1987 (12) TMI 59 - AT - Income Tax

Summary

Issues Involved:

1. Whether the transfer of shares to the Bhavana Kalinikant Trust by the assessee constitutes a gift liable to gift-tax.
2. Whether the donor and the donee being the same person affects the applicability of gift-tax.
3. Interpretation of the Trust Deed and its implications on the gift-tax liability.
4. Applicability of relevant sections of the Indian Trusts Act and their impact on the case.

Detailed Analysis:

1. Whether the transfer of shares to the Bhavana Kalinikant Trust by the assessee constitutes a gift liable to gift-tax:

The assessee created an irrevocable trust with an initial sum of Rs. 1,000 and subsequently transferred certain shares to the trust. The Gift-tax Officer (GTO) assessed the market value of the shares at Rs. 52,744 and after allowing a statutory exemption of Rs. 5,000, determined the taxable gift to be Rs. 47,744. The GTO rejected the assessee's claim for exemption from gift-tax, stating, "the donor and donee are not the same person, and hence this is a pure case of gift on which gift-tax is leviable."

2. Whether the donor and the donee being the same person affects the applicability of gift-tax:

The assessee argued that since she was the sole beneficiary of the trust, there was no transfer of property from one person to another. The Appellate Assistant Commissioner (AAC) upheld the GTO's decision, stating, "the donation will amount to transfer of property to the trust and not to the self," and thus, the Gift-tax Officer's action was justified.

3. Interpretation of the Trust Deed and its implications on the gift-tax liability:

The assessee contended that the transfer of shares to the trust was for consideration, as the trust deed required the trustees to hand over the entire income to her. However, the AAC interpreted the trust deed differently, noting that the trust and the settlor were distinct entities. The AAC emphasized that the Gift-tax Officer is concerned with whether there is a transfer of property from one person to another without any consideration.

4. Applicability of relevant sections of the Indian Trusts Act and their impact on the case:

The assessee referred to sections of the Indian Trusts Act, including sections 50, 55, 56, 58, and 69, to argue that there was no gift involved. The Tribunal, however, found that these sections did not support the assessee's case. The Tribunal also noted that the trustees had the power to eliminate the assessee as a beneficiary, which further reinforced the distinction between the trust and the settlor.

Conclusion:

The Tribunal concluded that the transfer of shares to the Bhavana Kalinikant Trust constituted a gift liable to gift-tax. The definitions of 'donee,' 'donor,' 'gift,' 'transfer,' and 'property' under the Gift-tax Act were fully complied with. The Tribunal dismissed the appeal, affirming the decision of the Gift-tax authorities to tax Rs. 52,744 under the Act.