1982 (4) TMI 150 - AT - Income Tax

Summary

Issues:
1. Whether the issuance of shares by a company constitutes a transfer attracting gift tax liability.
2. Whether the difference between the market value and the value for which shares were allocated constitutes a deemed gift.
3. Whether a shareholder buying shares purchases any interest in the company's property.

Detailed Analysis:
1. The case involved the issuance of 900 shares by a company at Rs. 100 each, leading to a dispute regarding gift tax liability. The assessing officer contended that there was a transfer of assets for inadequate consideration, resulting in a taxable gift. The CIT(Appeals) upheld this view, considering the allotment of shares as a transfer liable to gift tax. However, the ITAT held that a company is a juristic person distinct from shareholders, and the allotment of shares does not constitute a transfer attracting gift tax liability. Citing legal precedents, the ITAT determined that no transfer of property occurred in this case, thereby canceling the assessment made by the authorities.

2. The authorities below had calculated the deemed gift based on the difference between the market value and the value at which shares were allocated. However, the ITAT deemed this approach unnecessary as they found no transfer of property involved in the issuance of shares. The ITAT emphasized that shareholders do not acquire any interest in the company's property upon share allotment, as clarified by legal precedents. Consequently, the ITAT concluded that in the absence of a transfer, there could be no deemed gift, thereby rejecting the assessment based on this premise.

3. The ITAT highlighted the legal principle that shareholders do not purchase any interest in the company's property when allotted shares. Shareholders are entitled to participate in the company's profits but do not acquire ownership of the company's assets. By referencing legal authorities, the ITAT reinforced the distinction between a company as a juristic person and its shareholders. This distinction was crucial in determining that the allotment of shares does not involve a transfer of property, precluding the application of gift tax provisions. As a result, the ITAT allowed the appeal, ruling in favor of the assessee and canceling the assessment for gift tax liability.