1. This appeal and the cross-objection arise from the order of the Commissioner (Appeals) sustaining in part the assessment of deemed gift.
2. The assessee is an individual. On 1-4-1980, the assessee transferred 500 shares in Citadel Fine Pharmaceuticals (P.) Ltd., in which he was a director, to the HUF of which he was the karta for a consideration of Rs. 50,000. The assessee filed the return of gift showing the taxable gift as nil with the covering letter dated 15-12-1981. In that letter, he stated that as the transfer has been made for consideration, there was no gift. He also claimed that it did not come within the scope of Section 4(1)(a) of the Gift-tax Act, 1958 ('the Act') also because the market value of the shares will not be more than Rs. 50,000 as it related to a private limited company where the transfer of shares was restricted and the assessee had one-third interest on the coparcenary in the transferee-HUF to and, hence, there was no element of gift, The GTO noted that in the income-tax records of the assessee these shares have been valued at Rs. 1,28,200 as on 31-3-1980 in the statement of affairs filed along with the return for the assessment year 1980-81. He also valued the shares by capitalising the average yield for the three years and determined it at Rs. 3,23,042. He, accordingly, assessed the difference between the sum of Rs. 3,23,042 so determined and the consideration of Rs. 50,000 received by the assessee as a gift. On appeal, the Commissioner (Appeals) was of the view that Section 6 of the Act being similar to Section 7 of the Wealth-tax Act, 1957, the relevant Rule 1D of the Wealth-tax. Rules, 1957, could be invoked to determine the value of the unquoted equity shares after giving deduction of 15 per cent for the restriction as to transferability. He found that applying Rule 1D and valuing the shares by the break up method and giving a deduction of 15 per cent, the market value of the shares came to Rs. 256.40 as on 30-9-1979 and Rs. 197.52 as on 30-9-1980. Hence, he directed that as on 1-4-1980, the date of gift, it would be proper to take the average value of Rs. 226.96 and allow appropriate relief. The revenue has appealed to contend that the valuation prescribed under the Wealth-tax Rules has no relevance and, therefore, the valuation made by the GTO should be restored for the purpose of taxing the gift. On the other hand, the assessee has filed cross-objection to contend that the consideration shown for the transfer was adequate not only because the market value of the shares would not be as high as fixed by the Commissioner (Appeals) but also because the assessee as a coparcener had one-third share even after the transfer and a further deduction should be given in ascertaining the consideration required for the transfer.
3. On consideration of the rival submissions, we are of the opinion that the assessee is entitled to some further relief. As far as the valuation of the shares is concerned, the revenue relies on rule 10(2) of the Gift-tax Rules, 1958, which provides that where the articles of association of a private limited company contain restrictive provision as to the alienation of shares, the value of the shares if not ascertainable by reference to the value of the total assets of the company shall be estimated. This itself indicates that wherever possible, the break up method should be preferred to the method of estimation according to the yield. Hence, the method applied by the Commissioner (Appeals), namely, the break up method has to be preferred to the method of capitalising the yield applied by the GTO.4. The next question is whether the Commissioner (Appeals) was right in allowing deduction of 15 per cent in respect of the restriction on the transfer of the shares. The Madras High Court has held in the case of R. Rathinasabapathy Chattiar v. CWT  93 ITR 555 that in the case of private limited company where there is restriction on the transfer of shares a proper discount has to be given to ascertain the market value under yield method. Therefore, even on the basis that the Wealth-tax Rules cannot be directly applied for ascertaining the market value for the purpose of the Act an appropriate deduction has to be given because of the restriction on the transfer of shares and, in our opinion, the deduction of 15 per cent given by the Commissioner (Appeals) cannot be considered to be unreasonable when in the decisions cited above, the discount given is much more. In the circumstances, we must accept the valuation of the shares made by the Commissioner (Appeals) by the break up method after giving a deduction of 15 per cent.
5. We now come to the contention of the assessee that a further discount should be given because the assessee continued to be the owner of the shares as a coparcenary of the HUF even after the transfer. This contention does not postulate that what was transferred was only two-thirds of the interest in the share because the assessee had one-third share in the HUF but that since the assessee would still have one-third share in the shares even after the transfer, the consideration of Rs. 50,000 received was considered to be adequate as between the parties. The objection of the revenue was that the share of the deceased in the coparcenary was variable with the increase or decrease in the number of coparceners and, therefore, it was not possible to accept the claim of the assessee. But we do not find any force in this argument because we have to take the position as on the date of transfer and any change in the future in the share of the assessee in the coparcenary would be irrelevant in ascertaining whether the consideration received on the date of transfer was adequate or not.
It must also be accepted that the share of the assessee as a coparcener after the transfer was a valuable right to property which itself would be a subject of transfer in case the assessee abandons that right. It has been held by the Supreme Court in the cases of CED v. Kantilal Trikamlal  105 ITR 92 and P. Ranganayaki Ammal v. CED  105 ITR 92 that if a coparcener takes a smaller share in spite of the share he is legally entitled to, the difference would amount to disposition.
Hence, when the assessee in his individual capacity transferred the shares to the HUF, it must be with the knowledge that as a coparcener in the transferee-HUF he had one-third share and, therefore, the consideration received for the transfer of the shares would be adequate even if the full market value of the shares was not given since it would take into account the fact that he would continue to be the owner of the shares as a coparcener with one-third interest thereon. In the circumstances, we agree with the contention of the assessee that in finding whether the consideration received was adequate, there should be a further discount of one-third. The value fixed for the shares in accordance with the rate of Rs. 226.96 fixed by the Commissioner (Appeals) comes to Rs. 1,13,480. Allowing further discount of one-third amounting to Rs. 37,826, we find that the adequate consideration for the shares should have been Rs. 75,654. But the assessee has received only Rs. 50,000. Therefore, the balance of Rs. 25,654 becomes a gift taxable under Section 4(1)(a). We direct the GTO to amend the gift-tax assessment, accordingly.
6. In the result, the appeal of the revenue is dismissed and the cross-objection is partly allowed.