1991 (5) TMI 125 - AT - Income Tax

Issues Involved:
1. Whether the contribution of plots by the assessee to the partnership firm amounts to a gift under the Gift-tax Act.
2. Whether the valuation of the plots was correctly shown at Rs. 82,000 or should be Rs. 1,56,000 as taken by the Gift-tax Officer (GTO).
3. Applicability of section 4(1)(a) and section 4(1)(c) of the Gift-tax Act.
4. Adequacy of consideration for the transfer of plots.
5. Whether the transaction was bona fide.
6. Procedural compliance with section 15(6) of the Gift-tax Act.

Detailed Analysis:

1. Whether the contribution of plots by the assessee to the partnership firm amounts to a gift under the Gift-tax Act:
The assessee contributed two plots of land valued at Rs. 82,000 to a partnership firm, where he held a 20% share and his sons held 40% each. The GTO considered this a gift as the plots were valued at Rs. 1,56,000 by the Valuation Officer, resulting in an understated value by Rs. 74,000. The GTO charged Rs. 69,000 to gift-tax after a basic allowance of Rs. 5,000.

2. Whether the valuation of the plots was correctly shown at Rs. 82,000 or should be Rs. 1,56,000 as taken by the GTO:
The assessee's valuation of Rs. 82,000 was based on a Registered Valuer's certificate, while the GTO relied on a Valuation Officer's report under the Wealth-tax Act, estimating the plots at Rs. 1,56,000. The Tribunal found that the GTO did not follow the required procedure under section 15(6) of the Gift-tax Act, which mandates a reference to the Valuation Officer if the GTO is dissatisfied with the declared value. The Tribunal emphasized that the GTO must either accept the Registered Valuer's report or refer the matter to the Valuation Officer.

3. Applicability of section 4(1)(a) and section 4(1)(c) of the Gift-tax Act:
The Tribunal determined that if the correct valuation of the plots was Rs. 82,000, neither section 4(1)(a) nor section 4(1)(c) would apply. Since the GTO did not follow the procedure under section 15(6), the valuation of Rs. 82,000 was deemed correct, thereby negating the applicability of these sections.

4. Adequacy of consideration for the transfer of plots:
The assessee argued that the transfer was not without consideration as he received a 20% share in the partnership. The GTO's contention that the plots were undervalued was dismissed by the Tribunal, which held that the valuation of Rs. 82,000 was justified and supported by a Registered Valuer's report.

5. Whether the transaction was bona fide:
The Tribunal found no evidence of mala fide intentions in the assessee's contribution of the plots to the partnership. The partnership deed cited the assessee's ill-health and the impending Land Ceiling Laws as reasons for the contribution. The Tribunal noted that the first appellate authority had recognized the firm as genuine, indicating the transaction was bona fide.

6. Procedural compliance with section 15(6) of the Gift-tax Act:
The Tribunal highlighted that the GTO failed to comply with section 15(6), which requires a reference to the Valuation Officer if the GTO doubts the declared value. The GTO's reliance on the Valuation Officer's report from the Wealth-tax Act without following the proper procedure under the Gift-tax Act was deemed improper. The Tribunal emphasized that the GTO must either accept the Registered Valuer's report or make a formal reference to the Valuation Officer, which was not done in this case.

Conclusion:
The Tribunal concluded that the valuation of the plots should be taken at Rs. 82,000 as per the Registered Valuer's report. Consequently, the provisions of section 4(1)(a) and section 4(1)(c) of the Gift-tax Act were not applicable, and no gift chargeable to gift-tax arose from the transaction. The gift-tax assessment order framed by the GTO was canceled, and the appeal filed by the assessee was allowed.

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