1990 (3) TMI 18 - HC - Income Tax

Summary

Issues Involved:
1. Deemed gift taxable u/s 4(1)(a) of the Gift-tax Act.
2. Partnership firm as an assessable entity under the Gift-tax Act.
3. Exemption of gift u/s 5(1)(xiv) of the Gift-tax Act.
4. Correctness of the valuation of the gift by the Appellate Tribunal.

Summary:

Issue 1: Deemed Gift Taxable u/s 4(1)(a) of the Gift-tax Act
The court analyzed the agreement dated November 21, 1969, where the assessee-firm transferred its business to Khoday Industries Pvt. Ltd. The Tribunal upheld the Gift-tax Officer's finding that the transfer constituted a deemed gift under section 4(1)(a) of the Gift-tax Act due to inadequate consideration. The court noted that the entire income-earning apparatus was transferred for five years, and the consideration was deemed inadequate. The definition of "transfer of property" u/s 2(xxiv) of the Act was interpreted broadly to include such transactions.

Issue 2: Partnership Firm as an Assessable Entity under the Gift-tax Act
The court rejected the contention that a firm cannot be an assessee under the Gift-tax Act. It referred to the definition of "person" in the Act, which includes a body of individuals or persons, whether incorporated or not. The court cited precedents from the Allahabad and Madras High Courts affirming that a firm falls within this category and can be assessed for gift-tax.

Issue 3: Exemption of Gift u/s 5(1)(xiv) of the Gift-tax Act
The court rejected the assessee's claim for exemption u/s 5(1)(xiv), stating that the gift was not made in the course of carrying on the business but was a transfer of the business itself. The court emphasized that the burden of proof for claiming this exemption lies on the assessee, which was not met in this case.

Issue 4: Correctness of the Valuation of the Gift by the Appellate Tribunal
The Gift-tax Officer initially valued the gift at Rs. 1,10,25,000, which was reduced by the Commissioner to Rs. 74,86,652 using section 6(2A) and rule 11 of the Gift-tax Rules. The Tribunal further reduced this to Rs. 41,92,000, adopting a method from C. A. Gulanikar's Book on Wealth and Gift-tax. The court found no reason to interfere with the Tribunal's valuation, noting that the lease continued for the full five-year period without termination.

Conclusion:
All three questions in T. R. C. Nos. 66 and 67 of 1982 were answered in the affirmative and against the assessee. The question in T. R. C. No. 26 of 1985 was answered in the affirmative and in favor of the assessee, affirming the Tribunal's valuation.