controller to adopt the value of the gifted shares at the said rate.

5. The accountable person had claimed funeral expenses at Rs. 4,000 but the Controller has allowed Rs. 2,

000. Only looking to the social status and financial position of the deceased and that of the accountable person, we are of the view that the funeral expenses as claimed were reasonable and ought to have been allowed in full. We, therefore, now direct the v. C. E. D, to do so.

6. The only other objection pressed, was against the disallowance of medical expenses amounting to Rs. 3,000 allegedly incurred on the treatment of the deceased. The counsel admitted that these was no evidence available with the accountable persons to substantiate his claim that the amount in question was actually paid after the death of the deceased by the appellants. In this view of the matter, we do not find any substance in this grievance.

7. In the result, the appeal partially succeeds to the extent and in the manner indicated above. Appeal partly accepted.