TMI Blog2013 (6) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ersus CGT [2001 (5) TMI 49 - SUPREME Court], CGT versus Indo Traders & Agencies (Madras) Pvt. Ltd. [1979 (6) TMI 8 - MADRAS High Court] and CGT v. A. Hafsa Banu [1998 (9) TMI 31 - MADRAS High Court], it is imminently clear beyond doubt that the burden lies on the revenue to establish that the conditions of Section 4 (1) (a) are complied with. In favour of assessee. - Income Tax Appeal No.32 of 2006, Income Tax Appeal No.30 of 2006, Income Tax Appeal No.31 of 2006, Income Tax Appeal No.33 of 2006, Income Tax Appeal No.34 of 2006 - - - Dated:- 30-5-2013 - Rajiv Sharma And Saeed-Uz-Zaman Siddiqi, JJ. JUDGMENT Heard Mr. D.D. Chopra, learned counsel for the appellants and Mr. P.J. Pardiwala, Senior Advocate appearing for respondent in Income Tax Appeal No.32 of 2006. In other appeals, Mr. Waseequddin Ahmad has adopted the arguments advanced by Mr.P.J. Pardiwala. The afore-captioned appeals have been preferred by the Revenue questioning the correctness of the Judgment passed by the Tribunal dated 31st August, 2005, whereby the Tribunal has upheld the validity of the proceedings initiated under Section 16 of the Gift Tax Act, 1958 [hereinafter referred to as the 'Act' for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift tax return. The Assessing Officer issued a notice under Section 16 of the Act dated 27.2.1998 and called upon the assessee to furnish his return of gift. According to the Assessing Officer, the assessee had purchased shares of certain companies of Sahara Group, the fair market value of which is equal to zero. The Assessing Officer was of the view that there is a transfer of money from the assessee to the company and of shares from the company to the assessee and as the fair market value of all the shares is NIL, there is a transfer of money from assessee to company without adequate consideration so as to bring the case within the scope of Section 4 (1) (a) of the Act. The Assessing Officer has completed the assessment by an order dated 30th March, 2000 computing the gross value of the taxable gift at Rs.1,33,09,149/-. According to Assessing Officer, the assessee had made a gift as contemplated by Section 4 (1) (a) and therefore, the difference between the amount paid by the assessee for subscribing to the shares and the value of the shares that was determined by him represented a gift that was chargeable to tax. According to the Assessing Officer, as the assessee had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same was not equivalent to the market value and the adequacy of consideration has to be determined with reference to the circumstances keeping in view the nature of transaction, whether it is bona fide and whether consideration stated was the whole amount of the consideration. The Tribunal has recorded a categorical finding that in the case of assessee's shares were sold on face value of Rs. 10 per shares. The company has no power to sell shares at less than the face value. Therefore, the learned Commissioner rightly concluded that the assessee had not made any gift. Being aggrieved by the impugned order, the revenue has preferred appeals. On behalf of the department, it has been contended that the Tribunal erred in not taking into consideration that the value of the shares of closely held companies of the Sahara Group as determined in the manner laid down in Schedule II of the Gift Tax Act was much lower than face value of the said shares. Therefore, the respondent had paid much more for acquiring the said shares and in view of this, the transfer was clearly made for inadequate consideration within the meaning of provisions of Section 4 (1) (a) of the Gift Tax Act. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manner laid down in Schedule II, exceeds the value of the consideration shall be deemed to be a gift made by the transferor; Provided that nothing contained in this clause shall apply in any case where the property is transferred to the Government or where the value of the consideration for the transfer is determined or approved by the Central Government or the Reserve Bank of India." It is apparent from a perusal of the said section that certain conditions have to be fulfilled before any charge under Section 4 (1) (a) can be sustained. The conditions are that one property (other than cash) is transferred; and secondly, the said transfer should be otherwise than for adequate consideration. If these conditions are fulfilled, then the question of the gift is to be calculated as the difference between the value of the property transferred determined in the manner laid down in Schedule II and the consideration for the transfer. In the backdrop of the aforesaid legal position, it has been vehemently contended by the respondents that the aforesaid two conditions are not fulfilled hence the charge levied by the Assessing Officer must necessarily fail. The fact that the property that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property because at that stage, no transfer was involved but the share became property only after allotment, particularly when, as per the specific prohibition contained in Section 69 of the Companies Act, a company could not issue shares at a discount. If when a company issues shares there is no transfer of property but only a creation of property as enunciated by the Apex Court it must follow that when a person subscribes to shares the transaction does not give rise to transfer of property. This would mean that the first condition required to be fulfilled before Section 4 (1) (a) can be invoked is not complied with and, therefore, the Tribunal was in error in holding that when the assessee subscribes to shares there was a transfer of property. The second condition which is necessarily to be observed by the authorities is that the transfer must be otherwise than for adequate consideration, which in the instant case has also not been complied with. In order to attract the aforesaid provision, it is not necessary that the transfer must be otherwise for a consideration which is less than the market value. What has to be seen is that the transfer is not for adequate consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasonable or fair, it cannot be considered to be inadequate. The Court is further of the view that 'if the Legislature had contemplated as a universal rule that the market value should alone be the criterion for testing the adequacy of consideration, the provision would have been differently worded and would have been, "where the property is transferred for less than its market value, then the difference between the market value and the consideration stipulated, shall be deemed to be the gift made by the transferor". The aforesaid view was reiterated by the Madras High Court in CGT versus Nelson Company [2000 Vol.245 ITR 347 (Mad.)] and subsequently in CGT versus Dr. (Mrs.) Malini Krishnan [(2006) 283 ITR 453 (Bom)], where the High Court observed that it is only in cases where the difference in price is abnormal, the conclusion that the vendor has consciously given away to the buyer a valuable thing at a much lesser value only to favour the buyer can be reached and the question of deemed gift would arise. It may be mentioned that the First Appellate Authority while observing that the Assessing Officer has misapplied the provisions of the Gift Tax Act observed that "Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Section 79, it is not the case of the revenue that the conditions provided for in Section 79 (2) were complied with by any of companies whose shares the assessee has subscribed for. We find force in the submissions of the respondent's Counsel that the act of subscribing to the shares at the face value cannot be said to be one which shocks the conscience of the Court so as to justify the transaction as falling within the parameters of Section 4 (1) (a). Applying a broad commercial sense approach the only conclusion that can be reached is that there are no inadequate considerations. The conclusion of the Tribunal to that effect is essentially a question of fact and does not give rise to any question of law much less a substantial question of law. (see: CGT versus Naganathan [(1999) 239 ITR 822 (Mad.)]). In view of the legal proposition laid down in Reva Investment Pvt. Ltd. versus CGT [(2001) 249 ITR 337 (SC)], CGT versus Indo Traders Agencies (Madras) Pvt. Ltd. [(1979) 131 ITR 313 (Mad.)] and CGT v. A. Hafsa Banu [(2000) 241 ITR 462 (Mad.)], it is imminently clear beyond doubt that the burden lies on the revenue to establish that the conditions of Section 4 (1) (a) are complie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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