Deputy Commissioner of Gift-tax, Central Circle – II Vs M/s BPL Limited (Supreme Court)
Date-13th October 2022
Sub- Whether promoters shares which are locked in, when gifted have to be treated as quoted or unquoted shares for the purpose of valuing the gift for taxability under the Gift-tax Act, 1958?

An interesting question arose in this case where the Respondent in this case gifted shares of two listed companies to another company and as these shares were part of promoters holding and they were locked in, the shares were not valued as per the quotation of these shares on stock exchange on the plea that these shares could not be transferred in the open market. The Supreme Court after looking into the definition of quoted shares and unquoted shares under the Wealth-tax Act,1957 that the equity shares under the lock-in period 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, remained unquoted in any recognised stock exchange. Restriction on transfer made these shares unquoted and thus the valuation rules as applicable for quoted shares could not have been applied. The Court also noted catena of judicial decision including decision of House of Lords in arriving at such conclusion.

This judgement would be of enormous help in dealing with the provisions of Income-tax Act,1961 particularly in relation to the valuation mechanism in Rule 11U and Rule 11UA etc.

Ramesh Patodia
17-10-2022