ORDER
J. Kathuria, Accountant Member
1. This appeal by the assessee for assessment year 1990-91 challenges the assessment of deemed gift of Rs. 2,06,700 in the hands of the assessee.
2. Brief facts of the care are these. The assessee is an individual owned certain shares of M/s. Himachal Engg. Co. Pvt. Ltd. For Assessment year 1990-91, in the wealth-tax return, the assessee showed the value of these shares as per Rule 1D of the Wealth-tax Rules at Rs. 418 per share. On 28-2-1990, the assessee gifted 650 shares out of his holding to his son for a consideration of Rs. 100 per share. The assessee did not file any gift-tax return for assessment year 1990-91. The Assessing Officer issued a notice under Section 16(1) of the Gift-tax Act in response to which the assessee filed a nil gift-tax return. The Assessing Officer was of the opinion that 650 shares of the aforesaid company had been transferred by the assessee to his son for inadequate consideration. He accordingly invoked the provisions of Section 4(1)(a) of the Act and applying the rate of Rs. 418 per share, worked out the value of the gifted shares at Rs. 2,71,700. Since these shares had been sold for a consideration of Rs. 65,000, the balance of Rs. 2,06,700 had been treated as deemed gift in the hands of the assessee. After allowing a basic exemption of Rs. 20,000, the Assessing Officer computed the taxable gift of Rs. 1,86,700. The learned first appellate authority confirmed the action of the Assessing Officer.
3. Though as many as six grounds have been taken in the appeal, Shri N.K. Sud, the learned Counsel for the assessee made the following submissions.
4. Shri Sud submitted that Section 6 of the Gift-tax Act dealing with the method of determination of value of gifts was substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. It was submitted that prior to the amendment, the value of property other than cash, transferred by way of gift was estimated to be the price which, in the opinion of the Assessing Officer, it would fetch if sold in the open market on the date of the gift. It was pointed out that w.e.f. 1-4-1989, the section was substituted and the new section provided that the value of gift shall be determined in the manner laid down in Schedule II. The learned Counsel for the assessee further submitted that the deemed gifts were enumerated and included in Section 4 of the Act. It was pointed out that up to 31-3-1992, Section 4(1)(a) of the Act stipulated that where the property was transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of transfer exceeded the value of the consideration was deemed to be a gift made by the transferor. It was, however, submitted that by the Finance (No. 2) Act, 1991, Section 4(1)(a) of the Act was amended w.e.f. 1-4-1992 and it was provided in the amended provisions that where the property was transferred otherwise than for adequate consideration, then the amount by which the value of the property as on the date of transfer and determined in the manner laid down in Schedule II, exceeded the value of the consideration was to be deemed to be a gift made by the transferor.
5. The learned Counsel for the assessee submitted that in the Notes on Clauses in the Finance (No. 2) Act, 1991 as reported in 190 ITR (Statutes) 230 at page 262, it was explained that the aforesaid amendment in Section 4(1)(a) of the Act was to take effect from first of April, 1992 and was to apply in relation to assessment year 1992-93 and subsequent years. The learned Counsel for the assessee, therefore, submitted that the Revenue authorities were wrong in applying the provisions of Schedule II for arriving at the value of the transferred shares as on 28-2-1990. In this regard, the learned Counsel for the assessee referred to the Supreme Court decision in the case of CIT v. PatelBros. & Co. Ltd. [1995] 215 ITR 165. It was explained that in the said decision, the scope of Explanation 2 to Section 37(2 A) of the Income-tax Act had been examined by the Supreme Court and it was held that the insertion of Explanation 2 made retrospectively but restricted in its application only w.e.f April 1, 1976 was itself an indication that its application prior to 1-4-1976 was excluded. On the analogy of this decision, the learned Counsel for the assessee elaborated that even where a provision was inserted by way of an Explanation but was to take effect from a particular date, the Supreme Court held that the said provision was applicable from that very date. It was, therefore, explained that the amendment in Section 4(1)(a) of the Act was made specifically w.e.f. 1-4-1992 and would apply only to assessment year 1992-93 onwards and not to prior years. The thrust of the argument was that if the amendment under Section 4(1)(a) of the Act was merely clarificatory, then there was no need to carry out the amendment w.e.f. 1-4-1992. The first submission of the learned Counsel for the assessee, therefore was that the Revenue authorities were in error in applying the provisions of Schedule II to the Gift-tax Act for arriving at the value of the shares and thereby calculating the alleged inadequacy of the consideration.
6. The next submission of Shri Sud was that the amendment in Section 4(1)(a) of the Act being substantive in character, it was incumbent upon the Assessing Officer to determine the fair market value of the shares transferred so as to arrive at the adequacy or inadequacy of consideration. It was submitted that apart from the fact that the assessee himself had shown the value of shares of the aforesaid company in his wealth-tax return for assessment year 1990-91 at the rate of Rs. 418 per share, there \vas no evidence with the Assessing Officer to come to the conclusion that the market value of the shares transferred on 28-2-1990 was Rs. 418 per share. Referring to the Tribunal’s decision in the case of Rattan Chand Oswal v. G TO[1993] 45 ITD 370 (Chandi.) it was submitted that before gift-tax is charged under Section 4(1)(a) of the Act, the burden lies on the department to prove the inadequacy of the consideration and if this burden is not discharged, the provisions of Section 4(1)(a) cannot be invoked to tax the deemed gift in the hands of the assessee.
7. The learned Counsel for the assessee drew our attention to page 1 of the assessee’s compilation in which on the basis of yield method, the value of shares of the aforesaid company as on 31-3-1989 was worked out at Rs. 92.90 per share. It was submitted that the Assessing Officer did not refer to this valuation on the basis of yield method and stuck to his guns by applying the rate of Rs. 418 per share. It was submitted that the learned CGT(A) had also worked out the value on the basis of yield method at Rs. 1,966 per share in para 4.7 of the impugned order without affording an opportunity of being heard to the assessee.
8. The learned Counsel for the assessee submitted that if it were a case of gift simpliciter, there would have been justification for invoking the provisions of Schedule II to the Income-tax Act but in the present case it was not a question of gift simpliciter but of a deemed gift. It was s ubmitted that Section 4(1)(a) which was a charging section, laid down that only market value of the shares could be taken on the date of transfer and the onus was on the Assessing Officer to prove that the market value in the present case was more than Rs. 100 per share and that this onus had not been discharged by the Assessing Officer.
9. The learned Counsel for the assessee further submitted that it would be unfair to the assessee to remit the matter back to the Assessing Officer for purposes of determining he fair market value of the shares as on 28-2-1990 particularly when he (Assessing Officer) failed to discharges the onus in the first instance. The learned Counsel for the assessee vehemently argued that there was absolutely no justification for computing the deemed gift in the hands of the assessee and that the gift assessed in the assessee’s hands may be deleted.
10. The learned D.R. copiously referred to various portions of the impugned order and submitted that all the points raised by the learned Counsel for the assessee had been fully and squarely met by the learned CGT(A). The levy of gift-tax at the rate of Rs. 418 per share was strongly supported by the learned D.R.
11. We have carefully considered the submissions made before us. We have also carefully gone through the material on record. The first question to be decided is as to whether the amendment brought about by the Finance (No. 2) Act, 1991 in Section 4(1)(a) w.e.f. 1-4-1992 is a procedural amendment or a substantive amendment. Before we develop this point further, it would be necessary to mention that ‘gift’ has been defined in Section 2(xii) of the Gift-tax Act to mean transfer by one person to another to any existing movable or immovable property made voluntarily and without consideration in money or money’s worth and includes the transfer of any property deemed to be a gift under Section 4 of the Gift-tax Act. It is, therefore, clear that the deemed gift comes well within the charging section which is Section 3 of the Gift-tax Act. The law as it existed before 1 -4-1989 and the amendments subsequently to Section 4(1)(a) and Section 6 of the Act have been succinctly put forth by the learned Counsel for the assessee and have been discussed above. The amendment brought about by the Finance (No. 2) Act, 1991 in Section 4(1)(a) of the Act does not stipulate for the first time that in case of inadequate consideration, gift will be deemed. The deeming provision was already there and it is only the method of working out the value of the gift that has been brought about by the aforesaid amendment w.e.f. 1 -4-1992. Distinction between substantive law and procedural provisions has been indicated in Black’s Law Dictionary (Sixth Edition, page 1203) as follows :–
As a general rule, laws which fix duties, establish rights and responsibilities among and for persons, natural or otherwise, and ‘substantive laws’ in character, while those which merely prescribe the manner in which such rights and responsibilities may be exercised and enforced in a court are ‘procedural laws’.
12. In Salmond’s Jurisprudence (Twelfth Edition, page 461), the distinction between substantive law and law of procedure is indicated in the following words:–
What, then, is the true nature of the distinction ? The law of procedure may be defined as that branch of the law which governs the process of litigation. It is the law of actions – jus quodad actiones pertinet -using the term action in a wide sense to include all legal proceedings, civil or criminal. All the residue is substantive law, and relates, not to the process of litigation, but to its purposes and subject-matter. Substantive law is concerned with the ends which the administration of justice seeks; procedural law deals with the means and instruments by which those ends are to be attained. The latter regulates the conduct and relations of courts and litigants in respect of the litigation itself; the former determines their conduct and relations in respect of the matters litigated.
… What facts constitute a wrong is determined by the substantive law; what facts constitute proof of a wrong is a question of procedure….
So far as the administration of justice is concerned with the application of remedies to violated rights, we may say that the substantive law defines the remedy and the right, while the law of procedure defines the modes and conditions of the application of the one to the other.
13. From the above definitions, it is clear that the method of valuation is a matter of procedure and not of substantive law. The Hon’ble Supreme Court in the case of CWT v. Sharvan Kumar Swarup & Sons [1994] 210 ITR 886 held that Rule 1BB of the Wealth-tax Rules partook the character of a rule of evidence and was, therefore, a matter which fell within the realm of procedural law.
14. We have, therefore, no hesitation to say that the amendment brought about in Section 4(1)(a) of the Act w.e.f. 1-4-1992 was procedural in character and did not affect the rights of the assessee because as held by the Supreme Court in the case of Sharvan Kumar Swarup & Sons (supra), no suitor can be said to have a vested right in procedure.
15. The learned Counsel for the assessee has laid great stress on the Notes on Clauses and has also relied on the Supreme Court in the case of Patel Bros. & Co. Ltd. (supra) for the proposition that if a provision is made effective from a particular date, the law should be deemed to be applicable in respect of the amendment w.e.f. that date. In the case of PatelBros. & Co. Ltd. (supra), the question was about the meaning of “entertainment expenditure”. The definition of “entertainment expenditure” had been expanded by the Legislature w.e.f. a particular date. Since it affected the rights of the assessee and was a matter of substantive law, the Supreme Court held that the expanded definition would be applicable w.e.f. 1 -4-1976 from which date the amendment came into being. In the present case, we find that the law has not amended any substantive provision but has merely preferred a particular method of valuation of shares with a view to bringing finality and uniformity.
16. In this context, it may be pertinent to refer to the Supreme Court decision in the case of CWT v. Smt. Binapani Chakravarty [1995] 214 ITR 721. Under the Wealth-tax Act, the term ‘jewellery’ was expanded by insertion of Explanation 1 to Section 5(1)(vii) of the Wealth-tax Act w.e.f. 1 -4-1972. In the said Explanation, “jewellery” included ornaments made of gold, silver, platinum or any other previous metal whether or not containing any precious or semi-precious stones. It was pleaded that gold ornaments came within the purview of ‘jewellery’ w.e.f. 1-4-1972. The Supreme Court held that Explanation 1 was partly clarificatory and partly substantive. It was held that jewellery even before the coming into force of Explanation 1, would include gold ornaments. The purpose of referring to the decision in the case of Smt. Binapani Chakravarty (supra) is that even where an amendment is made w.e.f. a particular date, it is not that the amendment will be applicable from that date but it depends upon the nature and character of the amendment. If the amendment is in the province of substantive law, then it would be applicable from that date but if it is of a procedural nature, then it would be considered clarificatory in character, just as the Supreme Court held that the definition of ‘jewellery’ covering gold ornaments as mentioned in Explanation 1 to Section 5(1)(viii) of the Wealth-tax Act was clarificatory in nature, so no act of superfluity or absurdity can be attributed to the Legislature for making the amendment to Section 4(1)(a) of the Gift-tax Act applicable from 1-4-1992.
17. Even if one were to go by the market value concept as was operative prior to 1-4-1992, there is no market of unquoted shares but the law provides that such market has to be presumed. When shares of a private limited company are not quoted at the Stock Exchange and there are no transfers of shares, then one has to go by the recognised method of valuation of such shares to arrive at their market value. In the present case, the assessee himself had arrived at the value of these shares as on 31-3-1990 for wealth-tax purposes at the rate of Rs. 418 per share. The Assessing Officer was justified in taking this to be the fairmarket value of the shares as on 28-2-1990 when the assessee transferred 650 shares to his son.
18. Much has been made by the learned Counsel for the assessee that as per the assessee’s contention, the value of the shares of the aforesaid company on the basis of yield method was Rs. 92.90 per share and that the learned first appellate authority had not given an opportunity of hearing while working out the value of shares on that basis at Rs. 1,966 per share. We have gone through the working of the value of shares at Rs. 92.90 per share as per the yield method. This is discussed in para 4.4 of the impugned order. On the basis of the working given, the rate of return has been worked out at 11.15% and taking the normal rate of return at 12%, the value of share of Rs. 100 has been worked out at Rs. 92.90. There are, however, serious flaws in the valuation made by the assessee or his valuer. It is for instance, been that the profit earned by the company was Rs. 22,368 for assessment year 1987-88, Rs. 13,16,852 for assessment year 1988-89 and Rs. 7,51,774 for assessment year 1989-90. The average of these three years’ profits worked out to Rs. 5,34,000. Though the figures of profits for assessment year 1990-91 are not available on record, the profits of the preceding three years clearly show that M/s. Himachal Engg. Co. Pvt. Ltd. was a profitable concern and was showing handsome profits over the years. On the face of it, it is not possible to believe that the value of each share would be Rs. 92.90 on the basis of yield method as against the face value of Rs. 100 per share. In our opinion, the assessee’s valuer has committed a mistake in including reserves, surplus and loans in the share capital for arriving at the rate of return. The reserves and surplus have been generated by the profits earned by the aforesaid company which again is a proof that it was a profit earning company. The equity share capital employed by the said company was Rs. 9,43,500 only and if one were to divide the average profit of Rs. 5,34,000 by the equity share capital of Rs. 9,43,500, then the rate of return would be 56.6% which would result in the value of each share being taken at Rs. 470 by taking the normal rate of 12% as done by the assessee’s valuer. The value of Rs. 1,966 per share adopted by the learned CGT(A) on the basis of yield method may be off the mark but as demonstrated above by us, the value of the each share on the basis of yield method would come to Rs. 470 whereas the Assessing Officer has adopted the rate of Rs. 418 per share.
19. The learned Counsel for the assessee has relied on the Tribunal’s order in the case of Rattan Chand Oswal (supra). The facts in that case were, however, clearly distinguishable. The Assessing Officer in their case, found that on the basis of break-up value method, the value of each share came to Rs. 149. The assessee was, however, able to prove that certain shares had actually been sold at the rate of Rs. 12 per share. It was also found that in the case of Banarso Devi Oswal Charitable Trust, the value of shares of Oswal Woollen Mills Ltd. was accepted at Rs. 12 per share. The assessee also filed copies of advertisements showing that these shares had been advertised in the daily issue of the Tribunal. In addition to the above, the assessee had filed documents to show that he had surrendered these shares to the Estate Duty Officer to be sold in the open market and the price realised be apportioned towards estate duty. The Estate Duty Officer ultimately returned the shares as it was not possible even to realise the amount of Rs. 12 per share. On these facts, the Tribunal held that the department had failed to prove the fair market value of the shares at more than Rs. 12 per share. In the present case, however, as noted above, both the methods, namely, break-up method and the yield method, the value of the shares is considerable being Rs. 418 per share and Rs. 470 per share respectively. The initial onus which lay on the Assessing Officer stood duly discharged when it was demonstrated that the value of the transferred shares as per break-up method was Rs. 418 per share. Thereafter it was for the assessee to bring evidence on record to show that this was not so. No such evidence in the present case has been brought on record.
20. The Income-tax, Wealth-tax, Gift-tax and Estate Duty Acts are cognate enactments. If no rules are provided for valuing unquoted shares under the Gift-tax Act, the Assessing Officer would be justified in adopting the method provided under the Wealth-tax Act. In the case of Shyamsukh Garg v. CED[1984] 145 ITR 238, the Madhya Pradesh High Court has held that where no rules have been framed for valuing unquoted equity shares under the Estate Duty Act, 1953, then in the absence of any contrary provision, the principles laid down by the statutory rules framed under another taxing statute, namely, the Wealth-tax Act, can be taken into consideration in valuing the unquoted equity shares for purposes of estate duty. On the same analogy, if there are no rules for valuing the unquoted equity shares under the Gift-tax Act, then the principles laid down under the Wealth-tax Act could be taken into consideration by the Assessing Officer and that is precisely what the Assessing Officer did in the present case by taking the value of transferred shares at Rs. 418 per share.
21. We also do not find any merit in the distinction of the learned Counsel for the assessee that it was not a gift simpliciter but of deemed gift. In our opinion, it would be illogical to value the shares by a particular method where shares were gifted and to value such shares by a different method where an element of deemed gift was involved. In our opinion, uniformity should be the basis of valuation of shares and no discrimination should be made in adopting different methods of valuing the same set of shares in different situations.
22. Taking into consideration the entire facts and circumstances of the case, we hold that the Assessing Officer was justified in assessing the taxable gift at Rs. 1,86,700 and the first appellate authority was justified in confirming the action of the Assessing Officer.
23. In the result, the appeal is dismissed.