Holding

Lock‑in shares are "unquoted" and must be valued under Rule 11 of Part C of Schedule III of the Wealth Tax Act, accounting for the transfer restrictions.

Summary

The Deputy Commissioner of Gift Tax appealed against the valuation of shares gifted by M/s BPL Limited to M/s Celestial Finance Ltd. The shares, although listed, were promoter quota shares subject to a lock‑in period, raising the question of whether they were "quoted" for valuation purposes. The Supreme Court held that shares under a lock‑in are not quoted because they are not regularly quoted on a recognised exchange and cannot have quotations based on ordinary market transactions. Consequently, the shares must be valued as "unquoted" under Rule 11 of Part C of Schedule III of the Wealth Tax Act, taking into account the transfer restrictions, and the valuation cannot ignore those restrictions. The Court also clarified that the authority may determine quoted/unquoted status despite SEBI circulars and that Rule 21 of Part H does not permit ignoring the restrictions. The Revenue’s appeal was dismissed, and the valuation method affirmed.

Issues considered

Whether equity shares subject to a lock‑in period qualify as "quoted shares" under Schedule III of the Wealth Tax Act for valuation.
Whether the valuation of such shares should follow Rule 9 (quoted) or Rule 11 (unquoted) of Schedule III.
Whether the restrictions on transferability can be ignored under Rule 21 of Part H of Schedule III for valuation purposes.
Whether the authority can examine the quoted/unquoted status notwithstanding SEBI circulars.

Legislation cited

Gift Tax Act, 1958s. 4, s. 43, s. 6, s. 64
Schedule II of Gift Tax Act
Wealth Tax Act, 1957s. Schedule III Part A r.2(11), s. Schedule III Part A r.2(9), s. Schedule III Part C rr.11, s. Schedule III Part C rr.9, s. Schedule III Part H r.21

Subjects

gift taxvaluation of sharesquoted sharesunquoted shareslock‑in periodWealth Tax ActSchedule IIIRule 21SEBI circulartransfer restrictions

Judgment

938 [2022]REPORTS
SUPREME COURT 14 S.C.R. 938 [2022] 14 S.C.R.

A DEPUTY COMMISSIONER OF GIFT TAX,
CENTRAL CIRCLE-II
v.
M/S BPL LIMITED
B (Civil Appeal No. 3265 of 2016)
OCTOBER 13, 2022
[SANJIV KHANNA AND J. K. MAHESHWARI, JJ.]
Gift Tax Act, 1958 – ss.4, 6 and Schedule II – Wealth Tax
Act,1957 – Schedule III, Part A r.2(9) & r.2(11); Part C, rr.9 & 11;
C
and Part H, r.21 – “Quoted” shares and “unquoted” shares – Equity
shares in lock-in-period – Valuation of – Respondent-assessee gifted
29,46,500 shares of M/s. BPL Sanyo Technologies Limited and
69,49,900 shares of M/s. BPL Sanyo Utilities and Appliances Limited
to M/s. Celestial Finance Limited –Shares of M/s. BPL Sanyo
D Technologies Limited and M/s. BPL Sanyo Utilities and Appliances
Limited, both public limited companies, were listed and quoted on
the stock exchanges – However, these gifted shares being promoter
quota shares were under a lock-in period up to 16th November
1993 and 25th May 1994 respectively – In the impugned judgment,
the High Court observed that the equity shares under the lock-in
E
period were not ‘quoted shares’ – A general circular issued by SEBI
however stated that shares under the lock-in period can be
transferred inter se the promoters – Issue whether such restricted
transfer would convert the equity shares in the lock-in-period into
‘quoted shares’ as defined vide sub-rule (9) to r.2 of Part A of
F Schedule III of the W.T. Act – Answering in negative, the Court
held: The restricted transfer would not make the equity shares in
the lock-in period into “quoted shares” as the lock-in shares are
not quoted in any recognised stock exchange with regularity from
time to time and it is not possible to have quotations based upon
current transactions made in the ordinary course of business – The
G
shares in question being “unquoted shares” have to be valued in
terms of r.11 of Part C of Schedule III of the W.T. Act as a standalone
valuation method – This would be in accord with sub-section (1) to
s.6 of the G.T. Act, which states that the value of a property, other
than cash, transferred by way of gift, shall be valued on the date
H on which the gift was made and shall be determined in the manner
938
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 939
M/S BPL LIMITED

as laid down in Schedule II of the G.T. Act, which makes the A
provisions of Schedule III of the W.T. Act applicable – Valuation
cannot ignore the limitations attached to the shares – r.21 of Part H
of Schedule III of the W.T. Act permits valuation and ascertainment
of the market value as per provisions of Schedule III of the W.T.
Act, but does not state that valuation will be done by disregarding
B
the restrictions, or by enhancing the rights which have been
transferred, or by revaluation of the asset when provisions of
Schedule III are invoked for purpose of valuation of an asset under
the W.T. Act.
Shares and Securities – Wealth Tax Act,1957 – Explanation
to r.2(9) of Part A, Schedule III – Effect of – Held: Explanation to C
r.2(9) of Part A, Schedule III of the W.T. Act does not prohibit the
authority, tribunal or the court from examining whether a particular
share, be it equity or preference share, is a “quoted share” or an
“unquoted share” in terms of sub-rules (9) and (11) of r.2 of Part A
of Schedule III of the W.T. Act – This right which is conferred on the D
authorities under the W.T. Act or the G.T. Act is not delegated to the
stock exchange – A decision of the authority is however amenable
and can be examined when challenged in an appeal – Gift Tax Act,
1958.
Dismissing the appeals, the Court E
HELD:1.1. As per the provisions of the Gift Tax Act, 1958
, as it was applicable on the date on which the gift was made, gift
tax at the applicable rate is chargeable on the value of the taxable
gift. Sub-section (1)(a) to Section 43 of the G.T. Act states that
where a property is transferred otherwise than for adequate F
consideration, the amount by which the market value of the
property, at the date of the transfer, exceeds the value of the
consideration, shall be deemed to be a gift made by the transferor.
Sub-section (1) to Section 64 of the G.T. Act states that the value
of any property, other than cash, which is transferred by way of
gift, shall be its value on the date on which the gift was made and G
shall be determined in the manner as laid down in Schedule II of
the G.T. Act. Sub-section (1) to Section 6 is subject to the
provisions of sub-section (2) to Section 6 of the G.T. Act, which
sub-section need not be elucidated as it is not applicable in the
context of the present case. It is an accepted position that the H
940 SUPREME COURT REPORTS [2022] 14 S.C.R.

A machinery provision relating to the method of valuation in
Schedule II of the G.T. Act is mandatory and cannot be
deviated.[Para 2][944-F-G; 945-A-C]
1.2. Schedule II to the G.T. Act, which incorporates the rules
for determining the value of a gifted property, states that the
B value of any property, other than cash, transferred by way of gift,
subject to the modifications as stated, shall be determined in
accordance with the provisions of Schedule III of the Wealth Tax
Act, 1957. Therefore, the provisions of Part C of Schedule III of
the W.T. Act, which lays down the method of valuation of shares
and debentures of a company, are required to be referred to and
C applied. For purpose of the present decision, Rules 9 and 11 of
Part C of Schedule III of the W.T. Act, which relate to the valuation
of quoted shares and debentures of companies and valuation of
unquoted equity shares in companies other than investment
companies respectively, are required to be interpreted. [Para
D 3][945-C-E]
2.1. The expressions “quoted share” and “quoted
debentures”, and “unquoted shares” and “unquoted debentures”
have been defined vide sub-rules (9) and (11), respectively, to
Rule 2 of Part A of Schedule III of the W.T. Act. As per the
E definitions, the expression “quoted share” in case of an equity
share means a share which is quoted on any recognised stock
exchange with regularity from time to time and where the
quotation of such shares is based on current transactions made
in the ordinary course of business. Explanation to sub-rule (9) of
Rule 2 of Part A of Schedule III of the W.T. Act states that when
F a question arises on whether a share is a quoted share within the
meaning of the rule, a certificate to that effect furnished by the
concerned stock exchange in the prescribed form shall be
accepted as conclusive. The expression “unquoted share”, in
relation to an equity share, means a share which is not a quoted
G share. [Para 4][947-E-F; 948-B-C]
2.2. When the equity shares are in a lock-in period, then as
per the guidelines issued by the Securities and Exchange Board
of India (SEBI), there is a complete bar on transfer, which is
enforced by inscribing the words “not transferable” in the
H relevant share certificates. This position is accepted by the
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 941
M/S BPL LIMITED

Revenue, which, however, has relied upon a general circular A
issued by SEBI, wherein it is stated that the shares under the
lock-in period can be transferred inter se the promoters. This
restricted transfer would not make the equity shares in the lock-
in period into “quoted shares” as defined vide sub-rule (9) to
Rule 2 of Part A of Schedule III of the W.T. Act, as the lock-in
B
shares are not quoted in any recognised stock exchange with
regularity from time to time, and it is not possible to have
quotations based upon current transactions made in the ordinary
course of business. Possibility of transfer to promoters by private
transfer/sale does not satisfy the conditions to be satisfied to
regard the shares as quoted shares. [Para 6][948-F-H] C
3. Rule 11 of Part C of Schedule III of the W.T. Act is a
statutory rule which prescribes the method of valuation of
“unquoted equity shares” in companies, other than investment
companies, which prescription and method of valuation is
mandatory in nature. The effect of Rule 11 of Part C of Schedule D
III of the W.T. Act is that unquoted shares must be valued as per
the formula prescribed. No other method of valuation is permitted
and allowed. [Para 7][949-C-D]
4. Equity shares which are quoted and transferable in the
stock exchange are to be valued on the basis of the current E
transactions and quotations in the open market. The market
quotations would reflect the market value of the equity shares
that are transferable in a stock exchange, but this market price
would not reflect the true and correct market price of shares
suffering restrictions and bar on their transferability. The shares
in question would become transferable post the lock-in period. F
It is a fact that the market price fluctuates, and the share prices
can move up and down. Share prices do not remain static. Equally,
the restriction or bar on transferability has an effect on the value/
price of the shares. Easy and unrestricted marketability are
important considerations that would normally impact valuation/ G
price of a share. [Para 8][949-D-F]
5. In terms of the Rules, one cannot apply a hybrid method
of valuation while applying Rule 9 of Part C of Schedule III of the
W.T. Act, which prescribes the method of valuation for quoted
H
942 SUPREME COURT REPORTS [2022] 14 S.C.R.

A shares. Ad hoc depreciation/reduction from the quoted price of
equity shares transferable in the open market is not permitted
and allowed vide Rule 9 of Part C of Schedule III of the W.T. Act.
The shares in question being “unquoted shares”, therefore, have
to be valued in terms of Rule 11 as a standalone valuation method.
This would be in accord with sub-section (1) to Section 6 of the
B
G.T. Act, which states that the value of a property, other than
cash, transferred by way of gift, shall be valued on the date on
which the gift was made and shall be determined in the manner
as laid down in Schedule II of the G.T. Act, which makes the
provisions of Schedule III of the W.T. Act applicable. [Para 9][949-
C G-H; 950-A-B]
6.1. Valuation cannot ignore the limitations attached to the
shares. The shares in the lock-in period have market value, which
would be the value that they would fetch if sold in the open market.
Rule 21 of Part H of Schedule III of the W.T. Act permits valuation
D of the property even when the right to transfer the property is
forbidden, restricted or contingent. Rights and limitations
attached to the property form the ingredients in its value. The
purpose is to assume that the property which is being valued is
being sold, and not to ignore the limitations for the purpose of
valuation. This is clear from the wording of Rule 21 of Part H of
E Schedule III of the W.T. Act. [Para 13][953-F-G]
6.2. Rule 21 of Part H of Schedule III of the W.T. Act permits
valuation and ascertainment of the market value as per the
provisions of Schedule III of the W.T. Act, but does not state that
the valuation will be done by disregarding the restrictions, or by
F enhancing the rights which have been transferred, or by
revaluation of the asset when provisions of Schedule III are
invoked for the purpose of valuation of an asset under the W.T.
Act. [Para 14][954-D-E]
7. The certificate from the concerned stock exchange is
G only to state whether an equity share, preference share or
debenture, as the case may be, was quoted with the regularity
from time to time and whether the quotations of such shares or
debentures are based on current transactions made in the ordinary
course of business. The explanation to Rule 2(9) of Part A,
H
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 943
M/S BPL LIMITED

Schedule III of the W.T. Act does not prohibit the authority, A
tribunal or the court from examining whether a particular share,
be it equity or preference share, is a “quoted share” or an
“unquoted share” in terms of sub-rules (9) and (11) of Rule 2 of
Part A of Schedule III of the W.T. Act. This right which is conferred
on the authorities under the W.T. Act or the G.T. Act is not
B
delegated to the stock exchange. A decision of the authority is
amenable and can be examined when challenged in an appeal.
[Para 15][954-F-H]
R. Rathinasabapathy Chettiar v. Commissioner of
Wealth-Tax, Madras (1974) 93 ITR 555 – approved.
C
Ahmed G.H. Ariff and Others v. Commissioner of Wealth
Tax, Calcutta (1969) 2 SCC 471 and Purshottam N.
Amarsay and Another v. Commissioner of Wealth Tax,
Bombay (1972) 4 SCC 376 – relied on.
S.N. Wadiyar (Dead) through Legal Representative v. D
Commissioner of Wealth Tax, Karnataka (2015) 15
SCC 38 : [2015] 9 SCR 1059 and Commissioner of
Wealth Tax, Meerut v. Sharvan Kumar Swarup & Sons
(1994) 6 SCC 623 : [1994] 3 Suppl. SCR 750 – referred
to.
E
Commissioner of Wealth Tax, Chennai v. Shri
Thirupathy Kumar Khemka (2012) SCC OnLine Mad
2562 and Commissioner of Income Tax, Chennai v.
Sadhana Devi Tax Case No. 788 of 2008 (Decision of
Madras High Court dated 12th April, 2019) – referred
to. F
Commissioners of Inland Revenue v. Crossman (1937)
A.C. 26; Lynall and Another v. Inland Revenue
Commissioners (1972) A.C. 680 and Abrahams v. The
Federal Commissioner of Taxation (1944) HCA 32 –
referred to. G
Case Law Reference
[2015] 9 SCR 1059 referred to Para 2
[1994] 3 Suppl. SCR 750 referred to Para 2
H
944 SUPREME COURT REPORTS [2022] 14 S.C.R.

A (1969) 2 SCC 471 relied on Para 11
(1972) 4 SCC 376 relied on Para 11
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3265
of 2016.
B From the Judgment and Orders dated 15.12.2006 of the High
Court of Karnataka at Bangalore in GTA No. 01 of 2005.
With
Civil Appeal No. 3272 of 2016
N. Venkataraman, ASG, Nikhil Nayyar, Arijit Prasad, Sr. Advs.,
C
Gautam Narayan, Ms. Asmita Singh, Dhananjay Baijal, Raj Bahadur
Yadav, Sreekumar C W, Anirudh Bhat A, Sughosh Subramanyam, Advs.
for the appearing parties.
The Judgment of the Court was delivered by
D SANJIV KHANNA, J.
The issue raised in these appeals relates to the valuation of 29,46,500
shares of M/s. BPL Sanyo Technologies Limited and 69,49,900 shares
of M/s. BPL Sanyo Utilities and Appliances Limited, which were gifted
by the respondent-assessee, M/s. BPL Limited, to M/s. Celestial Finance
E Limited on 2nd March 1993. The shares of M/s. BPL Sanyo Technologies
Limited and M/s. BPL Sanyo Utilities and Appliances Limited, both public
limited companies, were listed and quoted on the stock exchanges.
However, these gifted shares, being promoter quota shares, allotted to
the assessee on 17th November 1990 and 10th July 1991, were under a
lock-in period up to 16th November 1993 and 25th May 19941, respectively.
F
2. As per the provisions of the Gift Tax Act, 19582, as it was
applicable on the date on which the gift was made, gift tax at the
applicable rate is chargeable on the value of the taxable gift. Sub-section
(1)(a) to Section 43 of the G.T. Act states that where a property is
transferred otherwise than for adequate consideration, the amount by
G 1
There appears to be some discrepancy in the date, which need not be authoritatively
commented as it is not material for adjudication of the present appeals.
2
For short, “G.T. Act”.
3
4. Gifts to include certain transfers. – (1) For the purpose of this Act, –
(a) where property is transferred otherwise than for adequate consideration, the amount
by which the market value of the property at the date of the transfer exceeds the value
H of the consideration shall be deemed to be a gift made by the transferor:
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 945
M/S BPL LIMITED [SANJIV KHANNA, J.]

which the market value of the property, at the date of the transfer, exceeds A
the value of the consideration, shall be deemed to be a gift made by the
transferor. Sub-section (1) to Section 64 of the G.T. Act states that the
value of any property, other than cash, which is transferred by way of
gift, shall be its value on the date on which the gift was made and shall
be determined in the manner as laid down in Schedule II of the G.T. Act.
B
Sub-section (1) to Section 6 is subject to the provisions of sub-section
(2) to Section 6 of the G.T. Act, which sub-section need not be elucidated
as it is not applicable in the context of the present case. It is an accepted
position that the machinery provision relating to the method of valuation
in Schedule II of the G.T. Act is mandatory and cannot be deviated. 5
3. Schedule II to the G.T. Act, which incorporates the rules for C
determining the value of a gifted property, states that the value of any
property, other than cash, transferred by way of gift, subject to the
modifications as stated, shall be determined in accordance with the
provisions of Schedule III of the Wealth Tax Act, 19576. Therefore, we
are required to refer to and apply the provisions of Part C of Schedule D
III of the W.T. Act, which lays down the method of valuation of shares
and debentures of a company. For the purpose of the present decision,
we are required to interpret Rules 9 and 11 of Part C of Schedule III of
the W.T. Act, which relate to the valuation of quoted shares and debentures
of companies and valuation of unquoted equity shares in companies other
than investment companies respectively and read thus: E

Provided that nothing contained in this clause shall apply in any case where
the property is transferred to the Government or where the value of the consideration
for the transfer id determined or approved by the Central Government or the Reserve
Bank of India; F
xx xx xx
4
6. Value of gifts, how determined.– (1) Subject to the provisions of sub-section (2),
the value of any property, other than cash, transferred by way of gift shall for the
purpose of this Act, be its value as on the date on which the gift was made and shall be
determined in the manner laid down in Schedule II.
(2) Where a person makes a gift which is not revocable for a specific period, the value
of the property gifted shall be the capitalised value of the income from such property
G
during the period for which the gift is not revocable.
5
See decisions of this Court in relation to the method of valuation when stipulated
under the rules or the Schedule in S.N. Wadiyar (Dead) through Legal Representative v.
Commissioner of Wealth Tax, Karnataka, (2015) 15 SCC 38; and Commissioner of
Wealth Tax, Meerut v. Sharvan Kumar Swarup & Sons, (1994) 6 SCC 623.
6
For short, “W.T. Act”. H
946 SUPREME COURT REPORTS [2022] 14 S.C.R.

A “9. Quoted shares and debentures of companies. – The value
of an equity share or a preference share in any company or a
debenture of any company which is a quoted share or a quoted
debenture shall be taken as the value quoted in respect of such
share or debenture on the valuation date or where there is no
such quotation on the valuation date, the quotation on the date
B
closest to the valuation date and immediately preceding such date.
xx xx xx
11. Unquoted equity shares in companies other than
investment companies. – (1) The value of an unquoted equity
C share in any company, other than an investment company, shall
be determined in the manner set out in sub-rule (2).
(2) The value of all the liabilities as shown in the balance-sheet of
such company shall be deducted from the value of all its assets
shown in that balance-sheet; the net amount so arrived at shall be
D divided by the total amount of its paid-up equity share capital as
shown in the balance sheet; the result multiplied by the paid-up
value of each equity share shall be the break-up value of each
unquoted equity share, and an amount equal to eighty per cent of
the break-up value so determined shall be the value of the unquoted
equity share for the purposes of this Act.
E
(3) For the purposes of sub-rule (2),–
(a) the following amounts shown as assets in the balance-
sheet shall not be treated as assets, namely:–
(i) any amount paid as advance-tax under the Income-tax
F Act;
(ii) any amount shown in the balance-sheet including the debit
balance of the profit and loss account or the profit and
loss appropriation account which does not represent the
value of any asset;
G (b) the following amounts shown as liabilities in the balance-
sheet shall not be treated as liabilities, namely:–
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on
H preference shares and equity shares where such dividends
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 947
M/S BPL LIMITED [SANJIV KHANNA, J.]

have not been declared before the valuation date at a general A
body meeting of the company;
(iii) reserves, by whatever name called, other than those set
apart towards depreciation;
(iv) credit balance of the profit and loss account;
B
(v) any amount representing provision for taxation, other than
the amount referred to in sub-clause (i) of clause (a), to
the extent of the excess over the tax payable with reference
to the book profits in accordance with the law applicable
thereto;
(vi) any amount representing contingent liabilities other than C
arrears of dividends payable in respect of cumulative
preference shares.
Explanation.– For the purposes of this rule, “balance-sheet”, in
relation to any company, means the balance-sheet of such company
(including the Notes annexed thereto and forming part of the D
accounts) as drawn up on the valuation date and, where there is
no such balance-sheet, the balance-sheet drawn up on a date
immediately preceding the valuation date, and, in the absence of
both, the balance-sheet drawn up on a date immediately after the
valuation date. E
4. The expressions “quoted share” and “quoted debentures”, and
“unquoted shares” and “unquoted debentures” have been defined vide
sub-rules (9) and (11), respectively, to Rule 2 of Part A of Schedule III
of the W.T. Act, which read:
“2. Definitions.-… (9) “quoted share” or “quoted debenture”, in F
relation to an equity share or a preference share or, as the case
may be, a debenture, means a share or debenture quoted on any
recognised stock exchange with regularity from time to time, where
the quotations of such shares or debentures are based on current
transactions made in the ordinary course of business.
G
Explanation. – Where any question arises whether a share or
debenture is a “quoted share” or a “quoted debenture” within the
meaning of this clause, a certificate to that effect furnished by the
concerned stock exchange in the prescribed form shall be accepted
as conclusive;
xx xx xx H
948 SUPREME COURT REPORTS [2022] 14 S.C.R.

A (11) “unquoted share” or “unquoted debenture”, in relation to an
equity share or a preference share or, as the case may be, a
debenture, means a share or debenture which is not a quoted
share or a quoted debenture.”
As per the definitions, the expression “quoted share” in case of
B an equity share means a share which is quoted on any recognised stock
exchange with regularity from time to time and where the quotation of
such shares is based on current transactions made in the ordinary course
of business. Explanation to sub-rule (9) of Rule 2 of Part A of Schedule
III of the W.T. Act states that when a question arises on whether a
share is a quoted share within the meaning of the rule, a certificate to
C that effect furnished by the concerned stock exchange in the prescribed
form shall be accepted as conclusive. The expression “unquoted share”,
in relation to an equity share, means a share which is not a quoted share.
We are in agreement with the view expressed in the impugned
judgment, which observes that the equity shares under the lock-in period
D were not “quoted shares”, for the simple reason that the shares in the
lock-in period were not quoted in any recognised stock exchange with
regularity from time to time. There are no current transactions relating
to these shares made in the ordinary course of business. These equity
shares being under the lock-in period could not be traded and, therefore,
E remained unquoted in any recognised stock exchange. There, therefore,
would be no current transactions in respect of these shares made in the
ordinary course of business.
6. When the equity shares are in a lock-in period, then as per the
guidelines issued by the Securities and Exchange Board of India (SEBI),
there is a complete bar on transfer, which is enforced by inscribing the
F
words “not transferable” in the relevant share certificates. This position
is accepted by the Revenue, which, however, has relied upon a general
circular issued by SEBI, wherein it is stated that the shares under the
lock-in period can be transferred inter se the promoters. This restricted
transfer, in our opinion, would not make the equity shares in the lock-in
G period into “quoted shares” as defined vide sub-rule (9) to Rule 2 of
Part A of Schedule III of the W.T. Act, as the lock-in shares are not
quoted in any recognised stock exchange with regularity from time to
time, and it is not possible to have quotations based upon current
transactions made in the ordinary course of business. Possibility of transfer
to promoters by private transfer/sale does not satisfy the conditions to
H be satisfied to regard the shares as quoted shares.
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 949
M/S BPL LIMITED [SANJIV KHANNA, J.]

7. Rule 11 of Part C of Schedule III of the W.T. Act applies to A
“unquoted shares” which, as per the definition vide sub-rule (11) to Rule
2 of Part A of Schedule III of the W.T. Act, means a share which is not
a “quoted share”. Sub-rule (1) to Rule 11 of Part C of Schedule III of
the W.T. Act, states that other than investment companies, the value of
unquoted equity shares is to be determined in the manner specified in
B
sub-rule (2) to Rule 11 of Part C of Schedule III of the W.T. Act. Sub-
rule (2) to Rule 11 of Part C of Schedule III of the W.T. Act states the
method of valuation in the case of “unquoted equity shares in any
company, other than investment companies”, which, in the context of
the limited controversy raised before us, need not be elaborated. Suffice
it is to observe that Rule 11 of Part C of Schedule III of the W.T. Act is C
a statutory rule which prescribes the method of valuation of “unquoted
equity shares” in companies, other than investment companies, which
prescription and method of valuation is mandatory in nature. The effect
of Rule 11 of Part C of Schedule III of the W.T. Act is that unquoted
shares must be valued as per the formula prescribed. No other method
D
of valuation is permitted and allowed.
8. Equity shares which are quoted and transferable in the stock
exchange are to be valued on the basis of the current transactions and
quotations in the open market. The market quotations would reflect the
market value of the equity shares that are transferable in a stock
exchange, but this market price would not reflect the true and correct E
market price of shares suffering restrictions and bar on their
transferability. The shares in question would become transferable post
the lock-in period. It is a fact that the market price fluctuates, and the
share prices can move up and down. Share prices do not remain static.
Equally, the restriction or bar on transferability has an effect on the F
value/price of the shares. Easy and unrestricted marketability are
important considerations that would normally impact valuation/price of a
share. Therefore, one may have to depreciate the value of the lock-in
equity shares, viz. shares that are free from such restriction.
9. In terms of the Rules, we cannot apply a hybrid method of G
valuation while applying Rule 9 of Part C of Schedule III of the W.T.
Act, which prescribes the method of valuation for quoted shares. Ad
hoc depreciation/reduction from the quoted price of equity shares
transferable in the open market is not permitted and allowed vide Rule 9
of Part C of Schedule III of the W.T. Act. The shares in question being
H
950 SUPREME COURT REPORTS [2022] 14 S.C.R.

A “unquoted shares”, therefore, have to be valued in terms of Rule 11 as a
standalone valuation method. This would be in accord with sub-section
(1) to Section 6 of the G.T. Act, which states that the value of a property,
other than cash, transferred by way of gift, shall be valued on the date
on which the gift was made and shall be determined in the manner as
laid down in Schedule II of the G.T. Act, which, as noticed above, makes
B
the provisions of Schedule III of the W.T. Act applicable.
10. Faced with the aforesaid position, the Revenue has relied upon
Rule 21 of Part H of Schedule III of the W.T. Act, which reads thus:
“21. Restrictive covenants to be ignored in determining
C market value.–For, the removal of doubts, it is hereby declared
that the price or other consideration for which any property may
be acquired by or transferred to any person under the terms of a
deed of trust or through or under any restrictive covenant in any
instrument of transfer shall be ignored for the purposes of
determining under any provision of this Schedule, the price such
D property would fetch if sold in the open market on the valuation
date.”
In order to understand the import of Rule 21 of Part H of Schedule
III of the W.T. Act, it is necessary to refer to earlier judgments of this
Court on the valuation of equity shares or property not freely transferrable
E or where transfer is restricted. Reference to these decisions is also
relevant as it supports our interpretation in highlighting the difference
between “quoted” and “unquoted” shares.
11. In Ahmed G.H. Ariff and Others v. Commissioner of Wealth
Tax, Calcutta7, a three Judge Bench of this Court, in a matter relating
F to the W.T. Act for a period when Schedule III of the W.T. Act was not
applicable, had observed that the expression ‘property’ is a term of the
widest import as it signifies every possible interest which a person can
clearly hold or enjoy. ‘Property’, as a term, should be given a liberal and
wide connotation, and extends to those well-recognised types of interests
G that have the insignia or characteristics of a proprietary right. Having
held so, this Court rejected the argument of the assessee therein that his
right to receive a specified share of the net income from an estate in
respect of a Wakf-Alal-Aulad was not an asset assessable to wealth
tax, on the ground that this asset had ‘nil’ or no value as it was of a non-
7
H (1969) 2 SCC 471.
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 951
M/S BPL LIMITED [SANJIV KHANNA, J.]

transferable nature. It was held that wealth tax under Section 3 of the A
W.T. Act is imposed on the charge of net wealth, which necessarily
includes in it every description of property of the assessee, movable or
immovable, barring the exceptions as stated in the provisions of the W.T.
Act. More significant for our purposes are the observations that the
words “if sold in the open market” does not contemplate actual sale or
B
the actual state in the market, but only enjoins that it should be assumed
that there is an open market and the property, even with the restrictions,
can be sold in such a market, and on that basis the value has to be found
out. Therefore, the expression “if sold in the open market” refers to a
hypothetical case, where, for the purpose of valuation, one must assume
that there is an open market in which an asset with restrictions or bar on C
transfer can be sold. This decision was followed in Purshottam N.
Amarsay and Another v. Commissioner of Wealth Tax, Bombay8,
which was a case relating to the valuation of the right to property of the
assessee in a trust. The argument of the assessee that the right to property
in a trust, being a personal estate, is incapable of being sold in the open
D
market and, therefore, it would have ‘nil’ or no value was rejected. This
decision in this context quotes Ahmed G.H. Ariff (supra). At this stage,
it would be relevant to refer to the decision of the House of Lords in
Commissioners of Inland Revenue v. Crossman9, which decision was
referred to with approval in both Ahmed G.H. Ariff (supra) and
Purshottam N. Amarsay (supra). The majority decision of the House E
of Lords in Crossman’s case (supra), a case relating to estate duty,
holds that where the right to transfer shares of a limited company is
restricted and while its value is not ‘nil’ or ‘0’, it should be valued on the
basis and accounting for the restriction. The contention that in view of
the bar on transfer no property was actually passed on death, and a
F
fresh set of rights in favour of the legatees came into existence was
disapproved. At the same time, it was held that the shares cannot be
valued ignoring the restrictions on transfer, as contained in the Articles
of Association in that case, as that would be to value the property which
the deceased as an owner did not own. Even if the shares were not
transferable in the open market in terms of the Articles of Association, G
the shares had certain privileges and rights, which form the ingredients
in its value. The expression “if sold in the open market” does not alter
the nature of the property. What the expression postulates is to permit
8
(1972) 4 SCC 376.
9
(1937) A.C. 26. H
952 SUPREME COURT REPORTS [2022] 14 S.C.R.

A the assessee or the authorities to assume a sale in the open market,
which is to limit the property to be valued at the price that a person
would be prepared to pay in the open market with all rights and obligations.
The value would not exceed the sum, which a willing purchaser would
pay, given the fact that the right to purchase is restricted or barred. This
does not imply that the valuation of the shares can be made artificially
B
and by ignoring the restrictions on the property. Valuation cannot ignore
the limitations attached to the shares. This judgment in Crossman’s case
(supra) has been subsequently reiterated by the House of Lords in Lynall
and Another v. Inland Revenue Commissioners10. Referring to the
decision in Crossman’s case (supra) and a decision of the High Court
C of Australia in Abrahams v. The Federal Commissioner of Taxation11,
a Division Bench of the Madras High Court in R. Rathinasabapathy
Chettiar v. Commissioner of Wealth-Tax, Madras12, in our opinion,
has rightly observed:
“13. In Abraham v. Federal Commissioner of Taxation at the
D time of his death a deceased owned shares in five companies,
four of which carried on investment business, and the fifth a
pastoral business. The brother of the deceased who held equal
interest in the whole of the issued capital of the companies was
appointed the sole executor. The memorandum and articles of
association of the four companies contained a restriction on transfer
E of shares whereby the board of directors may refuse to register
any transfer of shares to a transferee who was in their opinion an
undesirable person to be admitted as a member of the company.
In the fifth company the articles of association provided that the
governing directors should have a right at any time of purchasing
F the shares of all the-members of the company, the purchase price
to be the amount paid up thereon or, at the option of the governing
directors, the amount which bore the same proportion to the excess
value of the assets over the liabilities of the company as the total
amount paid up on the shares bore to the total paid up capital of
the company. The question arose as to how the shares left by the
G deceased are to be valued for the purpose of estate duty. The
court held that the assessment of value of the shares held by the
deceased in the five companies must normally be made principally
10
(1972) A.C. 680.
11
(1944) HCA 32.
12
H (1974) 93 ITR 555.
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 953
M/S BPL LIMITED [SANJIV KHANNA, J.]

on the basis of the income yield including the strong probability of A
distribution of accumulated profits and that the effect of the
restrictions on transfer of shares and the right of pre-emption
given to the governing directors to purchase the shares must all
be taken note of and depreciation on that account had to be allowed
for in the primary valuation. The above case laid down the principle
B
that the restrictions contained in the articles of association on the
transfer and also on the price for which the shares could be
transferred has to be ignored and the transferability in the open
market must be assumed, for the purpose of valuation, but that
the market value of the shares has to be depreciated to a certain
extent having regard to the said restrictions contained in the articles C
of association, and that if the market value of such shares could
not be ascertained otherwise, it is possible to value the shares on
a break-up basis with reference to the balance-sheet of the
company for the relevant year.”
12. The aforesaid decision was subsequently followed by the D
Madras High Court in two other decisions, Commissioner of Wealth
Tax, Chennai v. Shri Thirupathy Kumar Khemka13, and the decision
dated 12th April 2019 in Commissioner of Income Tax, Chennai v.
Sadhana Devi14, which relates to the valuation of shares in lock-in
period as per the provisions of Schedule III of the W.T. Act.
E
13. Read in this manner, Rule 21 of Part H of Schedule III of the
W.T. Act is a rule which has been enacted to clarify and remove doubts.
It has reiterated and affirmed the dictum in Ahmed G.H. Ariff (supra)
and Purshottam N. Amarsay (supra) that notwithstanding the negative
covenants prohibiting or restricting transfer, the property should be valued
for the purpose of the W.T. Act and the G.T. Act, but the valuation is not F
by overlooking or ignoring the restrictive conditions. The shares in the
lock-in period have market value, which would be the value that they
would fetch if sold in the open market. Rule 21 of Part H of Schedule III
of the W.T. Act permits valuation of the property even when the right to
transfer the property is forbidden, restricted or contingent. Rights and G
limitations attached to the property form the ingredients in its value. The
purpose is to assume that the property which is being valued is being
sold, and not to ignore the limitations for the purpose of valuation. This is
13
(2012) SCC OnLine Mad 2562.
14
Tax Case No. 788 of 2008. H
954 SUPREME COURT REPORTS [2022] 14 S.C.R.

A clear from the wording of Rule 21 of Part H of Schedule III of the W.T.
Act, which when read carefully expresses the legislative intent by using
the words “hereby declared”. The Rule declares that the price or other
consideration for which any property may be acquired by, or transferred,
to any person under the terms of a deed of trust or through any other
restrictive covenant, in any instrument of transfer, is to be ignored as per
B
the provisions of the Schedule III of the W.T. Act. However, the price
of such property is the price of the property with the restrictions if sold
in the open market on the valuation date. In other words, notwithstanding
the restrictions, hypothetically the property would be assumed to be
saleable, but the valuation as per the Schedule III of the W.T. Act would
C be made accounting and taking the limitation and restrictions, and such
valuation would be treated as the market value. The rules do not postulate
a charge in the nature and character of the property. Therefore, the
property has to be valued as per the restrictions and not by ignoring
them.
D 14. Thus, Rule 21 of Part H of Schedule III of the W.T. Act
permits valuation and ascertainment of the market value as per the
provisions of Schedule III of the W.T. Act, but does not state that the
valuation will be done by disregarding the restrictions, or by enhancing
the rights which have been transferred, or by revaluation of the asset
when provisions of Schedule III are invoked for the purpose of valuation
E of an asset under the W.T. Act.
15. However, one aspect is required to be clarified, viz. explanation
to Rule 2(9) of Part A, Schedule III of the W.T. Act. The certificate
from the concerned stock exchange is only to state whether an equity
share, preference share or debenture, as the case may be, was quoted
F with the regularity from time to time and whether the quotations of such
shares or debentures are based on current transactions made in the
ordinary course of business. The explanation does not prohibit the
authority, tribunal or the court from examining whether a particular share,
be it equity or preference share, is a “quoted share” or an “unquoted
G share” in terms of sub-rules (9) and (11) of Rule 2 of Part A of Schedule
III of the W.T. Act. This right which is conferred on the authorities
under the W.T. Act or the G.T. Act is not delegated to the stock exchange.
A decision of the authority is amenable and can be examined when
challenged in an appeal.

H
DEPUTY COMMISSIONER OF GIFT TAX, CENTRAL CIRCLE-II v. 955
M/S BPL LIMITED [SANJIV KHANNA, J.]

16. In view of the aforesaid discussion, and for the reasons stated A
above, the present appeal by the Revenue is to be dismissed. We must
record that the assessee has not pressed the ground raised in its appeal
challenging the impugned order, which is to be dismissed as not pressed.
We order accordingly. There shall be no order as to costs.
B
Bibhuti Bhushan Bose Appeals dismissed.
(Assisted by : Neha Sharma, LCRA)

C

D

E

F

G

H