1982 (4) TMI 148 - AT - Income Tax

Summary

Issues:
- Whether the issuance of shares by a company constitutes a transfer for the purpose of gift-tax liability.
- Whether the difference between market value and face value of shares constitutes a deemed gift.
- Whether a shareholder has any interest in the property of a company.

Analysis:
1. The case involved a company that issued 900 shares at Rs. 100 each, prompting the Gift Tax Officer (GTO) to assess a deemed gift due to the perceived undervaluation of the shares. The GTO calculated the market value of the shares and determined a taxable gift, which was contested by the assessee.

2. The Commissioner (Appeals) upheld the GTO's decision, considering the issuance of shares as a transfer attracting gift-tax liability. The Commissioner enhanced the taxable gift amount based on a higher valuation of the shares.

3. The Appellate Tribunal considered the arguments presented by both parties. The Tribunal emphasized the legal principle that a company is a separate legal entity from its shareholders, and the allotment of shares does not constitute a transfer of property from the company to the shareholder. Citing legal precedents, the Tribunal concluded that a shareholder's rights are limited to participation in company profits, not ownership of company property.

4. Ultimately, the Tribunal ruled in favor of the assessee, holding that no transfer of property occurred in the issuance of shares, and therefore, no deemed gift liable to gift-tax existed. The assessment made by the GTO and Commissioner (Appeals) was deemed unwarranted in law and subsequently canceled.

5. The Tribunal allowed the appeal, thereby overturning the previous decisions and relieving the assessee from the gift-tax liability imposed based on the deemed gift arising from the share issuance.