Govinda Bhat, J.:— Under S. 64(1) of the Estate Duty Act, 1953 (hereinafter called the Act), the Appellate Tribunal has stated a case and referred the following question for the opinion of this Court:

“When, for Wealth-tax Act, valuation of unquoted shares as on 31st March 1967 has to be done in accordance with Wealth-tax (Amendment) Rules 1967 taking the last published Balance Sheet as on 31st December 1966 as the basis, whether the Tribunal is right in placing the same value as on 11-9-1967 the date of the death of the deceased for the purpose of Estate Duty assessment resulting in non-consideration of other items not covered by Wealth-tax Rules going into the determination of the value of shares for Estate Duty purpose?”

2. Learned Counsel on both sides submitted that the question as framed is not satisfactory and that the same may be ??? As ??? the parties, we recast the question thus:

“Whether there was material for the Appellate Tribunal to determine the value of the shares at Rs. 1,69,020?”

3. One Mr. William Whitley died on September 11, 1967. At the time of his, death he owned certain shares in ??? Whilley (P) Ltd. The subscribed equity share capital of the said ??? was divided into 15,000 shares of Rs. 100 each, of which the deceased held ??? shares. The accounting year of the company ends on 31st December and its Balance Sheet as at 31st December 1966 had been published before the date of death. The shares held by the deceased as on 31-3-1967—the Valuation date—for the assessment year 1967-1968 had been valued by the wealth-Tax Officer at Rs. 1,69,020 in accordance with S. 7 of the Wealth-tax Act, 1957 read with Rule ID of the Wealth Tax Rules, 1957. ??? 1-4-1967 but before the date of death, the company had issued ??? Bonus ??? its subscribed Equity Share Capital from Rs. 15,00,000 to Rs. 21,00,000. 400 Bonus Shares were issued to the deceased. Thus, on the date of death the deceased held 1,400 ordinary shares of the face value of Rs. 100. The accountable person declared the value of the said shares at ???. The Assistant Controller of Estate Duty arrived at the value of Rs. 2,23,174 valuing each share at Rs. 159-41 which was arrived at in the following manner:— Value of net assets of the company on the basis of its Balance Sheet as at 31-12-1966 Rs. 26,82,792-00.

4. Estimated value of goodwill Rs. 12,33,000-00. Total Rs. 39,16,592-00. Break-up value on the above basis was worked at Rs. 186-50 a share. As the death took place nearly eight months after 31-12-1966, taking into account the expected dividend for the year 1967, he raised the value to Rs. ??? a share. Taking the normal yield from such companies at 8 per cent he valued the shares on yield basis at Rs. 250 a share, as it stood on 31-12-1966 before the declaration of Bonus Shares. He computed the value of Rs. 178-57 a share after the declaration of Bonus Shares. Averaging the two values, one on the basis of break-up value and the other on yield basis, the Assistant Controller valued the shares at Rs. 159-41 a share.

5. Before the Appellate Controller, it was urged by the accountable person that the Assistant Controller was not justified in adding the value of goodwill to the value of the net assets of the company while determining the value according to the break-up method as Rule ID of the Wealth Tax Rules, 1957 referred to above does not require the goodwill value to be taken into account. The Appellate Controller did not decide that ???. In his opinion the correct market value of the shares should have been ascertained with reference to the Balance Sheet of the company as at 31-12-1967. After allowing 15 per cent discount as provided under Rule ID, he valued the shares at Rs. 159-60 per share. As the said valuation approximated the valuation adopted by the Assistant Controller and the difference being negligible, he confirmed the assessment made by the Assistant Controller.

6. The Appellate Tribunal held that the break-up value of the shares could have been determined only on the basis of published information and information which the Directors of the Company would have given in answer to a reasonable question likely to be asked by any vendor-share-holder, or intending purchaser and since the last published information in regard to the affairs of the Company was at 31-12-1966 the Balance Sheet as at 31-12-1967 could not have been relied on for the purpose of arriving at the break-up value of the shares. The Tribunal accepting, the valuation of the shares as determined for purposes of Wealth-tax for the assessment year 1967-1968, reduced the value of the shares to Rs. 1,69,020.

7. The question at issue in this case is, the proper value of the shares held by the deceased in Senapathy Whitley (P) Ltd. for Estate Duty purposes. The shares must be valued as provided by S. 36 of the Act. Sub-section (1) of Section 36 states:

“The principal value of any property shall be estimated to be the price which, in the opinion of the Controller it would fetch if sold in the open market at the time of the deceased's death.”

8. The principals of valuation of property, whether under S. 36 of the Act or S. 7 of the Wealth-tax Act, 1957 or S. 6 of the Gift Tax Act, 1958, is the same. The valuer must decide what the highest bidder would have offered in the hypothetical sale in the open market, which the Act requires us to imagine, at the time of Mr. Whitley's death on 11-9-1967. The sum which any bidder would offer must depend on what he knows or thinks he knows about the shares for which he bids.

9. In Lynall v. Inland Revenue Commissioners(1) Mrs. Lynall died on May 21, 1962. At her death, she owned certain shares in Linread, Private Company. The accounts for the previous year upto July 31, 1961 had been published. The accounts for the year to July 31, 1962, when drawn, up showed a substantial increase in profits. The question arose, whether unpublished information could be relied on for the purposes of valuation of the shares of the estate of Mrs. Lynail. Plowman, J., held that in arriving at the own market value u/s. 7(5) of the Finance Act, 1894, the Court should only have regard to published information and information which the Directors would in fact have given in answer to reasonable questions. That view was affirmed by the House of Lords.

10. Sri S.R ??? Murthy for the Department conceded, and in our opinion rightly, that for purposes of determining the break-up value of the shares as on 11-9-1967 the Balance sheet of the company as at 31-12-1967 cannot be looked into and that the information furnished by the company's published Balance Sheet as at 31-12-1966 alone could be relied on. Learned Counsel, however, urged that the Appellate Tribunal has ??? given any reason for not taking into account the estimated value of the goodwill of the company, and expected dividends for the year 1967 as was done by the Assistant Controller. He also argued that the mode of valuation prescribed by Rule ID of the Wealth-tax Rules is intended only for purposes of valuation under the Wealth-tax Act, and that for purposes of valuation under the Act, valuation ought, to be made in accordance with recognised modes of valuation of shares since no Rules have been made under the Act prescribing the manner in which the market value of unquoted Equity Shares may be determined.

11. Sri Sarangan for the accountable person submitted that the finding of the Appellate Tribunal is essentially one of fact, that the Tribunal has adopted one of the recognised methoas of valuation viz., the break-up method of valuation, which is also the method adopted by the Appellate Controller, that the Appellate Controller also did not take into account the value of goodwill of the company and therefore, it cannot be contended that there was no material for the Tribunal to value the shares at Rs. 1,69,020.

12. Valuation of stocks and shares quoted on the Stock Exchange presents little difficulty; but valuation of unquoted shares has always presented considerable difficulty. In Salvesen's Trustees v. Inland Revenue Commissioners(2), a leading case on the subject, Lord Fleming pointed out the difficulty of estimating the value of shares in a company whose shares could not be bought and sold in the open market and with regard to which there had not been any sales on ordinary terms and said, at page 392:

“The problem can only be dealt with by considering all the relevant facts so far as known at the date of the testator's death, and by determining what a prudent investor, who knew these facts, might be expected to be willing to pay for the shares.”

13. He then classified the relevant facts under four heads, viz.:—

(A) The history of the industry;

(B) The history of the company from its inception to the date of the death and particularly its position at that date;

(C) The prospects of the industry generally at that date and of the company in particular;

(D) The extent to which the restrictions in the articles might be expected to depreciate the value of the shares.

14. Heads (A) and (B) are of importance primarily as a means of estimating head (C).

15. Estimate of value of unquoted shares is done on theoretical lines, by comparison with the known prices of shares which are quoted on the Stock Exchange, where conditions approximating with those statutory hypothetical open market are obtained. (Vide Dymond's Death Duties, 14th Edn. at page 577). Investigations are made to arrive at two sets of figures viz., (1) the rates of dividends and profits which may reasonably be expected in the future from the shares in question, and (2) the dividend and profit yields which can in fact be obtained in the open market from quoted shares which are as nearly as possible comparable with those being valued. From the figures thus arrived at by comparison with particular companies, a general indication of the expected yield will emerge, on which the valuation of the shares may be based. Vide Dymond's Death Duties, 14th Edn. at pages 584 and 585.

16. There is another method of valuation known as ‘break-up value’ method i.e, the net amount which the share-holder would receive in the event of liquidation. In Estate Duty cases involving valuation of unquoted shares, the practice in the United Kingdom is for the Revenue and the accountable person to adduce evidence of expert share-valuers who make estimation of the market value of the shares in question in accordance with the recognised methods of valuation. Valuation of property is an art rather than a precise science and as such the assistance of experts in the line is always necessary in order to arrive at a decision.

17. In India, Estate Duty came to be introduced by the enactment of the Act which was brought into force on 15th October 1953. No Rules were made under the Act prescribing the manner in which the value of unquoted shares may be dertermined for purposes of Estate Duty. In the absence of such Rules, the market value has to be determined in accordance with recognised methods of valuation.

18. On 1st April 1957, the Wealth-tax Act, 1957 came into force. The problem of valuation of unquoted shares arose under, the said Act also. In exercise of the powers conferred by S. 13 of the Wealth-tax Act, the Central Board of Direct Taxes issued Circular No. 3 WT. of 1957 dt. 28-9-1957 containing instructions regarding valuation of unquoted shares. The method of valuation directed thereunder was the ‘break-up value’. The said Circular was replaced by Rule ID inserted in the Wealth-tax Rules, 1957 by the Wealth-tax (Amendment) Rules, 1967 issued on 6th October, 1967. Rule 1D reads thus:

“1D. Market value of unquoted equity shares, of companies, other than investment companies and managing agency companies— The market value of an unquoted equity share of any company, other than an investment company or a managing agency company, shall be determined as follows:—

19. 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 divided by the total amount of its paid-up equity share capital as shown in the balance sheet. The resultant amount multiplied by the paid-up value of each equity share shall be the break-up value of each unquoted equity share. The market value of each such share shall be 85 per cent of the break-up value so determined…..(Proviso omitted as unnecessary).

20. Explanation I—For the purpose of this rule ‘balance sheet’ in relation to any company, means the balance sheet of such company as drawn upon 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.

21. Explanation II—For the purpose of this rule—

(i) the following amounts shown as assets in the balance sheet shall not be treated as assets, namely:—

(a) any amount paid as advance tax under S. 18A of the Indian Income Tax Act, 1922 (11 of 1922), or under S. 210 of the Income-tax Act, 1961 (43 of 1961);

(b) any amount shown in the balance sheet including the debt balance of the profit and loss account or the profit and loss appropriation account which does not represent the value of any asset;

(ii) The following amounts shown as liabilities in the balance sheet shall not be treated as liabilities, namely:—

(a) the paid-up capital in respect of equity shares;

(b) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the valuation date at a general body meeting of the company;

(c) reserves, by whatever name called, other than those set apart towards depreciation;

(d) credit balance of the profit and loss account;

(e) any amount representing provision for taxation (other than the amount referred to in clause (i)(a)) to the extent of the excess over the tax payable with reference to the book-profits in accordance with the law applicable thereto;

(f) any amount representing contingent labilities other than arrears of dividends payable in respect of cumulative preference shares.”

22. The Rules have been made in exercise of the powers conferred by S. 46,(2)(a) of the Wealth-tax Act, 1957 which empowers the Board to provide for the manner in which the market value of any asset may be determined. The Rules have been laid before each House of Parliament.

23. Under its Rule-making power, the Board cannot provide for any arbitrary manner of valuation of any asset. The method of valuation which may be prescribed shall be one of the recognised methods of valuation of assets. ‘Break-up value’ method being one of the recognised methods of valuation, the Board has prescribed that method for the purposes of valuation of unquoted shares under the Wealth-tax Act. Although the practice prevailing in the United Kingdom, United States of America, etc., requires the good-will value of a company to be included for arriving as the net value of its assets, so far as India is concerned, the law as ??? in Rule 1D is, that the ‘break-up value’ method does not require the goodwill value of a company to be included.

24. We agree with the learned Counsel for the Revenue that Rule 1D does not govern the manner of valuation of shares for the purposes of Estate Duty. As already stated, there is no Rule made under the Act providing for the manner of valuation of unquoted shares. In the absance of Rules, valuation for purposes of the Act has got to ??? in accordance with well recognised methods of valuation followed in India. The method of valuation prescribed by Rule 1D of the Wealth-tax Rules 1957, being the only statutorily recognised method of valuation of ??? equity shares in this country, it would not be wrong to adopted that method of valuation for purposes of Estate Duty also, though the Rule as ??? is inapplicable. The Rule can be looked into only for the purposes of knowing the manner of break-up method of valuation which is one of the recognised methods of valuation.

25. As stated in the earlier part of this judgment, the principal value of any property under S. 36 of the Act shall be estimated to be the price which, in the opinion of the Controller it would fetch if sold in the open market at the time of the Assessee's death. It is the price which the property would fetch in the hypothetical sale in the open market. The same is the principle of valuation under the Wealth-tax Act and the Gift Tax Act. If unquoted shares are valued in accordance with Rule 1D of the Wealth-tax Rules and that is the price which in the opinion of the Wealth-tax Officer they would fetch if sold in the open market on the ‘valuation date’, it stands to reason that the same should be the value of the said shares for purposes of Estate Duty if the death takes place on the ‘valuation date’ or near about that date. Let us suppose that the deceased had died on 31-3-1967 or a week thereafter. Then the shares held by the deceased on 31-3-1967 have to be valued at Rs. 1,69,020 under the Wealth-tax Act; the same shares have to be valued at Rs. 2,23,174 for Estate Duty if the argument on behalf of the Department that the good-will value of the Company ought to be included in arriving at the break-up value, is accepted as sound. Since under both the Acts, it is the price the shares would fetch if sold in the open market that has to be determined, the method of valuation or principles of valuation under both the Acts ought to be the same. We, therefore, reject the argument of the learned Counsel for the Revenue that good-will value of the Company ought to have been included in arriving at the break-up value of the shares.

26. The Assistant Controller made on addition of Rs. 10 a share on account of the expected dividend for the year 1967. No such addition was made by the Appellate Controller or the Tribunal. The Department does not appear to have urged before the Tribunal that any such addition will have to be made. That apart, in our opinion, it is not open to the Department to contend that an addition will have to be made on account of expected dividend for the year 1967. It is not clear from the order of the Assistant Controller, whether it is the dividend payable in 1967 for year ended 31-12-1966 or the dividend payable in 1968 for the year ended 31-12-967. It will be noticed that under Explanation II(ii)(b) of Rule 1D of the Wealth-tax Rules, the amount set apart for payments of dividends on Preference Shares and Equity Shares where such dividends have not been declared before the ‘valuation date’ at a general body meeting of the Company, shall not be treated as liabilities. It was not shown before us that the net value of the assess of the Company valued at Rs. 26,82,792 does not include the amount set apart for payment of dividends on the shares. If the amount set apart for dividends has already been included in the net value of assets of the Company and has been taken into account while arriving at the ‘break-up value’ of the shares, the Department cannot contend that an addition will have to be made on account of expected dividend for the year 1967. If what the Assistant Controller intended was the anticipated dividends for 1968, no addition can be made on that account since the accounts upto 31-12-1967 were published long after the date of death. Dividend is not like interest which accrues from day to day. The right to claim dividends arises only on declaration of dividends and not before. There is another way of looking at the problem before us. The market value of the shares as on 31-3-1967 as disclosed by the Wealth-tax assessment order for 1967-1968 is an important piece of evidence. In the absence of any other material, the Tribunal was justified in relying on the said evidence for purposes of valuation of the market value of the shares as on 11-9-1967. There is no material to show that the value of the shares had gone up since 31-3-1967. The only published information concerning the Company on 31-3-1967 as well as 11-9-1967 is its published Balance Sheet as at 31-12-1966 which alone could be relied on for purposes of valuation—whether on 31-3-1967 or 11-9-1967. If there were any published information subsequent to 31-3-1967 indicating that the value of net assets of the Company had increased, that would have been a relevant ground for, making an addition to the market value as on 31-3-1967. Sri S.R Rajasekhara Murthy submitted that the 400 Bonus Shares were issued by the Company after 31-3-1967 and that is a circumstance to be taken into account. That fact, however, in the opinion of the Tribunal, has not enhanced the value of the share holdings. That was also the ??? of the Assistant Controller and the Appellate Controller. ??? Shares were issued in the ratio of four for every ten Equity Shares. If the value of 1,000 shares was Rs. 1,69,020, the value of 1.000 ??? 400 Bonus Shares would remain same. Where Bonus Shares are ??? in respect of ordinary Shares held in a Coy. by share-holder they ??? to be valued by spreading the cost of old shares over ??? Bonus Snares taken ??? if they rank ??? Vide Commisioner of Income Tax v. ??? Investment Co. Ltd.(3).

27. For the reasons stated above, the Tribunal, in our opinion, was right in determining the market value of the shares in ??? Accordingly the question referred is answered in the ??? and against the Department. The Department will pay the costs of the Accountable person. Advocate's fee Rs. 250.