1997 (3) TMI 65 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Income-tax Appellate Tribunal was justified in holding that there could be no element of deemed gift.
2. Whether the transfer of Umaid Bhawan Palace to the partnership firm constitutes a "deemed gift" under section 4(1)(a) of the Gift-tax Act.
3. Whether the Tribunal was justified in declining to refer the question of law for the opinion of the High Court.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal's Decision on Deemed Gift:
The Tribunal held that the transfer of Umaid Bhawan Palace by the assessee to the partnership firm did not constitute a "deemed gift" under section 4(1)(a) of the Gift-tax Act. The Commissioner of Gift-tax (Appeals) supported this view, stating that the transaction was a transfer for consideration, which is incapable of being determined in monetary terms, and no profit or gain arose from such transfer. The Commissioner further noted that the transfer was not a device to convert personal assets into money for the benefit of the assessee while avoiding tax.

2. Transfer of Umaid Bhawan Palace as Deemed Gift:
The Assessing Officer initially reassessed the assessee, determining that the contribution of Umaid Bhawan Palace to the partnership firm was a transfer of property under section 2(xii) of the Gift-tax Act, leading to a taxable "deemed gift" amounting to Rs. 80,25,000. This was contested by the assessee, who argued that the contribution was not a "gift" as defined by sections 2(xii) and 4 of the Gift-tax Act. The Commissioner of Gift-tax (Appeals) and the Tribunal both concluded that the essential ingredients for invoking a "deemed gift" under section 4(1)(a) were not satisfied.

3. Tribunal's Refusal to Refer the Question of Law:
The Tribunal declined to refer the question of law to the High Court, stating that no question of law arose from its order. The Tribunal based its decision on the Supreme Court judgment in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509, which held that the transfer of a personal asset to a partnership does not result in any profit or gain accruing to the partner. The High Court noted that if a question of law does arise from the Tribunal's order, it is the High Court's prerogative to express its opinion on the matter. The High Court found that questions of law did arise from the Tribunal's order, particularly concerning the interpretation of sections 2(xii) and 4 of the Gift-tax Act.

Conclusion:
The High Court directed the Tribunal to refer the question of law for its opinion, emphasizing that the Tribunal is not competent to decide questions of law. The application under section 26(3) of the Gift-tax Act was allowed, and the Tribunal was instructed to state the case and refer the specified question of law to the High Court for its opinion.