SHAILENDRA K. YADAV, J.M. These are cross-appeals one filed by Revenue and other by assessee. ITA No. 19/Mum/2003 (Revenue s appeal) 2. In this appeal, Revenue has raised following grounds : "1. On facts and circumstances of case and in law, CIT(A) erred in disapproving method of AO for determining market value of shares by break-up method for computing long-term capital gain. 2. On facts and circumstances of case and in law, CIT(A) erred i n directing AO to adopt market value of shares of M/s Marico Industries as on 2 8 th Dec., 1995 by yield method and in quantifying same at Rs. 165 per share. 3. On facts and circumstances of case and in law, CIT(A) erred in deleting short-term capital gain in asst. yr. 1996-97 with direction to tax same in asst. yr. 1997-9 8 . 4. On facts and circumstances of case and in law, CIT(A) erred i n directing AO, that if any higher authority decides that short-term capital gain should be assessed in asst. yr. 1996-97, then same should be computed by adopting sale consideration at Rs. 175 per share and cost of each share at Rs. 165." 3 . first issue is regarding methodology employed for determining market value of unquoted shares. facts of case are that assessee is private trust. It was holding shares of Harsh Archana Trading and Investments Ltd. (in short Harsh Archana ). These shares had been subscribed to by assessee in previous year relevant to asst. yr. 1993-94. Harsh Archana went into voluntary liquidation pursuant to settlement arbitrated amongst members of Mariwala family by Ex-CJI of India, Justice V.D. Tulzapurkar. Harsh Archana was holding certain shares of Marico Industries Ltd. (in short Marico ). On distribution of assets in specific pursuant to liquidation of Harsh Archana, assessee-trust, on 2 8 th Dec., 1995, had received 4,32,000 shares of Marico. shares of Marico then were unlisted and unquoted. So, question arose as to what should be marked value of these shares for purposes of computing capital gains under s. 46(2) of IT Act, 1961. assessee-trust had adopted market value of Rs. 165 per share based on offer price of Rs. 175 per share in public issue of Marico shares made in March, 1996. facts, in this regard, are detailed below. 3 . 1 In extraordinary general meeting of shareholders of Marico, special resolution was passed on 26th Dec., 1995 pursuant to which it was resolved to offer 10,00,000 shares of Marico to public at price of not less than Rs. 150 per share and not more than Rs. 1 8per share. As per prospectus, public issue comprised 10,00,000 fresh shares to be issued by Marico and sale of 26,25,000 shares held by promoters at same price of Rs. 175 per share. offer for sale of shares by promoters included 4,32,000 shares received by assessee from Harsh Archana. public issue opened for subscription on 21st March, 1996 and closed on 26th March, 1996. issue was oversubscribed by 1.76 times. basis of allotment in respect of new shares and allocation in respect of offer for sale was decided on 1 8 th April, 1996. application money had been received by Marico from public. On finalization of basis of allotment/allocation and transfer of shares on 1 8 th April, 1996, assessee received money from Marico on 30th April, 1996. 3.2 assessee-trust had filed its return of income for asst. yr. 1996- 97 on 29th Aug., 1996, declaring total income of Rs. 699.25 lakhs. Owing to certain errors in original return, revised return was filed on 31st Dec., 1996, declaring total income of Rs. 742.5 8 lakhs made under s. 46(2) of IT Act, 1961, on receipt of shares of Marico on distribution of assets held by Harsh Archana. capital gains were arrived at by taking value of shares of Marico at Rs. 165 per share. 3.3 AO took view that original return filed on 29th Aug., 1996 was return under s. 139(5) of IT Act, 1961. As such, assessee was precluded from filing revised return under s. 139(5). To regularize return filed on 31st Dec., 1996, AO completed (original) assessment under s. 143(3) of IT Act, 1961, accepting returned income of Rs. 7,42,57, 8 0. As regards market value of shares of Marico on date of distribution of assets of Harsh Archana, i.e., 2 8 th Dec., 1995, wherein AO held as "The liquidators distributed above shares of Marico Industries Ltd. to company on 2 8 th Dec., 1995. On this date Marico Industries Ltd. was not listed company. book value of Marico shares as on 30th Sept., 1995 as per prospectus was Rs. 30.94 per share. market value of Rs. 165 per share for 4,32,000 shares of Marico Industries Ltd. has been arrived at on basis of subsequent price of Rs. 175 per share at which shares were offered to public on 21st March, 1996 and allotted on 17th April, 1996. share price of Rs. 165 has been determined as under : Price at which shares are Rs. allotted to Public 175.00 Less : (1) Estimated expenditure in connection with public (actual exp. per share comes to Rs. 5.42) Rs. 5.00 (2) Towards interest cost of 23 months @ 12 per cent per annum Rs. 5.00 Rs. 10.00 Rs. 165.00 43,200 shares of MIL on 2 8 -12- 1995 @ Rs. 165 per share Rs. 7,12, 8 ,000 (Rs. Less : Deemed dividend 54,739) Rs. 1, 8 ,74 cost of acquisition (Rs. 8 1,26,009) Rs. Capital gains under s. 46(2) 7,10,99,252" Subsequently, AO once again reopened assessment by issue of another notice under s. 14 8 of IT Act, 1961, dt. 31st Jan., 2001. grounds on which assessment was reopened are specified in assessment order as under : "In this case assessment under s. 143(3), r/w s. 147 of IT Act, 1961, was done on 15th March, 2000 determining total income at Rs. 7,42,57, 8 0. Assessee s income consists of long-term capital gain of Rs. 7,10,99,252. assessee was holding 1,000 shares of Rs. 100 each of M/s Harsh Archana Trading & Investment Co. Ltd. since asst. yr. 1993-94. said company went into liquidation and liquidator distributed 4,32,000 shares of M/s Marico Industries Ltd. held by said Investment Co. on 2 8 th Dec., 1995. shares of M/s Marico Industries Ltd. offered shares to public at Rs. 175 per share in March, 1996. assessee along with promoters of company sold 4,32,000 shares to public for Rs. 175 per share on 26th March, 1996 for Rs. 7,12, 8 ,000. Assessee offered long-term capital gains to tax after reducing dividend and after Rs. 10 per share towards expenses. In above circumstances, there was long-term capital gain on receipt of shares on 2 8 th Dec., 1995 under s. 46(2) as well as short-term capital gain on subsequent selling to public on 26th March, 1996 which were required to be worked out separately and taxed which has not been done. Further, for purpose of arriving at capital gains under s. 46(2), market value of shares of M/s Marico Industries Ltd. as on 2 8 th Dec., 1995 was not taken as full value of consideration. In view of above, AO was satisfied that assessment made on 15th March, 2000 resulted into under assessment and escapement of revenue is approximately Rs. 2,30,07,063." 3 . 4 assessee had filed return of income (without prejudice) in compliance with above notice declaring total income of Rs. 7,42,57,795, which included long-term capital gains of Rs. 7,10,99,252. reassessment, which is subject-matter of this appeal, was completed on 20th March, 2002 determining total income of Rs. 7, 8 4,77,0 8 4. While in original assessment, long-term capital gains had been assessed at Rs. 7,10,99,252, in reassessment it was assessed at Rs. 3,97,73,5 8 1. AO further held that since public issue of Marico closed on 26th March, 1996 and money was received in March, 1996, short-term capital gains on sale of said block of 4,32,000 Marico shares by assessee to public also arose during previous year to asst. yr. 1996-97. capital gains long- term and short-term had been computed in assessment order as under : Rs. Being not listed Co. book value Rs. 92.77 per share (value of 4,32,000 shares of Marico Industries 4,00,55,040 Ltd.) Being break-up value (i) Deemed value as per adoption 1, 8 ,711 (ii) Indexed cost of 1,000 shares of Rs. 100 each1000 x 2 8 3 1,00,711 281 3,97,73,5 8 Long-term capital gains 1 Sale of value of 4,32,000 shares @ Rs. 175 7,56,00,000 Less : Book value as on 2 8 -12-1995 4,00,55,040 Short-term capital gains 3,55,44,960 total capital gains thus adds upto Rs. 7,53,1 8 ,541, as against Rs. 7,10,99,252 earlier assessed. difference of Rs. 42,19,2 8 9 comprises following : (i) Sale of shares of Marico on 1 8 th April, 1996 was treated as sale during year 1995-96 and difference between final sale price of Rs. 175 and break-up value of Rs. 92.77 as on 2 8 th Dec., 1995 was taxed during asst. yr. 1996-97 as short-term capital gains; (ii) Market value of shares of Marico as on 2 8 th Dec., 1995 was taken at Rs. 92.77 per share and long-term capital gains was computed on that basis against market value of Rs. 165 per share had adopted in original assessment order; and (iii) Indexed cost of Rs. 1,00,711 was further deducted, though it forms part of deemed value of Rs. 1, 8 ,74 8 . 4 . assessee took matter in appeal before first appellate authority, wherein same was opposed on point of reopening of assessment. Rejecting contention of assessee in this regard, CIT(A) upheld reopening of assessment in question. 4.1 Regarding other grounds of appeal against AO taking market value of share @ Rs. 92.77 per share against Rs. 165 taken by assessee for purposes of computing capital gains under s. 46(2) of IT Act, 1961. It was submitted by assessee that break-up value of Rs. 92.77 arrived at by AO was itself wrong. This value was arrived at on basis of balance sheet of Marico as at 31st March, 1995. Subsequent to March, 1995, there were bonus issues and, accordingly, as per prospectus book value of shares of Marico was Rs. 30.94 per share. On contrary, assessee had adopted market value of shares on basis of adjusted sale price to public. Besides this, various contentions were raised before" CIT(A). 4.2 CIT(A) observed that action of AO was unsustainable. Neither reason recorded for reopening nor reassessment order disclose any reasons for rejecting assessee s computation of market value of shares. Likewise, no reasons have been given by AO for adopting break-up value method for computing market value of shares. Even computation of value adopted had not been given. AO did not even refer to decisions cited by assessee, which decisions are directly on point. No reasons were given as to why these decisions were not applicable. 4 . 3 Though it remains unstated in assessment order, record suggests that in valuing shares of Marico by break-up method, AO could have been guided by r. 11 of Sch. III of WT Act. question is whether this action of AO was sustainable. Under provisions of s. 46(2), market value of assets received on liquidation of company had to be taken for computing capital gains. term market value has not been defined in IT Act. However, term fair market value has been defined in s. 2(22B) of IT Act as price which capital asset would ordinarily retch in open market on relevant date. terms market value and fair market value are cognate expressions. definition of FMV in IT Act is inpari materiawith general definition of value of assets , which existed in s. 7 of WT Act until 31st March, 19 8 9. Both have their basis as concept of hypothetical sale in open market between hypothetical seller and buyer. But general definition under WT Act was subject to Rule for valuation of assets. Once any WT Rule prescribes for valuation on any basis other than hypothetical sale it will have digressed from basis for working out FMV under IT Act. Valuation under any Rule is artificial and strait-jacketed. Such valuation will seldom correspond to actual market value. Thus, valuation of residential house property under r. 1BB of WT Rules, operative from 1st April, 1979, was based on capitalizing rent as per municipal valuation of property. Such valuation will hardly ever correspond to FMV based on concept of hypothetical sales of property. Rule 1BB based valuation of property cannot, therefore, be even rough indicator of its FMV. Similar will be position with respect to valuation of shares as per r. 11 of Sch. III of WT Act. Incidentally, this Rule had been deleted w.e.f. 1st April, 1993 pursuant to shares having been excluded from definition of assets in s. 2(e) of WT Act. Thus, this Rule did not exist on statute book during assessment year under appeal, i.e., asst. yr. 1996-97. Besides, insofar as rule prescribed method of valuation which was at variance with concept of hypothetical sale as contained in s. 2(22B) of IT Act, same had no application to IT Act. 4 . 4 Further, CIT(A) observed that principle is accepted that provisions of one statute cannot be automatically applied to another, even if cognate statute. decision rendered by Hon ble Karnataka High Court in case ofSaraswathi Estate vs. Commr. of Agricultural IT & Anr. (2001) 170 CTR (Kar) 504 : (2001) 251 ITR 16 8 (Kar), wherein it was held that interpretation of wordings in particular section cannot be made automatically applicable in context of interpretation of provisions of another enactment though both provisions under two enactments may be meant for levying penalties. Similarly, decision rendered by Hon ble Calcutta High Court in case ofCIT vs. General Assurance Society Ltd. (19 8 ) 121 ITR 727 (Cal), wherein it was that for purposes of s. 12B of IT Act, 1922, FMV of suit properties as on 1st Jan., 1954 may not be determined on same basis or formula as adopted for computing compensation in accordance with First Schedule to LIC Act, 1956. Also decisions rendered by Hon ble Bombay High Court in case ofCIT vs. New India Assurance Co. Ltd. (1979) 13 CTR (Bom) 92 : (19 8 ) 122 ITR 633 (Bom)andCIT v s . Oriental Government Security Life Assurance Co. Ltd. (19 8 2) 29 CTR (Bom) 112 : (19 8 3) 141 ITR 215 (Bom), wherein it was held that in determining market value of assets as on 1st Jan., 1954, for purpose of computing capital gains of insurance company from compensation received on acquisition of its life insurance business under Life Insurance Act, 1956, Tribunal is not bound by formula adopted in that Act for determining compensation. 4.5 Thus, there is no authority for importing valuation under WT Act for purpose of IT Act, particularly when context does not so warrant. IT Act is replete with provisions which draw upon other enactments not only for definition of terms used in IT Act but even for computation of income. Thus, in s. 2(29) term legal representative has meaning assigned to it in CPC, 190 8 . Similarly, term public servant has same meaning as in s. 21 of IPC. Sec. 115JA(2) prescribed preparation of P&L a/c in accordance with Companies Act. Sec. 55A, on reference to Valuation Officer, draws upon provisions of WT Act. However, definition of fair market value contained in s. 2(22B) of IT Act, 1961 does not make any reference to WT Act not even for persons who were assessed to wealth-tax. For these reasons, AO was not justified in computing market value For these reasons, AO was not justified in computing market value of Marico shares by employing break-up method as prescribed under r. 11 of Sch. III of WT Act, particularly as said rule stood deleted w.e.f. 1st April, 1993. 4 . 6 On authority of Supreme Court of India, principle was established that unquoted shares of going concern are to be valued on yield method. decision rendered by Hon ble Supreme Court in case ofCWT vs. Mahadeo Jalan & Ors. 1972 CTR (SC) 395 : (1972) 8 6 ITR 621 (SC), "it was held as under : "An examination of various aspect of valuation of shares in limited- company would lead us to following conclusion : (1) Where shares in public limited company are quoted on stock exchange and there are dealings in them, price prevailing on valuation date is value of shares. (2) Where shares are of public limited company which are not quoted on stock exchange or of private limited company value was determined b y reference to dividends if any, reflecting profit earning capacity on reasonable commercial basis. But, where they do not, then amount of yield on that basis will determine value of shares. In other words, profits which company has been making and should be making will ordinarily determine value. dividend and earning method of yield method are not mutually exclusive; both should help in ascertaining profit earning capacity as indicated above. If results of two methods differ, intermediate figure may have to be computed by adjustment of unreasonable expenses and adopting reasonable proportion of profits. (3) In case of private limited company also where expenses are incurred out of all proportion to commercial venture, they will be added back to profits of company in computing yield. In such companies restriction on share transfers will also be taken into consideration as earlier indicated in arriving at valuation. (4) Where dividend yield and earning method break down by reason of company s inability to earn profits and declare dividends, if setback is temporary then it is perhaps possible to take estimate of value of shares before set-back and discount it by percentage corresponding to proportionate fall in price of quoted shares of companies which have suffered similar reverses. (5) Where company is ripe for winding-up break-up value method determines what would be realized by that process. (6) Asin Attorney-General of Ceylon vs. Mackiea valuation by reference to assets would be justified where as in that case fluctuations of profits and uncertainty of conditions at date of valuation prevented any reasonable estimation of prospective profits and dividends. In setting out above principles, assessee did not try to lay down any hard and fast rule because, ultimately, facts and circumstances of each case, nature of business, prospects of profitability and such other considerations will have to be taken into account as will be applicable to facts of each case. But, one thing is clear, market value, unless in exceptional circumstances to which cannot be determined on hypothesis that because in private limited company one holder can bring it into liquidation, it should be valued as on liquidation by break-up method. yield method is generally application method while break-up method is one resorted to in exceptional circumstances or where company is ripe for liquidation but nonetheless is one of methods." In case ofCGT vs. Smt. Kusumben D. Mahadevia (19 8 ) 14 CTR (SC) 366 : (19 8 ) 122 ITR 38 (SC), rendered by Hon ble Supreme Court, wherein their Lordships have held as under : "It would thus, be seen that in case of company which is going- concern and whose shares are not quoted on stock exchange, profits which company has been making and should be capable of making or, in o th e r words, profit earning capacity of company would ordinarily determine value of shares. That is why inCIT vs. Mahadeo Jalan 1972 CTR (SC) 395 : (1972) 8 6 ITR 621 (SC), Court quoted with approval following observations of Williams, J. inMc Cathie vs. Federal CIT of Taxation(69 Commonwealth Law reports 1) : real value of shares which deceased person holds in company at date of his death will depend more on profits which company has been making and should be capable of making, having regard to nature of its business, than upon amounts which shares would be likely to realize upon liquidation , and stated in no uncertain terms that : general principles of valuation in going-concern is yield on basis of average maintainable profits, subject to adjustment, etc., which circumstances of any particular case may call for. break-up method would not be appropriate for valuation of shares of company which is going- concern, because as pointed out by Court inMahadeo Jalan scase amongst mount factors which govern consideration of buyer and seller where one desires to purchase and other wishes to sell, factor or break-up value of share as on liquidation hardly enters into consideration where shares are of going-concern . It is only where company is ripe for winding-up or situation is such that fluctuations of profits and uncertainty of conditions at date of valuation prevent any reasonable estimation of profit earning capacity of company, that valuation by break-up method would be justified. Revenue leaned heavily on observation inMahadeo Jalan scase that factors likely to determine valuation of share include, in special cases such as investment companies, asset- backing and urged on strength of this observation that in case of investment company, asset-backing was relevant consideration and break-up method could not, therefore, be considered as totally irrelevant. This contention, we are afraid, is based on wrong reading of observation of Court. When Court said that in case of investment company, asset-backing is relevant factor in determination of value of shares, what Court meant was that in order to determine capacity of company to maintain its profits asset-backing would be relevant consideration. profit earning capacity of company would determine valuation of shares would naturally have to take into account not only profits which company is actually making, but also profits which company should be capable of making and in order to arrive at proper estimation of latter, asset-backing would be, relevant factor in case of investment company. It would not be right to read observation of Court as suggesting that valuation of assets would be relevant factor in determining valuation of shares. Revenue, of course, did not plead for exclusive adoption of break-up method and wanted mean of values arrived at by applying break-up method and profit earning method to be taken as representing valuation of shares, but we do not see on what principle can combination of two methods be justified. There is no authority either in any judicial decision or in any standard text book on valuation of shares which recognizes validity of combination of two methods, though it may sound acceptable as compromise formula." 4.7 In case ofGrindlays Bank Ltd. vs. CIT (19 8 6) 55 CTR (Cal) 179 : (19 8 6) 15 8 ITR 799 (Cal), Calcutta High Court, following above decisions of Supreme Court held that for purposes of s. 55(2) of IT Act, FMV of unquoted shares should be computed as per yield method. 4. 8 Applying above principles to facts of instant case, CIT(A) held that market value of Marico shares on date of distribution of assets of Harsh Archana, i.e., on 2 8 th Dec., 1995 should appropriately be valued as per profit earning or yield method. Marico was, at material time, going-concern and was launched on growth path. It was, at that time, posting impressive top and bottom line year after year and continues to do so to this day. No wonder then that its public issue at premium of Rs. 165 per share got oversubscribed at time when share market was languishing. Thus, there were no such exceptional circumstances which called for valuation of its share by break-up method. As held by Supreme Court, appropriate method would be profit earning yield method. Accordingly, during course of appellate proceedings assessee was required to furnish valuation on this basis. assessee had furnished report of N.A. Shah Associates, chartered accountants, according to which on applicable of yield or price earning method, market value of Marico shares as on 2 8 th Dec., 1995 had been worked out at Rs. 1 8 7 per share. It was submitted by assessee that this value more or less corresponds to that indicated in prospectus of Marico or, for that matter, even to issue price of Marico shares to public. It is also noteworthy that Marico shares when listed on stock to public. It is also noteworthy that Marico shares when listed on stock exchange opened with quotation of Rs. 260.50 on 2nd March, 1996 on Bombay Stock Exchange and maintained average price of more than Rs. 275 in first three months. Thus, whether computed as per profit earning method or estimated with reference to price quoted on stock exchange, market value of Marico shares as on 2 8 th Dec., 1995 works out to be more than Rs. 165 adopted by assessee for computing long-term capital gains under s. 46(2) of IT Act, 1961. If this higher value is adopted, result will be that returned long-term capital gains will increase and short-term capital gains on actual sale of shares to public for Rs. 175 will be converted into loss. direct effect would be to reduce overall tax liability of assessee. Thus, adoption of higher value of Rs. 1 8 7 per share will result in unintended advantage for assessee at cost of Revenue. Such advantage, though otherwise allowable, if claimed, cannot be granted in instant case as no such claim had been made by assessee at any stage. Not even at appellate stage. For these reasons, CIT(A) held that for computing long-term capital gains under s. 46(2) of Act, market value of Marico shares as on 2 8 th Dec., 1995 should be taken at Rs. 165 per share as claimed by assessee. AO was directed to recompute capital gains accordingly. Consequent upon, cost of said shares will be reckoned as Rs. 165 per share in terms of s. 55(2)(b)(iii) of IT Act for computing short- term capital gains on sale of shares to public. In view of above discussion, we are entirely in agreement with well reasoned findings of CIT(A). So, CIT(A) is justified in adopting value of share of M/s Marico Industries as on 2 8 th Dec., 1995 by yield method and quantifying same at Rs. 165 per share. Accordingly, we uphold order of C1T(A). C.O. No. 40/Mum/2004 4.9 Since we have upheld order of CIT(A) in Revenue s appeal, cross-objections arising out of order of CIT(A) need no adjudication. same is dismissed without being prejudice to merits of same. 5. As result, appeal of Revenue as well as cross-objections filed by assessee is dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. MARIWALA FAMILY (NO. 2) TRUST