1. These three departmental appeals arise out of the orders of the AAC, Madurai, in respect of gift-tax assessments made on Smt. Chinthamani Achi as legal representative of late Sri T. Manickavasagam Chettiar, Sri M. Ramaswami and Sri K.M. Thiagarajan, all for the assessment year 1975-76. Since these three appeals involve identical facts, they are conveniently dealt with together.
2. The appellants belong to the family of Sri Karumuthu Thiagarajan Chettiar, who married Smt. Visalakshi Achi and after her death Smt.
Radha Thiagarajan. He had two sons by the first wife and one by the second wife. Sri T. Sundaram Chettiar, the son by the first wife predeceased him leaving three sons. The other son by the first wife, namely T. Manickavasagam Chettiar, died after leaving two sons, namely, Dr. K.M. Thiagarajan and M. Ramaswamy, who are both the appellants before us. Smt Chinthamani Achi is the widow of late T. Manickavasagam Chettiar and she is the other appellant as legal representative of her late husband. Sri Karumuthu Thiagarajan Chettiar had another son by his second wife. There were family disputes. The late Sri Karumuthu Thiagarajan Chettiar was a textile magnate in South India and there are a number of textile mills and some other companies under the control of the family. There were family disputes, resulting in a desire to sort out the controls over the various companies between the three wings (the legal heirs of two sons and the third son) and the matter was subject to an arbitration and settlement through a family friend Sri M.S. Chockalinga Chettiar. Consequently, each of the family member had to surrender some shares and receive in return some other shares so that each family member had larger number of shares in smaller number of companies, after the arrangement. It is this sorting out which is alleged to have resulted in gift-tax assessments. The transfers were made at agreed price and the agreed prices were sought to be justified with reference to the capitalisation of yield method. The GTO, however, considered that the method of break-up value of shares stipulated under Rule 1D of the Wealth-tax Rules was a proper method. It was by adoption of this method that he has computed the gift at Rs. 4,981 in the case of late Sri. T. Manickavasagam Chettiar, Rs. 18,296 in the case of M.Ramaswamy and Rs. 14,975 in the case of Dr. K.M. Thiagarajan. The first appellate authority allowed these appeals on the ground that there was no reason as to why the yield method which supports the assessee's valuation should not be considered. In the departmental appeals, authorities are cited to show that the break-up value method should be preferred, notwithstanding the decision of the Supreme Court in the case of CWT v. Mahadeo Man  86 ITR 621 which supported the yield method on the ground that the decision related to the case of an investment company. It was contended that the rate of yield adopted for the purposes of capitalisation was also adverse to revenue. According to the learned departmental representative, the capitalisation should be at 9 per cent and not at 12 per cent. He also argued that the average of the yield should have been taken for three years and not for five years on the ground of 'the buoyant conditions in industrial production in the last three years, and in the share market and the public clamour for shares as a hedge against inflation' even as stated in paragraph 8 of the grounds of appeal. The learned representative for the assessee claimed that it was an agreed price and that there was no element of bounty, as there could not be, in a matter of adjustment of rights between the parties in dispute. He claimed that the break-up value of the shares is not the only method known to law and that the Gift-tax Act itself does not prescribe any particular method. He asserted that there was no element of bounty in sale of shares to other co-heirs or companies under the control of such co-heirs. He also filed the memorandum of agreement between the legal heirs. This was opposed by the learned departmental representative as a new material. In case such material is admitted, it was argued that the GTO should have an opportunity of meeting this evidence.
3. We have carefully considered the records as well as the arguments. A careful reading of the orders of the GTO does not show that the dealing was not at arm's length. No suspicion of any collusion is indicated. It is not disputed that there has been a sale of shares. It is the argument of the GTO that the fair market value is different from the recorded price and that warrants the treatment of the transaction as a deemed gift. We have no difficulty in accepting the legal proposition as enunciated by the authorities. But we are not satisfied that there is any material to suggest that the fair market value is different from the agreed price. We had occasion to consider a similar case of a deal in shares in another order in IT Appeal Nos. 1082 (Mad.) of 1979 dated 25-4-1981 (to which both of us were parties), wherein we had observed: We find that the shares were purchased and sold between the various shareholders at a price mutually agre'ed between them. Best evidence of fair market value of a share is the price at which the shares are purchased and sold. Stock Exchange quotations in respect of quoted shares and comparable sales of shares near about the date of transaction in respect of unquoted shares offer the best guide for market value. R.L. Sidey in Valuation of Shares states that 'in absence of special circumstances (such as a panic on the day in question) the usual and natural method of value is the market price, and that should be adopted where available, and in support of this view quotes a number of decisions of Commonwealth countries and this particular passage from the decision of Supreme Court of Canada  1DLR-315 at 320 reproduced at pages 78 and 79 of the book referred to: The value with which we are concerned here is the value at Untermeyer's death, that is to say, the then value of every advantage which is property possessed, for these advantages, as they stood, would naturally have the effect on the market price of shares in financial or commercial companies, not the least potent of which is what may be called the investment value created by the fact--or the prospect as it then exists of large returns by way of dividends, and the likelihood of their continuance or increase, or again by the feeling of security induced by the financial strength or the prudent management of a company. The sum of all these advantages controls the market price, which if it be not spasmodic or ephemeral is the best test of the fair market value of properly of this description.
In Advanced Accounting by Yaston Smyth and Brown (6th Edition, Vol.
LI), "the chapter on valuation of shares in companies starts with the observation that an accountant may be mainly called upon to value shares in a company where there is no market price for the shares or where the market does not represent the correct value of the shares.
In the case of the assessees, the shares are either in private companies or in public companies whose shares are not quoted in a recognised stock exchange. Each of the family members has not only 'sold' shares but also 'purchased' others. Before resorting to any method of valuation to find out the alleged extent of under-statement, it must first be shown that the agreed price is different from the market value. If there are three methods of valuation, it is possible that one method would justify the price, the second one would make one party a 'donor' while the third one may make the same party a donee.
The situation here is not much different. While the yield method justifies the valuation, some other method would make a 'donor' out of the same. Fair market value in respect of unquoted shares is best found by actual transaction. If such actual transaction has the support of one of the recognised methods of valuation, the assessee is indeed on a very strong ground. It is in this view, we do not consider it necessary to go into the merits of different methods of valuation placed by the different Courts on different occasions. It is in this context, we have not discuesed the multiplier for capitalisation as well as the number of years for which average income has to be taken, even in respect of yield method, though we are not impressed by the argument that the higher multiplier or a shorter period of averaging is warranted on the unsupported plea of 'the buoyant conditions in industrial production in the last three year's and in the share market and the public clamour for shares as a hedge against inflation' as alleged in the grounds of appeal to justify a larger multiplier or a shorter period for averaging. There is no method which will ensure a better fair market value in respect of unquoted shares as against the actual agreed price between two parties, not dealing at arm's length. There is no material, whatsoever, to assume a bounty liable to be treated as a gift, especially since the variation between 'agreed price' and estimated 'fair market value' is also not of much magnitude.
4. During the course of hearing, it was suggested that there could not be any element of gift in a family arrangement as envisaged by the arrangement between the family members in the memorandum executed on 3-11-1974. The admission of this memorandum is opposed as a new piece of evidence. We are unable to appreciate how this agreement which gave rise to these share transfers could be a new evidence. We find that these share transfers have been subject-matter of number of appeals in this group of cases for purposes of capital gains and gifts. This cannot be an extraneous evidence. We cannot, therefore, possibly refuse to recognise the same. Since the appeal is decided on the basis mentioned in the immediately preceding paragraph, it is, however, not necessary to go into this dispute. We would, however, like to add that we would have admitted this evidence if the case could not have been decided on the basis of our reasonings in the immediately preceding paragraph. Even otherwise the transfers in this group of cases are between concerns and individuals in the different sub-groups of Karumuthu family. We had occasion to deal with the question of deemed gift in a family arrangement in a recent order (to which both of us were parties) in GT Appeal Nos. 87 to 90 (Mad.) of 1981, wherein we had observed: Even on the argument that there cannot be a gift in a family arrangement, the assessee is entitled to succeed. Madras High Court in CGT v. Pappathi Anni  127 ITR 655 found that even where property rights were assigned to a party who did not have a share in the same, there was no element of gift in such a family arrangement between the parties because the mere bonafide belief that there was right took it out of liability to gift-tax;. In coming to this conclusion, the High Court approved the reliance placed by the Tribunal on the decision of the Supreme Court in Sahu Madhu Das v. Mukand Ram AIR 1955 SC 481 wherein it was held that a family arrangement is based on the assumption that there is an antecedent title on the part of the parties and the arrangement merely acknowledges and defines what that title is. Relinquishment of his claim on interest in respect of some of the properties by one party in such a case is not really relinquishment of his rights in the sense of giving up his rights so as to attract gift-tax liability.
If such an element of bounty could not be inferred where there was only a pretended or semblance of a right and not a legal right merely on the ground that such a pretended or semblance of a right is a bona fide one, there cannot obviously be a gift-tax liability in the case of the assessee, where the right is undisputable. It was suggested before us that the view of the Supreme Court and the Madras High Court could possibly be taken as a view based upon Hindu Law where the rights of coparceners at any particular point of time prior to family arrangement cannot be predicated. We find that the decision of the Madras High Court was in relation to a settled property and hence, it cannot be stated that the decision of High Court was rendered only in context of the Hindu Law. Further, Gauhati High Court in the case of Ziauddin Ahmed v. CGT  102 ITR 253 found that a similar family arrangement where there was a transfer at less than full market value, did not give rise to gift-tax liability on the ground that such a bonafide transaction does not amount to a transfer. It does not create an interest and each party takes a share in such an arrangement in pursuance of the pre-existing title. This decision also held that all that is necessary is only to show that the parties are related and have possible claim or a semblance of a claim to constitute a valid family arrangement. As pointed out earlier, the facts in assessee's case are such that the title to the claim is not only 'legal' but also undisputed. Gauhati High Court's decision also relates to the Mohamedan family. This also shows that, the fact that the family arrangement is in respect of Mohamedan family does not justify a different treatment. Gauhati High Court has also referred to a later decision of the Supreme Court in the case of Ramcharan Das v. Girija Nandini Devi AIR 1966 SC 323 where the Supreme Court observed as under: Courts give effect to a family settlement upon the broad and general ground that its object is to settle existing or future disputes regarding property amongst members of a family. The word 'family' in the context is not to be understood in a narrow sense of being a group of persons who are recognised in law as having a right of succession or having a claim to a share in the property in dispute.
The assessee is, therefore, entitled to succeed merely on the ground that it is a bonafide family arrangement. In this view, it is not necessary to go into the merits of different valuations placed by GTO and the AAC in any detail since even as concluded in the immediately preceding paragraph, valuation being subjective, the variations as between assessee and revenue are not such as to warrant an inference of gift in the fact of assessee's case. The assessee is, therefore, entitled to succeed in any view.
Hence, on the facts even without admitting the memorandum, we infer a family arrangement and on the basis of the above reasonings, the appeals deserve to be dismissed. As mentioned earlier even without the inference of family arrangement the appeals have no merit for the reasons stated in the immediately preceding paragraph.
5. In any view the appeals have to be dismissed and are accordingly dismissed.