1975 (11) TMI 23 - HC - Income Tax

Summary

Issues Involved:

1. Whether the appreciation in the value of shares between January 10, 1958, and March 20, 1958, constitutes a deemed gift u/s 4(a) of the Gift-tax Act, 1958.
2. Determination of the effective date for the market value of shares for the purpose of gift-tax.
3. Adequacy of consideration in the context of the Gift-tax Act.

Summary:

1. Deemed Gift u/s 4(a) of the Gift-tax Act:

The Gift-tax Officer argued that the difference in the market value of shares between January 10, 1958 (Rs. 97,75,539), and March 20, 1958 (Rs. 1,04,63,157), amounting to Rs. 6,87,618, was a deemed gift u/s 4(a) of the Gift-tax Act. The Tribunal, however, held that the shares and securities were transferred in specie to the shareholders on January 10, 1958, and thus, there was no gift within the meaning of section 4(a).

2. Effective Date for Market Value:

The court examined the relevant provisions of the Companies Act, 1956, particularly sections 100, 101, 102, and 103, which outline the procedure for the reduction of share capital. It was determined that the special resolution passed on January 10, 1958, was effective for the purpose of reducing share capital, and the subsequent formalities were merely procedural. Therefore, the market value of the shares should be considered as of January 10, 1958.

3. Adequacy of Consideration:

The court held that even if the transfer of shares was considered a gift, the difference in market value (Rs. 6,87,618) relative to the total reduction of share capital (Rs. 1,62,16,200) was not so disproportionate as to deem the transfer inadequate. The term "adequate consideration" must be construed broadly and contextually, and minor differences in value do not necessarily imply inadequacy.

Conclusion:

The court concluded that the transaction did not amount to a transfer of property and thus did not fall within the ambit of section 4(a) of the Gift-tax Act. Even if it were considered a transfer, the consideration was deemed adequate. Consequently, the question was answered in the negative and in favor of the assessee. The Commissioner was ordered to pay the assessee's costs of the reference.