2014 (11) TMI 889 - HC - Income Tax

Interpretation of section 15(6) Gift Tax Act r.w. Rule 11A of income tax Rules treatment of difference in sales transaction as Gift - Bonafide transaction - Reference to Valuation officer - Whether the Tribunal is right in deleting gift tax levied by invoking the provisions of section 4(1) of the Gift Tax Ac and in doing so, erred in interpreting section 15(6) read with Rule 11A of the Income Tax Act and the Rules Held that - Provisions of sec. 4(1)(a) of the G.T. Act cannot be invoked in case of transactions which are bonafide and no attempt of evasion of tax is discernible in Commissioner Of Gift-Tax, Tamil Nadu-I Versus Indo Traders And Agencies (Madras) Pvt. Limited 1979 (6) TMI 8 - MADRAS High Court it has been held that unless the price realised for transfer was such as to shock the conscious of the Court, if would not be possible to hold that the transaction is otherwise than for adequate consideration. Rule 11A of the GT Rules as well as rule 3B of the WT Rules fairly bring out the legislative intention for accepting the declared value of an asset for the purposes of wealth tax and gift assessments if the difference between the declared value and the fair market value is less than 33 1/3% or ₹ 50,000 - the market value as determined by the DVO under the W T Act as on 31.3.84 is ₹ 178.49 lakhs whereas the realised value shown by the assessee is ₹ 143.50 lakhs - The difference being merely ₹ 35 lakhs which is much less than the percentage prescribed in Gift tax Rules or Wealth-tax Rules - the transaction involving sale of Kashmir House by the assessee to its 100% subsidiary is a bonafide transaction and does not reflect any attempt of tax evasion on the part of the assessee company - provisions of sec. 4(1)(a) of the GT Act cannot be invoked for treating the sale transaction as a deemed gift thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
Challenge to judgment and order dated 23.9.1999 by Income Tax Appellate Tribunal for assessment year 1985-86. Interpretation of provisions of section 4(1) of the Gift Tax Act and section 15(6) read with Rule 11A of the Income Tax Act.

Analysis:
The appellant challenged the judgment of the Income Tax Appellate Tribunal regarding the deletion of gift tax. The appellant argued that the Tribunal misinterpreted section 15(6) along with Rules 11A of the Income Tax Act. The respondent, however, cited precedents from Calcutta and Madras High Courts, as well as the Supreme Court, to support the Tribunal's decision. The appellant highlighted the reasons behind the provision's introduction, emphasizing Section 48 of the Gift Tax Act.

The CIT(A) emphasized the differences between gift tax and income tax proceedings, questioning the application of Section 4(1)(a) of the Gift Tax Act. The CIT(A) also referred to a High Court case to support the view that certain transactions may not constitute gifts. The Tribunal echoed similar sentiments, stating that bona fide transactions without tax evasion attempts should not invoke Section 4(1)(a) of the Gift Tax Act. The Tribunal analyzed the declared value versus the fair market value, citing rules that support accepting the declared value under certain conditions.

The Tribunal rejected the Revenue's argument, noting that the rules did not mandate adopting the lesser of two figures mentioned. The Tribunal emphasized the bonafide nature of the transaction and the reasonable consideration passed between the parties. The Tribunal also scrutinized the valuation process and the circumstances surrounding the property transfer. The Tribunal discussed a High Court decision but found it not directly supportive of the assessee's case. Ultimately, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal based on the findings and legal interpretations presented.

In conclusion, the High Court dismissed the Tax Appeal based on the concurrent findings of the CIT(A) and the Tribunal. The Court agreed with the Tribunal's decision, citing the relevant case law and legal reasoning provided in the judgment. The appeal was deemed to be in favor of the assessee and against the Revenue, leading to the dismissal of the Tax Appeal.