1981 (7) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of Assessment
2. Determination of Taxable Gift
3. Valuation of Goodwill
4. Valuation of Land and Building
5. Applicability of Transfer of Property under Gift Tax Act

Issue-wise Detailed Analysis:

1. Reopening of Assessment:
The assessment for the assessment year 1972-73 was originally made on 12th October 1972, determining the taxable gift at Rs. 65,000 after allowing statutory exemption. The Gift Tax Officer (GTO) later reopened the assessment under section 16(1) of the Gift Tax Act, issuing a notice to the assessee.

2. Determination of Taxable Gift:
The GTO examined three documents: an agreement dated 15th April 1971, a deed of dissolution dated 22nd November 1971, and a release deed dated 10th March 1972. He concluded that the assessee had foregone an amount of Rs. 9,67,015, which constituted a gift. The Commissioner of Gift Tax (Appeals) [CGT (A)] upheld this conclusion, stating that there was a disposition within the meaning of section 2(xxiv)(b) of the Gift Tax Act, 1958, as elucidated by the Supreme Court in CGT, Madras vs. N.S. Getti Chettiar.

3. Valuation of Goodwill:
The GTO valued the goodwill at Rs. 3,18,536, with the assessee's half share at Rs. 1,59,268. The Commissioner did not interfere with this valuation, stating that the business was lucrative, earning profits ranging from Rs. 3 lakhs to Rs. 4.5 lakhs per year.

4. Valuation of Land and Building:
The GTO referred the value of the land and buildings to the Valuation Officer, who arrived at Rs. 22,50,000. The Commissioner reduced this to Rs. 12.76 lakhs, considering a transaction of sale by one Narsamma at Tilak Road. The Tribunal, however, compared the property with the Tajmahal Hotel property and determined the value of the land at Rs. 68 per sq. yd., totaling Rs. 7,88,800, and confirmed the value of other structures at Rs. 2,10,000.

5. Applicability of Transfer of Property under Gift Tax Act:
The Tribunal referred to the Supreme Court judgment in Malabar Fisheries Co. vs. CIT, which clarified that upon dissolution of a firm, there is no transfer of property but a mutual adjustment of rights. The Tribunal concluded that the assessee's share in the firm's property was indeterminate before dissolution, and hence, there was no transfer of property or disposition as defined under section 2(xxiv) of the Gift Tax Act.

Conclusion:
The Tribunal held that there was no taxable gift within the meaning of the Gift Tax Act. The appeal was allowed, and the reassessment was canceled. The Tribunal also provided directions for the valuation of the property and goodwill if computation of the value of the gift was to be made.