ORDER
Kapur, Judicial Member
1. Since all the assessees belong to the same group and additionally the facts and circumstances of their cases remain identical and so is the case with the oral reasoning of the learned lower authorities, hence out of compulsion and for the sake of convenience, all these appeals are being decided at this level by this common order.
2. The two issues involved: —
(1) valuation of equity shares of a private limited company – Hero Cycles (P.) Ltd. – which are, admittedly, not quoted one and are subject-matter of transfer/gift. The issue is the valuation and the work out of the same for the purpose of its charge to gift tax under the provisions of Gift-tax Act, 1958; and
(2) as to whether, on the facts and in the circumstances of the case, a gift of shares of the above-named company by the assessee to M/s Yogesh Chander & Bros. Associates (in GTA Nos. 2 & 3), and of the same number of shares to M/s Orn Parkash Pankaj Munjal Associates (in GTA No. 5) is a valid gift or a void one since the gifts have been made by the donors with an option to exercise revocation of the gift. The revocation of the gift could be exercised by the donors after 74 months but before 82 months. The assessee claims the gift to be a valid one but the revenue says it is void, in the alternative – that the gift is hit by the ratio of the decisions of the Hon’ble Supreme Court as stood enunciated in the cases reported as McDowell & Co. & Associated Rubber Industries – Workman.
3. We will like to preface the decisions of these appeals on the first issue with the observations that the assessee has placed on our file, at pages 17 to 19 of its paper book, a decision of the ITAT Chandigarh Bench, Chandigarh, which is in the case of one Mrs. Kamla Jain, Ludhiana, and it is in WT Appeal No. 516 (Chd.) of 1987 involving assessment year 1986-87, the date of the order being Sept. 18, 1989. Here, the ITAT has held that the shares are to be assessed in terms of Rule ID – Wealth-tax Rules. There is also a decision at pages 8 to 12 of assessee’s paper books which has been made on identical facts as are the facts of these assessee’s cases in the case of one Smt. Ved Wati Munjal. The date of order is Sept. 27,1990 and has been made by ITAT, Jaipur Bench, Carnp: Chandigarh in GTA Nos. 7 & 8/1988 involving assessment years 1981-82 and 1982-83. In this appeal the assessee failed vis-a-vis the valuation which was upheld as adopted by the Gift-tax Officer, i.e., at Rs. 383.75 per share.
4. On our part, we have heard the parties at length. Orders of the learned lower authorities have been duly taken into account alongwith the contents of assessee’s paper book (26 pages) which, inter alia, contains a copy of “deed of revocable transfer”. The assessee has also placed strong reliance on the decision of the ITAT Madras Bench-C which is reported as GTO v. Smt. Valli Alagappan [1990] 33 ITD 222.
5. In the face of the decision of the ITAT in the case of one Mrs. Vidya Wati Munjal, which was made on identical facts and where the assessee had failed at the ITAT stage, Shri Subhash Aggarwal, the learned authorised representative of the assessee, has made the following further contentions since, according to him, the ITAT should have a departure from the earlier decision and the issue merits to be considered afresh:
(1) Before the earlier Bench, Judgment of the Hon’ble Supreme Court in CGT v. Executors and Trustees of the Estate of Late Shri Ambalal Sarabhai[1988] 170 ITR 144 36 Taxman 162A was not relied upon and so is the case with the decisions in Mrs. Shardaben B. Mafatlal v. CIT [1989] 177 ITR 463 42 Taxman 126 (Bom.), CGT v. S. Venu Srinivasan [1978] 112 ITR 771 (Mad.) and Seth Hemant Bhagubhai Mafatlal v. N. Rama Iyer, GTO [1983] 144 ITR 737 13 Taxman 509 (Bom.);
(2) That the learned first appellate authority has followed the decision of the ITAT Chandigarh Bench, as find mentioned in the impugned order but in the case of decision of Mrs. Kamla Jain (supra), a departure is warranted in this case;
(3) That earlier view of the ITAT is not tenable in view of the Hon’ble Supreme Court’s decision and merits to be departed from;
(4) That in the alternative, due to restrictions placed on the transfer, the assessee is entitled to deduction in valuation, as has been put by the GTO, to the tune of 15% ;
(5) That Gift-tax Rule 10(2) need not be followed – instead Rule ID -Wealth-tax Rules has to be followed inasmuch as this has been followed by various Benches of the ITAT in gift tax, matters; and
(6) Concludingly, he has contended that in view of the decision of the Hon’ble Supreme Court and that of the Madras Bench of the ITAT, referred to above, the valuation has to be in accordance with Rule ID – Wealth-tax Rules. He has further contended that for the second issue, Section 6(2), Section 4(a)(iv) and Gift-tax Rule 11 support the assessee’s case inasmuch as one set of revocable gift is accepted and valuation has to be made in those terms.
6. On his part the Id. Sr. Departmental Representative supported the orders of the Id. lower authorities placing strong reliance on the decision of the ITAT rendered in the case of Smt. Ved WatiMunjal (supra). He has as such contended that Judicial discipline and propriety requires that on identical facts, particularly in the case of the same group of assessees, the same view be taken. He has emphasised that the said order of the ITAT stands accepted by the assessee since it. has been duly stated in the open court that no reference application has been filed by the assessee against the said decision of the ITAT. The learned Senior Departmental Representative has also pointedly referred to Sections 3, 6 and 46(4) of the Gift-tax Act for the proposition that the assessment has to be in accordance with and subject to provisions of the Gift-tax Act, 1958. Rule 10(2) of the Gift-tax Rules has also been relied upon. On the first issue he concluded his argument with the further submissions that valuation put. by the learned lower authorities merits to be upheld since the transactions are inter se persons belonging to same group, hence it is a pure and simple device to avoid tax and is hit. by the decisions of the Hon’ble Supreme Court, mentioned in the order of the Assessing Officer.
7. On the next issue he has held that in view of the ratio of the decisions of the Hon’ble Supreme Court and the reasoning of the learned lower authorities, the concept of revocable transfer cannot be accepted. In short he has forcefully contended that the impugned orders in all cases merit to be upheld.
8. Be that as it may, there is an order of the ITAT made on identical facts in the case of Mrs. VidyaWatiMunjal (supra) and it is an admitted fact that no reference application has been filed by that assessee against the said order of the ITAT, but this proposition can also not be denied that the assessment has to be in accordance with and subject to the provisions of the Act, i.e., an assessment has to be in accordance with the provisions of the Act – Law, and that does include decisions of the High Courts/ Supreme Court. In the face of the decisions in CWT v. Mahodeo Jalan [1972] 86 ITR 621, (SC), CGT v. Smt. KusumbenD, Matiadevia [1980] 122 ITR 38 (SC) and Executors and Trustees of the Estate of Late ShriArribalal Sarabhai’s case (supra) – all being decisions of the highest Court of the land, assessment has to be in terms of those decisions and there is no escape on that count. Under Article 141 of the Constitution of India, the law declared by the Supreme Court shall be binding on all Courts within the territory of India. This is what that article provides. Unfortunately, these decisions of the Hon’ble Supreme Court were not cited before the earlier Bench of the ITAT hence in view of this position, a departure is warranted and we have accordingly held to be so. The valuation of unquoted equity shares has to be on the basis of yield method as has been held by the Hon’ble Supreme Court in the abovementioned three decisions. We hold accordingly.
9. Coming to the second issue, Section 6(2) read with Rule 11 of the Gift-tax Rules, the concept of revocable transfers as of gifts is recognised. Section 6(2) reads as under: —
Section 6(1) ** **
(2) Where a person maizes a gift which is not revocable for a specified period, the value of the property gifted shall be the capitalised value of the income from such property during the period for which the gift is not revocable.
Rule 11 of the Gift-tax Rules, is to the following effect:–
Rule 11 – Fixation of capitalised value.
(1) in the case of property referred to in Sub-section (2) of Section 6 of the Act, the capitalised value of the income shall be taken to be the product of the number of complete years included in the period for which the gift is not revocable and the average of the income received from the property during the three years or such less period of complete years in which such property was in existence, preceding the previous year for the year of assessment after discounting it at a rate of 4 per cent per annum:
Provided that where the property was in existence for less than one complete year preceding the previous year for the year of assessment or came into existence in the previous year for the year of assessment the income from such property for one complete year shall be the income which would have been receivable, if the property were in existence for one complete year.
(2) the income from such property for each of the years for which it is to be determined shall, for the purposes of this rule, be the amount of the total receipt received or receivable for each such year, reduced by the amount of expenditure which, in the opinion of the Assessing Officer, would, reasonably be incurred for the purposes of making or earning the incom:
Provided that where there are no receipts or where the total of the receipts is, in the opinion of the Assessing Officer, lower than the receipts which an owner of ordinary prudence would obtain or earn on such property or properties similar to that during the relevant period, the Assessing Officer shall, after giving the assessee a reasonable opportunity of being heard, determine the income on the basis of receipts which such owner would obtain.
10. A perusal of the deed of revocable gifts reveals that the gifts are not revocable for 74 months but are revocable after that but not beyond 82 months. This creates a very difficult and ambiguous position since if the gifts are not revoked beyond 74 months and within a period of- outer limit of 82 months, then the valuation has to be as is provided for in Rule 11 – Gift-tax Rules, but if the option is not exercised, then the valuation has to be as if the gift is a regular one, i.e., the valuation has to be in the normal course of a transfer/gift. On these facts, we will hold that for the assessment year under appeal, the valuation has to be in terms of Rule 11 of the Gift-tax Rules since the gift is a revocable one but if the donor does not exercise an option to revoke the gift within the provided for period of 82 months, then at that point of time also, there will be a further valuation of the residuary interest, i.e., In that case, the valuation of the subject-matter shall be as if there is a gift in the normal course of business and it shall be treated so, to repeat, at that point of time. The proceedings under the Gift-tax Act shall be called for again at that point of time as this is held so in view of the specific stipulations in the deed of revocable transfer. We hold accordingly.
11. In the result, assessee succeed in their appeals in the above terms.