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2011 (9) TMI 40 - HC - Income TaxDeemed gift - Section 2(xii) of the Gift Tax Act, 1958 - the assessee company had allotted 10,000 shares each at the face value of Rs.100/- to three individuals, viz., Shri. P. Govindasamy, Shri P. Palanisamy and Shri P. Kumarasamy. It is not in dispute that at the time of allotment of shares, the value of the share as per the market value was Rs.408.71 - The difference amount between the face value and the actual value was claimed as tax by the Department - The two essential requirements to bring the transaction within clause (a) of Section 4(1) of the Gift Tax Act are (1) there should be a property and (2) there should be a transfer. According to the assessee, the allotment does not involve transfer and therefore this clause is not attracted - On contra, according to the Revenue, it is a transfer as there was purchase of share from an existing shareholder i.e., the company - From the facts it is seen that the shares have been allotted to three individuals who were interested in the affairs of the company and the amount outstanding to the credit of account were adjusted against the face value of the share allotted to them - These shares were allotted as that of a new shareholder - It is quite understandable that when shares are allotted to a new shareholder, the value as on the date of the purchase should be taken into consideration and not the face value of the share - When the market value of the share is Rs.408.71, the assessee has transferred the share to a new shareholder, who is not an existing shareholder, at the face value of Rs.100/- that too the consideration for the said transfer was adjusted from the amount outstanding to the credit of the purchasers. It is not the case of the assessee that these shares were allotted as bonus or shares on rights basis as contemplated under Section 81 of the Companies Act - This transaction is said to be "transfer" of shares and not "creation" of shares - Therefore, it cannot be said that Section 2(xxiv)(d) of the Gift Tax Act would not apply to the present case - Decided in favour of Revenue.
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