1983 (2) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Whether the conversion of the assessee's absolute property into joint ownership with her sons constituted a gift under the Gift-tax Act.
2. Whether the partnership agreement was genuine or a device to camouflage the gift.
3. Determination of the value of the deemed gift.

Issue-wise Detailed Analysis:

1. Conversion of Absolute Property into Joint Ownership:
The primary issue was whether the assessee's act of contributing her plot of land to the partnership firm, and subsequently its division upon dissolution, constituted a gift under the Gift-tax Act. The assessee argued that there was no transfer of property since the firm was not a separate legal entity and she continued to have an interest in the property. However, the GTO and the AAC held that the conversion of the assessee's absolute property into joint ownership with her sons amounted to a deemed gift under Section 4(1)(d) of the Gift-tax Act. The Tribunal agreed with this interpretation, stating that the conversion of absolute property into joint ownership and the subsequent appropriation by the sons constituted a deemed gift, even if there was no total transfer by one person to another.

2. Genuine Partnership Agreement or Device to Camouflage the Gift:
The assessee contended that the partnership was genuine and formed for the purpose of carrying on a cinema business, which was abandoned due to the failure to obtain a license. However, the Tribunal found this argument unconvincing, noting that the partnership was dissolved within six months without any business activity, and the sons contributed only a nominal amount of capital compared to the substantial land contributed by the assessee. The Tribunal concluded that the partnership deed was a simulated arrangement to camouflage the gift, as the sons acquired substantial land and structures disproportionate to their capital contributions.

3. Determination of the Value of the Deemed Gift:
The Tribunal addressed the question of the value of the deemed gift, noting that the GTO had taken the difference between the market value of the land at the time of the firm's constitution and the value credited to the assessee's capital account. However, the Tribunal clarified that the gift would only emerge when the land was appropriated by the sons upon the firm's dissolution. The Tribunal directed the AAC to determine the value of the land appropriated by the sons without consideration, excluding the portion that remained with the assessee. The value so determined would constitute the subject matter of the deemed gift.

Conclusion:
The Tribunal upheld the view that the conversion of the assessee's absolute property into joint ownership with her sons and its subsequent appropriation constituted a deemed gift under Section 4(1)(d) of the Gift-tax Act. The partnership agreement was found to be a device to camouflage the gift. The case was remanded to the AAC to determine the value of the land appropriated by the sons, which would constitute the subject matter of the deemed gift. The appeal was partly allowed for statistical purposes.