S. RAJARATNAM, A.M. ORDER These eleven Departmental appeals arise out of orders of AAC, in case of above assessees in respect of gift-tax assessments for asst. yr. 1 9 78-7 9 . Since common facts are involved and assessees belong to same family group, these appeals are conveniently dealt with together. 2. assessees are shareholders of India Fruits (P) Ltd. of Kadium and they have sold shares therein to Godavari Electrical Conductors, firm of four partners. It is not disputed that partners of said firm are related to assessees. face value of share was Rs. 500 per share. However, it has been sold at Rs. 3,450 per share which, according to assessees, represented market value as on that date. sale price was sought to be justified with reference to working purportedly by method even as prescribed under r. 1D of WT Rules, 1 9 57 ('the 1 9 57 Rules') for wealth-tax purposes. method followed by assessee was to work out intrinsic (break-up) value of share as per balance sheet as on 31st March, 1 9 77 which was last balance sheet available as sale was on 27th Feb., 1 9 78 and then adjustment was made towards sale value for accretion to assets till date of sale. After said addition, 15 per cent deduction as prescribed under r. 1D for reason that there is restriction on transfer of shares was worked out. net amount was Rs. 3,450 at which transfer took place. GTO was, however, of view that r. 1D was not mandatory. In this view, he came to conclusion that 15 per cent discount for restriction on transfer of shares was not admissible. If it was not admissible, share value should be Rs. 4,042 per share. It is difference that has been sought to be taxed as gift in hands of assessees and amount in dispute before first appellate authority in hands of assessees covered by this present order is as under : Amount in dispute Sl. Name of assessee Rs. No. A.V. Reddy Trust for A.V. 1. 1,72,700 Seshakumar Reddy A.V. Reddy Trust for Mrs. Lalitha 2. 88,208 2. 88,208 Anderson A.V. Reddy Trust for Mrs. Margaret 3. 88,208 Annereddy Sear A.V. Reddy Trust for A.V. 4. 1,72,700 Vijayakumar Reddy 5. Sri Anam Venkata Reddy, HUF-I 1,72,700 6. Sri Anam Venkata Reddy, HUF-II 1,24,320 7. Sri Anam Venkata Reddy 1,18,400 8. Smt. Anam Saraswathi 1,30,240 9. Sri. Anam Premkumar Reddy 88,800 10. Sri A. Premkumar Reddy, HUF 1,53, 9 20 11. Mr. A. Jayalakshmi Reddy 53,280 first appellate authority found that method prescribed for wealth-tax purposes need not be considered as inapplicable for purposes of valuation under allied Acts. decision of Mysore High Court in case ofCED vs. J. Krishna Murthy (1 9 74) 9 6 ITR 87 (Mys)was relied upon for proposition that method for wealth-tax purposes could well be adopted for estate duty purposes. Another decision of Madras Bench of this Tribunal following said decision and considering discount for restriction purposes was also cited by first appellate authority. He further found nothing unreasonable in working adopted by assessee and that there was no case for presuming any gift in transaction. He, therefore, cancelled gift-tax assessments. In Departmental appeal, his decision is questioned. only reason discernible in grounds of appeal is that Revenue has assumed that AAC adopted method laid down in r. 1D and that he was wrong in doing so. learned Departmental Representative reiterated this stand. He contended that company not being one under liquidation, shares there cannot be valued by break-up value of shares, even as held by Supreme Court in case ofCWT vs. Mahadeo Jalan 1 9 72 CTR (SC) 3 9 5 : (1 9 72) 86 ITR 621 (SC)and Bombay High Court inSmt. Kusumben D. Mahadevia vs. CWT (1 9 80) 14 CTR (Bom) 20 : (1 9 80) 124 ITR 7 99 (Bom). Since assessee was going concern, be contended that method followed by first appellate authority for holding that there is no element of gift was incorrect. Apparently it was his case that if any other method had been followed, value would be much higher and that gift element even more pronounced. He claimed that he was entitled to support gift-tax assessment with reference to this argument as well. learned counsel for assessee, on other hand, claimed that disputed difference between value adopted by GTO and consideration for sale as between parties was only 15 per cent. This is also explained with reference to stipulation regarding transfer of shares in private limited company with reference to articles of association of company. He pointed out that such discount has always been given. Besides, he claimed that method prescribed for wealth-tax purposes is well-known method and that there is no bar to such method to be considered as reasonable one for other tax purposes even as noticed by Mysore High Court in case ofJ. Krishna Murthy(supra) referred to by first appellate authority. He also referred to recent decision of Madras High Court in case ofCWT vs. S. Ram (1 9 83) 15 Taxman 14 9 (Mad)wherein valuation of unquoted shares in private companies for purposes of wealth-tax and gift-tax was discussed. This decision,inter alia, found that break-up value method could well be followed for gift-tax purposes as well. Madras High Court in this case pointed out that GT Act, 1 9 58 ('the Act') or rules thereunder do not contain any detailed method of valuation of unquoted shares. Rule 10(2) of GT Rules, 1 9 58 would, in opinion of High Court, prefer break-up value method. He further pointed out that assessee has chosen to consider accretion till date of transfer though there are decisions in his support that it is not necessary to include such accretion as only balance sheet available to intending purchaser is last one. As for discount of 15 per cent, he claimed that such discount has always been considered admissible, even where yield method has been followed because restrictions on transfer of shares is inhibiting factor in respect of shares in private companies. He also claimed that some of parties are trustees who are not expected to make gift when they sell shares entrusted to them for custody on behalf of minors and other beneficiaries. He claimed that there is neither presumption nor facts to justify inference of gift. 3 . We have carefully considered records as well as arguments. Sec. 4(1)(a) of Act enables GTO to deem gift where consideration is inadequate in following words: "(a) where property is transferred otherwise than for adequate consideration, amount by which market value of property at date of transfer exceeds value of consideration shall be deemed to be gift made by transferor." In this particular case, transfer is purportedly by way of sale of unquoted shares in private limited company. Rule 10(2) prescribes method of valuation as under : "Where articles of association of private company contain restrictive provision as to alienation of shares, value of shares, if not ascertainable by reference to value of total assets of company, shall be estimated to be what they would fetch if on date of gift they could be sold in open market on terms of purchaser being entitled to be registered as holder subject to articles, but fact that special buyer would for his own special reasons gives higher price than price in open market shall be disregarded." Madras High Court inS. Ram'scase (supra) held that words 'if not ascertainable by reference to value of total assets of company' certainly expresses itself in favour of break-up value of shares in following words : "As we earlier mentioned value of unquoted shares figures in connection with gift-tax references also. tax under this Act is chargeable on value of gifts, which value has got to be ascertained on basis of market value. Unlike as in WT Act and Rules made thereunder, there is no detailed provision in GT Act or GT Rules as to how market value of unquoted shares has to be ascertained. Mention, however, should be made of r . 10(2) of GT Rules. According to this rule, value of unquoted shares must be ascertained on break-up value method. But where break-up value method cannot be applied, then rule lays down that market value of unquoted shares may be ascertained on footing that purchaser of unquoted shares would be entitled to get registered as transferee in company's registry. This rule, therefore, shows that preferred method of market valuation of unquoted shares is break-up value method. But unlike as in WT Rules, GT Rules do not contain any conditions or restrictions in matter of deduction of contingent liabilities . . . ." It is, therefore, clear that question of following any method for purposes of valuation for gift-tax would arise only where value cannot be 'ascertainable by reference to value of total assets of company'. This is not case where it cannot be so ascertained. In facts, assessee as well as GTO have worked out break-up value of shares. It is, therefore, pointed out that it is neither open to learned Departmental Representative, nor is it otherwise justifiable with reference to law and rules on subject to seek any other method of valuation so as to justify assessment already made. We would also add that there is absolutely no material before us to show that any other method could be more favourable to Revenue even if adoption of such other method was possible. We would hasten to add that there is actually no dispute between GTO and assessee as to precise method to be adopted. Both agreed that break-up value of shares should be adopted. only dispute is whether there should be any discount to be allowed. We may also add that there is not even any dispute as to what balance sheet should be adopted. assessee has taken into consideration last balance sheet available and has even made upward adjustment for accretion to assets till date of transfer. In order that position may be clear, we reproduce working as given by assessee and reproduced by GTO in his order: Rs. Rs. Rs. "Total of assets as per balance sheet as 5,70,35,040 on 31st March, 1 9 77 Total of liabilities as per 5,70,35,040 balance sheet Less : Amounts which are not liabilities : Paid up 27,25,000 capital General 1,67,88,534 reserve Development 2,25,817 rebate reserve Investment 43,543 43,543 allowance reserve Profit and loss appropriation 4,041 account Bonus 'set 2,00,36, 9 2,50,000 on' 35 Therefore, amount 3,6 9 , 9 representing 8,105 3,6 9 , 9 8,105 liabilities in balance sheet Net wealth of 2,00,36, 9 company after 35 deducting liabilities Add : Accretion to net wealth for arriving at its value as on : February 1 9 78 on basis of previous years 1 9 ,8 9 ,702 accretion to reserve Total net wealth as on 2,20,26,637 February 1 9 78 Less : 15 per cent deduction to compensate for restriction on transfer of shares applicable for 33,03, 99 5 private companies and on their free sale Value for purposes of share 1,87,22,642 valuation : No. of 5,450 shares on date Rs. Value per 1,87,22,642/5,450 share : = Rs. 3,435.35 or Rs. 3,450." This method of considering accretion till date of transfer with reference to later balance sheet, though favourable to Revenue in this case, has been adopted by assessees. It incidentally has support of Madras High Court decision inS. Ram'scase (supra). There is contrary decision which requires that value should be reckoned with reference to balance sheet last available. Kerala High Court inCGT vs. H.H. Sethu Parvathi Bai (1 9 83) 35 CTR (Ker) 284 : (1 9 84) 145 ITR 124 (Ker)had taken this view that valuation should be with reference to last available balance sheet quoting with approval decision of Gujarat High Court inCGT vs. Executors & Trustees of Estate of Late Shri Ambalal Sarabhai (1 9 75) 100 ITR 447 (Guj), following decision of theHouse of Lords in Lynall vs. IRC (1 9 72) 83 ITR 563 (HL). These decisions have taken view that nearness to date of gift is 'irrelevant and is of no consequence at all' and last available balance sheet is relevant as it is only balance sheet which is available to intending buyer. No doubt, Madras High Court has taken contrary view. Though assessee has taken view which is favourable to Revenue, we are mentioning this fact merely to suggest that assessee has added Rs. 1 9 ,8 9 ,702 (nearly 10 per cent) as accretion on which there could be reasonable dispute. 4. Now, coming to issue whether any discount is called for in view of restriction in respect of shares, we may consider relevant provisions in articles of association. Arts.22 to 30 deal with such restrictions. Art 22 stipulates that share cannot be transferred to person who is not member as long as directors are not convinced that transferee is desirable person in interest of company and that purchase is 'at its fair value'. If person wants to sell shares, he has to give notice of such proposed sale to company with price fixed by him. company within 28 days of such notice can make purchase by itself at that price or arrange sale to any other member or any other person appointed by it as desirable person in interests of company. fair value is also fixed annually at ordinary general meeting. Only where company could not find purchaser, shareholder is at liberty to sell his own shares at his own price. Even bequeathal of these shares has to be to relatives specified in Art. 2 9 . Over and above these restrictions, Art. 30 empowers directors to refuse registration of any transfer of share 'without assigning any reason therefor where it is not proved to their satisfaction that proposed transferee is not responsible person' or 'a desirable person'. These clauses are wide enough and restrictions are even more than ordinary restrictions which are usually found in such private companies. depressing effect of such restrictions cannot be denied. However, only question that is posed is whether discount for this factor can be given when break-up value method is followed. Rule 1D provides for such discount. We have no doubt that r. 1D is mandatory, if at all, only for wealth-tax purposes. But r. 1D incorporates recognised method for valuation of unquoted shares. discount under this rule is not concession or artificial allowance. It recognises fact that market value of unquoted shares in private company is less than break-up value of shares for various reasons. break-up value is value that can be realised if company is taken to liquidation as on date of such sale of share and assets are realised and liabilities discharged on that date. But single shareholder not having controlling interest, cannot bring company to liquidation at his will. Again, it takes time, to observe formalities under Companies Act, 1 9 56. Realisation of assets cannot also happen on same day. There is further cost of realisation and administrative expenses during period of realisation. Over and above these factors, there is depressing effect of intending purchaser not being accepted as 'responsible' or 'desirable' person in opinion of directors. Hence, market for such shares is limited. It is for these reasons that discount has been given. When first appellate authority accepted assessee's case for discount, he was not following mandatory r. 1D for wealth-tax purposes blindly as though these were acceptable for gift-tax purposes as well in same mandatory sense. All that he did was to adopt recognised valuation which has approval of r. 1D as well. Any standard text book on valuation would indicate that some discount has to be allowed for depressing effect of restrictions on transfer of shares. Study on Share Valuation published by Research Committee of Chartered Accountants of India cites decision inSalvesen's Trustees vs. CLR (1 9 30) TLR 387where deduction of 25 per cent was allowed in view of unusual and stringent clause that any holder of less than 10 equity shares could be compelled to transfer them at any time. There are other decisions to same effect. Such discount has been found to be allowable whatever might be method adopted, whether it be by break-up value method or yield method. 15 per cent has been fixed by r. 1D not in any arbitrary manner as is evident from following extract from Verma on Wealth-tax, Second edition : "85 per cent discount Basis of -- As stated earlier as per r. 1D market value of equity share is taken at 85 per cent of break-up value of share. basis of discount of 15 per cent is not given in Rules. During Taxation Seminar in Delhi in November 1 9 70 arranged by Indian Chamber of Commerce question was raised regarding arbitrary basis of taking market value of equity share at 85 per cent of break-up value. According to participants in discussion quoted market value in respect of some of established blue scrips companies was much less than 85 per cent of break-up value. In answer to above question one of senios officials of Board who was connected with framing of ruler replied thus : 'A question has been raised here why we allow discount of only 15 per cent from break-up value. Here I must say that we had studied balance sheets of very large number of public companies whose shares are quoted on Stock Exchange. We tried to compare break-up value of shares of such companies with market value not only on date of balance sheet, but also three months later and six months later, and ultimately we found that 15 per cent discount was quite reasonable. So that is how 15 per cent discount from break-up value came to be taken." Shri Verma, after above extract, proceeds to say that in view of shyness of capital market and other factors prevalent in India, allowance of 15 per cent is inadequate and that it should at least be 25 per cent. If variation between break-up value and market price even in respect of blue scrips of public companies is 15 per cent or above, allowance of 15 per cent for shares in private companies can hardly be considered unreasonable. We are mentioning these facts to show that though there is element of approximation and estimation in fixing 15 per cent as discount for restriction on shares, it will not be correct to say that it is allowance without any scientific basis. Under circumstances, only dispute of GTO being that there is no warrant for discount at 15 per cent, we should hold that his order cannot stand. Even as pointed out earlier, it was possible for assessee to ignore subsequent balance sheet and if it had not done so, margin of difference would be more than halved. Again, it must be pointed out that best evidence of market value of unquoted shares is price at which sales are transacted. There had been as many as 22 transactions, there being 22 different sellers though belonging to same family group to same buyer. Some of sellers are trustees on behalf of minor children and others. It stands to reason that they would not have accepted lesser amount than what is fairly due as trustees on behalf of beneficiaries. When there are numerous transactions at same price between different parties, it is not possible to reject sale price out of hand as had been sought to be done by learned GTO. In other words, there is no material whatsoever for questioning fairness of sale price. In other words, inadequacy of consideration has not been established. 5. Before closing matter, we would like also to base our decision on question of jurisdiction. Sec. 4(1)(a) deems transfer of asset as gift when any portion is transferred 'otherwise than for adequate consideration'. It is only when there is such transfer for inadequate consideration that question of taxing difference as gift would arise. In other words, question of reckoning of market value itself would not arise unless there is aprima facietransfer for inadequate consideration. Supreme Court in case ofKum. Sonia Bhatia vs. State of UP AIR 1 9 81 SC 1274dealing with gift hit by UP Imposition of Ceiling on Land Holdings Act, 1 9 61, had dealt with meaning assigned to words 'consideration', 'adequate consideration', etc., under Transfer of Property Act, 1882, and Indian Contract Act, 1872. Supreme Court quoted with approval following definition of word 'adequate consideration' in 'Words and Phrases' (Permanent Edition, vol. 2) : "'Fair consideration in money or money's worth' is consideration which under all circumstances is 'honest, reasonable, and free from suspicion,' whether or not strictly 'adequate' or 'full'." Supreme Court emphasised word 'adequate' and 'full' in above definition. In other words, consideration should be 'honest, reasonable and free from suspicion whether or not strictly adequate or full'. Hence, in transfer of sale simpliciter, question of treating transaction as one for inadequate consideration cannot arise merely because GTO may attack valuation which would show that consideration agreed between parties could be higher or lower. If such kind of approach has to be adopted, it is possible to infer gift either by seller or purchaser in every transaction of sale. Obviously, such is not intention of s. 4(1)(a). In case cited, Supreme Court has further clarified that object of qualifying word 'consideration' by word 'adequate' is to 'make it sufficient and valuable having regard to facts, circumstances and necessities'. Such conclusion as regards initial jurisdiction for attracting s. 4(1)(a) has support of some decisions under Act itself. While it is undisputed that in case of transfer without adequate consideration, extent of inadequacy could be treated as gift, it is also equally clear that inadequacy should be such as to warrant inference that consideration itself is not adequate. Bombay High Court inCGT vs. Cawasji Jehangir Co. (P) Ltd. 1 9 76 CTR (Bom) 181 : (1 9 77) 106 ITR 3 9(Bom)found that though consideration as on date of transfer as ordered by Court was inadequate, it was not transfer for inadequate consideration because difference was explainable with reference to date on which transaction was approved by resolution of company. High Court observed "the expression, 'adequate consideration' cannot be construed with precision, but as already stated above, it must be construed in relation to facts and figures of each particular case". This decision was approved by Madras High Court in case ofCGT vs. Indo Traders & Agencies (Madras) (P) Ltd. (1 9 81) 131 ITR 313 (Mad)in following words : ". . . If legislature had contemplated as universal rule that market value should alone be criterion for testing adequacy of consideration, provision would have been differently worded. wording would then have been, 'where property is transferred for less than its market value, then difference between market value and consideration stipulated, shall be deemed to be gift made by transferor'. Parliament not having made any such provision, it would not be for us to take market value of property for determining adequacy of consideration in all events." above observation was made in context of very words under s. 4(1)(a) now before us. Madras High Court further observed that consideration should be such as to shock conscience of Court in order to be characterised as inadequate in following words in same judgment : "The considerations which weighed with Courts in examining adequacy of consideration in respect of sale by minor or in respect of relief for specific performance would also apply in examination of transaction under s. 4(1)(a). Unless price was such as to shock conscience of Court that it cannot be reasonable consideration at all, it would not be possible to hold that transaction is otherwise than for adequate consideration. In fact, in Full Bench judgment of Patna High Court, it is mentioned by Chief Justice Harries, that adequacy of consideration is matter for parties (see (1 9 41) 9 ITR 137, 148). judgment of Patna High Court has been approved by Supreme Court in later decision Tulsidas Kilachand vs. CIT (1 9 61) 42 ITR 1 (SC). of course it is not enough if transfer is for 'good consideration'. It should also be for adequate consideration. Adequate consideration is not necessarily what is ultimately determined by someone else as market value." In case before us, assessee has sought to give basis for price at which different persons agreed to sell to same buyer different numbers of shares at that price. basis itself was found to be justifiable with reference to recognised method of valuation which had approval under r. 1D though for wealth-tax purposes. There may be other methods giving other results. But as long as method given by assessees as basis for consideration shown is recognised method and there is no material to discredit taxpayers' basis either as to thebona fides of transaction or with reference to some other facts, we do not think that it was really open to GTO to treat transaction as one without adequate consideration. It has not been shown to us that consideration here was shocking or is even otherwise different than what it should have been. 6 . Hence, in any view of matter, we find that orders of first appellate authority have to be upheld and appeals dismissed. *** GIFT-TAX OFFICER v. A.V. REDDY TRUST