TMI Blog2003 (4) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act stands proved to have been made by the company in favour of Smt. Sarabhai and thereby deleting the same?" The relevant assessment year is 1969-70. The assessee-private limited company was assessed for the said year under section 15(3) of the Act. Notice was issued under section 16(1) on the assessee-company in respect of the waiver of the outstanding amount of Rs. 1,67,500 as payable by Smt. Giraben Sarabhai to the housing society as contribution in respect of apartments Nos. A/91 and A/ 101 and garage space No. 19 as well as an amount of Rs. 4,000 deposited by the housing society with the Small Causes Court, Bombay, in Civil Suit No. 531/5728 of 1965 by the housing society. The co-operative housing society had entered into a composite agreement with the assessee and Smt. Giraben on December 18, 1968, whereunder the reversionary rights of the assessee in the land which was leased to the housing society were purchased by the society for Rs. 20.55 lakhs from the assessee and the assessee was to withdraw two suits filed by it against the society. In. that agreement, by clause (8), it was agreed that the society will waive the aforesaid two amounts which were payable by Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... played a part in the gift by the company to Smt. Giraben Sarabhai. The Gift-tax Officer accordingly held that the release amount of Rs. 1,71,500 by the order dated March 13, 1982, was a gift by the company and taxed an amount of Rs. 1,61,500 after deducting the statutory exemption of Rs. 10,000. The Commissioner of Gift-tax (Appeals) dismissed the assessee's appeal by finding in paragraph 4 of his order that: "There was a direct and distinct surrender of a right and an actionable claim by the assessee-company in favour of Ms. Giraben Sarabhai, who was not at all a party to the original lease...". It was held that the assessee-company had surrendered its actionable claim vis-a-vis Malabar Co-operative Housing Society to provide monetary benefit to Ms. Giraben Sarabhai who was the sister of the main director of the assessee-company. The appellate authority found no infirmity in the view taken by the Gift-tax Officer and upheld his order. The Tribunal, in the appeal by the assessee, held that the assessee-company was not a person responsible for the release or discharge within the meaning of clause (c) of section 4 of the Act, though the assessee had waived its claim of Rs. 1,17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ift made by the assessee since there was no transfer of property by the assessee in favour of Smt. Giraben. It was also contended that there was even no deemed gift made by the assessee under section 4(c) of the Act, because, the release of debt was made by the society in favour of Smt. Giraben and the society was the person responsible for the release, because, it had chosen to waive the debt and not the assessee-company. Counsel argued that, assuming for the sake of argument that the assessee was responsible for the release of the debt by the society, there was no finding to the effect that the release was not bona fide. In fact, the Gift-tax Officer had found that the composite agreement was for valid consideration and the society had released the debt of Giraben because of the consideration emanating from the assessee under the composite agreement. Learned counsel, in support of his contentions, relied upon the following decisions: (a) The decision of the Bombay High Court in Keshub Mahindra v. CGT [1968] 70 ITR 1 was cited for the proposition that, in construing commercial contracts, the tax authorities and the Tribunal must have regard to normal business considerations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, which was rendered in the context of the provisions of section 4(c), was cited to point out that, on the basis of the circular of the Central Board of Revenue, New Delhi, issued on February 27, 1959, the court observed that the object underlying the said provision was to rope in so-called business transactions which were really gifts in a camouflaged form. The court held that, in order to bring the case within the ambit of section 4(c) of the Act, it was necessary for the department to show that the agreement in question was not bona fide. On the facts, it was found that there was no material on record to show that the agreement suffered from lack of bona fides or was not genuine. The provision of section 4(c), which falls for our consideration, reads as under: "4. Gifts to include certain transfers.--For the purposes of this Act,--... (c) where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment, to the extent to which it has not been found to the satisfaction of the Gift-tax Officer to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the said flats A/91 and A/101 and garage space No. 19 in the said 'Darshan Apartments', upon tenant co-partnership basis in the same way as all other members occupying flats in the said 'Darshan Apartments' respectively allotted to them." The waiver of the claim in favour of Smt. Giraben by the society, however, cannot be read in isolation. It was specifically recorded in the preamble of the agreement that "The parties hereto and all other parties concerned have agreed inter se to put an end to all the disputes, differences, claims and litigations". Under this agreement, the society agreed to purchase the reversionary rights, title and interest of the company in the premises including the land and building in which Giraben was having two flats and a garage. There were litigations pending in which the assessee-company had claimed arrears of rent from the society. These suits were agreed to be withdrawn by the assessee. A sum of Rs. 20.55 lakhs was agreed to be paid by the society for purchasing the reversionary rights. The entire exercise between the different parties to the agreement was made in order to put an end to all their disputes and differences. Nowhere in the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X
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