1987 (1) TMI 130 - AT - Income Tax

Summary

Issues:
1. Whether the gift made by the assessee to a company should be considered an indirect gift to minor children for wealth tax assessment.
2. Interpretation of provisions of sub-clause (v) and (vi) of section 4(1)(a) of the Wealth-tax Act, 1957.
3. Application of sub-clause (vi) in the assessment year.
4. Determining if the asset in question was held by the minor children on the relevant valuation date.
5. Analysis of the observations made by the Commissioner (Appeals) regarding indirect gift to minor children and deemed dividend.

Detailed Analysis:
1. The appeal pertains to the assessment year 1979-80, involving a gift of Rs. 1,87,000 made by the assessee to a company. The issue arose as to whether this gift should be considered an indirect gift to minor children of the assessee for wealth tax assessment purposes.

2. The provisions of sub-clause (v) and (vi) of section 4(1)(a) of the Wealth-tax Act, 1957 were crucial in this case. Sub-clause (vi) was inserted with effect from 1-4-1985 and was not applicable to the assessment year in question. Two conditions were necessary for sub-clause (v) to apply: direct or indirect transfer of the asset to the minor child and the asset being held by the minor child on the relevant valuation date.

3. The Tribunal noted that the company, as a separate legal entity, held the gifted amount on the relevant valuation date. Therefore, the condition of the asset being held by the minor children was not satisfied, and sub-clause (v) could not be invoked for including the amount in the assessee's net wealth.

4. The Commissioner (Appeals) observed an increase in the value of shareholding of the minor children due to the gift to the company, hinting at an indirect gift. However, it was emphasized that this did not establish that the asset itself was held by the minor children on the valuation date, a crucial requirement under sub-clause (v).

5. The Tribunal highlighted that sub-clause (vi) did not necessitate the asset to be held by the minor children on the valuation date. If the asset was held by any other person or association of persons for the benefit of minor children, it could be included. However, since sub-clause (vi) was not applicable to the relevant assessment year, the inclusion of the gifted amount was directed to be deleted, and the appeal was allowed.