2007 (8) TMI 378 - AT - Income Tax

Summary

Issues Involved:
1. Whether the property transferred by the assessee to his wife is a deemed gift under Section 4(1)(d) of the Gift Tax Act (GT Act).
2. Adequacy of consideration for the transfer under Section 4(1)(a) of the GT Act.
3. Valuation of the property transferred.

Issue-wise Analysis:

1. Deemed Gift under Section 4(1)(d) of the GT Act:
The first issue concerns whether the transfer of 33 cents of land by the assessee to his wife, with a limited right of enjoyment, qualifies as a deemed gift under Section 4(1)(d) of the GT Act. The facts reveal that the assessee transferred the land via a settlement deed dated 7th October 1997, retaining the right of residence for himself and his two children for life. The Assessing Officer (AO) issued a notice under Section 16(1) of the GT Act, and the assessee filed a return declaring a taxable gift at nil. The AO, however, determined that the transfer was a deemed gift, valuing the land at Rs. 16,50,000 and deducting 10% for the lifetime interest retained by the assessee, resulting in a taxable gift of Rs. 14,85,000. The CIT(A) upheld this view, stating that the property transfer was a gift in praesenti, attracting the provisions of the GT Act.

2. Adequacy of Consideration under Section 4(1)(a) of the GT Act:
The core issue was whether the transfer was for adequate consideration. The assessee argued that retaining life interest and the obligation on the wife to construct a house constituted adequate consideration. The Tribunal examined the deed of settlement and found that the assessee retained the right of enjoyment for life and for his children. The Tribunal noted that the wife constructed a residential building using her own funds, which was considered adequate consideration. The Tribunal concluded that the transfer did not fall under the mischief of Section 4(1)(a) or 4(1)(d) of the GT Act, as it was not without adequate consideration.

3. Valuation of the Property:
Since the Tribunal held that there was no taxable gift under the GT Act, the issue of valuation became infructuous and was not further deliberated upon.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the transfer of 33 cents of land by the settlement deed dated 7th October 1997, with retained life interest and the obligation on the wife to construct a house, did not constitute a deemed gift under Section 4(1)(a) or 4(1)(d) of the GT Act. The issue of valuation was rendered moot by this decision.