1997 (3) TMI 31 - HC - Income Tax

Summary

Issues:
1. Whether the Tribunal was right in canceling the gift-tax assessment in respect of the transfer of Rs. 6 lakhs by the assessee to his sons?

Detailed Analysis:
The case involved a petition filed under s. 26(3) of the GT Act, 1958 by the CGT, Madras to direct the Tribunal to state a case regarding the cancellation of gift-tax assessment on the transfer of Rs. 6 lakhs by the assessee to his sons. The assessee, who had won a lottery prize, entered into an agreement with his sons to share the prize money equally. However, the WTO assessed the entire prize amount in the hands of the assessee, considering the agreement as a sham document. The GTO assessed gift tax on the sum of Rs. 6 lakhs transferred to the sons, rejecting the contention that it was a loan. The CIT(A) and Tribunal upheld the tax assessment on the transferred amount. The Tribunal held that since the agreement was deemed sham, all transactions based on it should be ignored, leading to the conclusion that no gift tax was justified on the transfer to the sons.

The Revenue challenged the Tribunal's decision by filing a petition before the High Court. The Revenue argued that despite the agreement being a sham, the transfer of money to the sons without consideration attracted the provisions of the GT Act. On the other hand, the assessee's counsel contended that no question of law arose from the Tribunal's order as it was based on factual findings. The High Court considered both arguments and noted that the Tribunal had found the agreement to share the prize money as a sham document. Therefore, the High Court held that if the agreement was sham, the payment made to the sons based on that agreement should also be considered sham. The High Court emphasized that all transactions stemming from a sham document must be ignored, and it was not permissible to accept the agreement for some purposes while rejecting it for others. The High Court agreed with the Tribunal's finding that the transfer of money to the sons should be disregarded as there was no gift involved, and the money continued to be with the assessee.

In conclusion, the High Court rejected the tax case petition filed by the Revenue, emphasizing that the finding of the Tribunal was based on the facts of the case, and no referable question of law arose from the Tribunal's order. The High Court upheld the Tribunal's decision that the transfer of money to the sons under the sham agreement should be ignored, and no gift tax was justified on the transaction.