TMI Blog1979 (6) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's case would be exempt under section 5(1)(xiv) of the Gift-tax Act, 1958 ? " The assessee is a private limited company, which came into existence on 19th May, 1948, with three shareholders, viz., P. R. Dharmarajan, P. R. Ramanathan and P. S. Ramaswamy, who were also directors of the said company. This company acquired as a going concern the whole of the business of a partnership by name " Indo Traders and Agencies " with all the assets including the goodwill and liabilities of the said business. The resolution of the board of directors of the assessee, dated 24th June, 1948, shows that the assets and liabilities as disclosed in the balance-sheet of the firm, were taken over by the company. In the balance-sheet of the firm, one of the assets is " goodwill " valued at Rs. 3,000. This company carried on business for several years. At an extraordinary general meeting held on 2nd May, 1964, the directors of the company were authorised to transfer all the assets and liabilities of the company to the firm known as " Indo Traders and Agencies " which was to come into existence on 5th May, 1964. An agreement was entered into with the firm. The resolution passed at the meeting wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited company in favour of the firm. The firm took over the stock-in-trade, which was valued in the balance-sheet of the assessee-company at Rs. 1,38,102. The actual realised value of the said stock-in-trade taken over was Rs. 2,71,546 and the difference between the two amounts came to Rs. 1,33,444. This amount was also treated as gift. The result was that the assessee-company was assessed to gift-tax on a sum of Rs. 1,82,533, being the total of Rs. 49,089 and Rs. 1,33,444. In the assessment order, there is no reference to any particular provision on the basis of which these amounts were brought to tax. The assessee appealed to the AAC and put forward three contentions, viz., (1) that the GTO was wrong in holding that there was a transfer of assets including goodwill in favour of the firm and in levying gift-tax; (2) that the GTO had erred in holding that there was goodwill and in fixing its value at Rs. 49,089 ; and (3) that the GTO was not correct in treating the sum of Rs. 1,33,444 as the value of the gift in respect of the stock-in-trade. There was also an additional contention that even if there was gift, it was exempted under s. 5(1)(xiv) of the Act. The AAC rejected all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should be deemed to have parted with the goodwill for no consideration at all. As far as stock-in-trade is concerned, the basis of the assessment is to value the stock-in-trade in May, 1964, at the price realised subsequently and to treat the difference between the realised price and the book value as the subject-matter of the gift. It is with reference to these facts we have to consider the applicability of s. 4(1)(a) of the G.T. Act. The G.T. Act levies tax in respect of the gifts made by a person during the previous year. The previous year in this case is the year ending 31st March, 1965, relevant to the assessment year 1965-66. " Gift" is defined in the Act as meaning the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer or conversion of any property referred to in s. 4 deemed to be a gift under that section. Section 4(1)(a) of the G.T. Act, which is the only material provision, to be referred to runs as follows: " For the purposes of this Act (a) where property is transferred otherwise than for adequate consideration, the amount by which the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nadequate consideration. My Lords, it is true that there is an equity which may be founded upon gross inadequacy of consideration. But it can only be where the inadequacy is such as to involve the conclusion that the party either did not understand what he was about or was the victim of some imposition. It is impossible to say that the inadequacy of consideration in this case amounts to anything like proof to warrant either of those conclusions." The same conclusion was reached by the other members, who decided the case in the House of Lords. In Administrator-General of Bengal v. Juggeswar Roy [1877] ILR 3 Cal 192 (PC), the case arose out of a suit instituted by the Administrator General to set aside the conveyance executed by one Jackson on the ground that he was a minor at the time of the execution and that he was fraudulently induced to part with his property, without fully understanding the nature of the transaction and for an inadequate price. The matter reached the Privy Council and their Lordships were unable to come to the conclusion that the evidence of inadequacy of price was such as to lead them to the conclusion that the plaintiff did not know what he was about or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation like this. We are unable to agree. We may explain why we disagree with him by taking an example. Supposing an old lady who owns a neighbouring property, wants to part with it to a medical practitioner, so that the medical practitioner would be of immediate assistance to her as and when she needs it and she parts with the property at what the parties conceive to be a reasonable price, could it be said that there was a gift of the property to the extent of the difference between what is later taken to be the market value and what was conceived to be the reasonable price for the property. It has also to be remembered that the computation of market value is in most cases a matter of estimate, which may also vary. Such a variable concept would not have been made the yardstick. The investigation to be made in the case of such a transaction could only be to see whether there is any attempt at evasion of tax or whether it is a bona fide transaction. If there is any attempt at evasion of tax, then s. 4(1)(a) of the G.T. Act can be applied on the ground that the consideration stipulated in the document is inadequate. If, however, the consideration that passed between the parties ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar case." On the facts it was held that there was no gift. The fallacy in the argument of the standing counsel may be examined now. The market value of the stock-in-trade has been taken to be the price subsequently realised. There is no information on record to show that even in May or June, 1964, the goods shown in the books commanded higher market value. Merely because, subsquently, the prices realised were higher, it does not follow that on the date when the transaction took place there was a higher price for them, and that it should be taken into account as adequate consideration. The relevancy of the market price as shown by the provision is only to fix the quantum of the value of the gift after it is found that the transaction was for inadequate consideration. When once the GTO assumes jurisdiction and is in a position to establish that the property has been transferred otherwise than for adequate consideration, then there is no option for him but to take the market value of the property as on the date of the transfer and compare it with the value of the consideration as shown by the parties. The difference will be deemed to be a gift made by the transferor. If the Legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this approach was wholly incomprehensible. It would follow from this decision that the GTO could not have picked out goodwill separately when what was transferred was as a going concern and try to evaluate goodwill alone for the purpose of arriving at the value of the gift. Therefore, the assessment cannot be considered to be valid on this account also. Learned counsel for the department drew our attention to a decision of this court in CGT v. A. M. Abdul Rahman Rowther [1973] 89 ITR 219 and to the passage therein where CGT v. Gheevarghese [1972] 83 ITR 403 (SC) was distinguished. In the case cited, goodwill was not one of the items mentioned as transferred and, therefore, it was separately valued and brought to tax as gift. This court upheld the assessment and distinguished the applicability of the decision in CGT v. Gheevarghese [1972] 83 ITR 403. In the present case, all the assets as a going concern have been transferred to the firm by the limited company. It is not as if any asset stood out so as to be separately dealt with for gift-tax assessment as in the case of CGT v. A. M. Abdul Rahman Rowther [1973] 89 ITR 219. This decision has therefore, no scope for applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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