Circular No. 635 — 635 dated 20 08 1992

What this is

Circular No. 635 was issued by the Central Board of Direct Taxes on 20 August 1992. Its subject is 635 dated 20 08 1992.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Says that the omission of Part C of Schedule III to the Wealth-tax Act, 1957 by the Finance Act, 1992 with effect from 1 April 1993 does not disturb the valuation of shares and debentures for gift-tax. Under the Gift-tax Act, 1958 the value of property other than cash gifted is determined as laid down in Schedule II to that Act, which applies the provisions of Schedule III to the Wealth-tax Act with modifications, and Part C of that Schedule carried the rules for valuing shares in and debentures of companies. The Board clarifies that for this limited purpose Part C may be taken to be on the statute book even after 1 April 1993, so gifts of shares and debentures continue to be valued by those rules.

Why it was issued

The omission of Part C had created doubts about how shares and debentures were to be valued under the Gift-tax Act, which borrows the wealth-tax rules.

Who it reaches

Donors gifting shares or debentures on or after 1 April 1992
Gift-tax Officers valuing such gifts
Valuers applying Schedule II to the Gift-tax Act

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

SCHEDULE II
Valuation of Gifts
SCHEDULE II l VALUATION OF GIFTS
1468. Clarification in respect of valuation of gifts of shares/debentures on or after 1-4-1992 under the Gift-tax Act in view of the omission of Part C of Schedule III to the Wealth-tax Act
1. Under the Gift-tax Act, 1958, the value of any property, other than cash, transferred by way of gift, shall be its value as determined in the manner laid down in Schedule II to the Gift-tax Act, where it has been stated that the value shall be determined in accordance with the provisions of Schedule III to the Wealth-tax Act with certain modifications.
2. Part C of Schedule III to the Wealth-tax Act, 1957 contains rules for determining value of shares in or debentures of companies. However, the above Part C of Schedule III is omitted by the Finance Act, 1992 with effect from 1-4-1993.
3. This omission of Part C of Schedule III to the Wealth-tax Act has created some doubts about the determination of the value of shares in or debentures of companies under the Gift-tax Act.
4. The matter has been considered. It is clarified that omission of Part C of Schedule III to the Wealth-tax Act does not affect the determination of value of shares in or debentures of companies under the Gift-tax Act. For this limited purpose, this Part C of Schedule III to the Wealth-tax Act can be taken to be on the statute even after 1-4-1993. For the purpose of the Gift-tax Act, the value of shares in or debentures of companies shall continue to be determined as per rules in Part C of Schedule III to the Wealth-tax Act.
Circular : No. 635, dated 20-8-1992.

What to watch

This is a Gift-tax Act circular, not an income-tax circular.
The survival of Part C is for the limited purpose of gift-tax valuation; it is gone for wealth-tax from 1 April 1993.
Gift-tax has since ceased to be levied on gifts made after the abolition of that levy, so the question arises only for gifts within the period the Act applied.

Where you meet it

Only in an old gift-tax assessment where the value of gifted shares or debentures is in dispute.

← Circular No. 634 · Circular No. 630 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.