2013 (1) TMI 608 - SC - Wealth-tax

Gift tax on the value of the bonus shares - fundamental question before the High Court in 2002 (5) TMI 42 - PUNJAB AND HARYANA HIGH COURT that whether there was in fact a gift of 14,000 bonus shares made by the assess to the transferee? - reopening of assessment - Held that - A perusal of the impugned judgment and order facially indicates that there has been no consideration of the provisions of Section 4(1)(c) of the Act. From the rather elaborate narration of facts, it is quite clear that the assessee had made a valid revocable gift of 6000 equity shares in the company on 20th February 1982 to the transferee. This is a finding of fact conclusively determined by the High Court in the assessee s own case. The only event that took place in the previous year relevant to the AY 1989-90 was the revocation of the gift by the assessee on 15th June 1988. Whether this event enough for the Gift Tax Officer, in 1996, to re-open the assessment for the year 1989-90, while keeping in mind the fact that bonus shares were allotted to the transferee on 29th September 1982 and 31st May 1986 is possible, on an interpretation of Section 4(1)(c) to answer this question either way, but unfortunately the High Court did not even notice this provision of the Act. Thus this case cannot be decided finally as the view of the High Court on the interpretation of Section 4(1)(c) is missing. Nor the view of the High Court on the applicability or otherwise of the principle laid down in McDowell & Co 1985 (4) TMI 64 - SUPREME COURT . As far as the applicability of Escorts Farms is concerned 1996 (9) TMI 4 - SUPREME COURT the question that arose for consideration in that case was the determination of the cost of acquisition of the original shares when bonus shares are subsequently issued. That is the second part of Section 4(1)(c) and that question would arise (if at all) only after a finding is given by the High Court on the first part of Section 4(1)(c) - remand the matter for de novo consideration by the High Court keeping in mind the provisions of Section 4(1)(c) of the Act as well as the orders passed in the case of the assessee for the Assessment Year 1982-83.

Summary

Issues:
1. Validity of revocable gift and assessment of gift tax for Assessment Year 1989-90.

Analysis:
The Supreme Court judgment involved two civil appeals arising from the High Court's decision regarding the assessment of gift tax for the Assessment Year 1989-90. The primary issue revolved around the validity of a revocable gift made by the assessee and the subsequent assessment of gift tax. The High Court had set aside the Income Tax Appellate Tribunal's order, upholding the assessment order in favor of the Commissioner of Gift Tax. The case pertained to the assessee revoking a gift of 6000 equity shares after receiving bonus shares, leading to a reassessment for the year 1989-90.

In the case of Satya Nand Munjal, the assessee had executed a deed of revocable transfer of 6000 equity shares in 1982, allowing for revocation within a specified period. Bonus shares were subsequently allotted to the transferee. The Gift Tax Officer assessed the gift as void for tax liability reduction, leading to protective assessment. The Tribunal later deemed the revocable gift valid, citing the Gift Tax Act provisions. The High Court upheld the gift's validity, subjecting the assessee to gift tax based on Rule 11 of the Gift Tax Rules, 1958.

For the Assessment Year 1989-90, the Gift Tax Officer issued a notice to reassess the gift tax on the bonus shares received by the transferee. The assessing officer held that the bonus shares were part of the gifted shares, resulting in tax liability for the assessee. The Commissioner of Gift Tax (Appeals) upheld the reassessment, considering the bonus shares as a means to avoid tax payment. However, the Tribunal quashed the reassessment, deeming it a change of opinion and highlighting untaxed dividend income on bonus shares.

The High Court, in its impugned order, held the assessee liable for gift tax on the bonus shares, considering them as income from the original shares. However, the Supreme Court found that the High Court did not adequately consider Section 4(1)(c) of the Act concerning the gift's interpretation and applicability of legal principles like McDowell & Co. and Escorts Farms. As a result, the Supreme Court remanded the matter for fresh consideration by the High Court, emphasizing a thorough analysis of the Act's provisions and past assessment orders.

In conclusion, the Supreme Court allowed both civil appeals, setting aside the High Court's judgment without costs, and directed a comprehensive reevaluation by the High Court, considering all relevant legal aspects and previous assessment outcomes.