2003 (4) TMI 75 - HC - Income Tax

Gift Tax Act 1958 - Whether the Tribunal is right in law and on facts in holding that no taxable gift or deemed gift under section 4(c) of the Gift-tax Act stands proved to have been made by the company in favour of Smt. Sarabhai and thereby deleting the same? - We hold that the Tribunal was right in holding that no taxable gift or deemed gift under section 4(c) of the Gift-tax Act was proved to have been made by the company in favour of Smt. Giraben Sarabhai. The question referred to us is therefore answered in the affirmative in favour of the assessee and against the Revenue.

Issues Involved:
1. Whether the Tribunal was right in law and on facts in holding that no taxable gift or deemed gift under section 4(c) of the Gift-tax Act was made by the company in favor of Smt. Sarabhai.

Issue-wise Detailed Analysis:

1. Tribunal's Decision on Taxable Gift or Deemed Gift:
The Income-tax Appellate Tribunal, Ahmedabad Bench "C", addressed whether the waiver of an outstanding amount by the company constituted a taxable gift or deemed gift under section 4(c) of the Gift-tax Act. The relevant assessment year was 1969-70.

Assessment and Notice:
The assessee, a private limited company, was assessed under section 15(3) of the Act. A notice under section 16(1) was issued regarding the waiver of Rs. 1,67,500 payable by Smt. Giraben Sarabhai to a housing society and Rs. 4,000 deposited by the society in a civil suit.

Composite Agreement:
A composite agreement dated December 18, 1968, involved the assessee, the housing society, and Smt. Giraben. The society agreed to waive the amounts payable by Smt. Giraben, who was the sister of one of the directors of the assessee-company. The Gift-tax Officer found that the waiver was part of a mutual consideration agreement.

Gift-tax Officer's Findings:
The Gift-tax Officer concluded that the waiver of dues by the society was part of the consideration for the composite agreement. The company did not receive any consideration from Smt. Giraben for securing her release from the society. This was deemed a gift or at least a deemed gift, influenced by the relationship between Smt. Giraben and the company's director.

Commissioner of Gift-tax (Appeals) Decision:
The Commissioner upheld the Gift-tax Officer's decision, asserting that the assessee-company surrendered its actionable claim to benefit Smt. Giraben, who was not a party to the original lease.

Tribunal's Ruling:
The Tribunal held that the assessee-company was not responsible for the release or discharge under section 4(c) of the Act. The release was made by the society as part of a compromise and was not without consideration. The Tribunal inferred that the release was bona fide and part of a settlement of disputes.

Arguments by Revenue and Assessee:
- The Revenue argued that the company's waiver of Smt. Giraben's liability amounted to a deemed gift, influenced by her relationship with the managing director.
- The assessee contended that there was no transfer of property or deemed gift, as the release was by the society, not the company. The composite agreement was for valid consideration.

Legal Precedents Cited:
- Keshub Mahindra v. CGT: Emphasized considering the substance of commercial transactions.
- CGT v. Smt. Ansuya Sarabhai: Highlighted the need for the Gift-tax Officer's satisfaction regarding the bona fides of a release.
- Sir Padampat Singhania v. CGT: Stressed that transactions must be bona fide and straightforward.
- Smt. Vidyawati Devi Rathi v. CGT: Noted the need to prove lack of bona fides to bring a transaction within section 4(c).

Section 4(c) Analysis:
Section 4(c) deems a release, discharge, or surrender as a gift unless found bona fide by the Gift-tax Officer. The provision includes not only the person releasing the debt but also someone responsible for securing the release.

Conclusion:
The court concluded that the society, not the assessee-company, waived the debt. The composite agreement aimed to settle disputes, constituting valid consideration. The release was bona fide, and there was no deemed gift by the assessee-company. The Tribunal's decision was affirmed, favoring the assessee and against the Revenue. The reference was disposed of with no order as to costs.

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