2003 (4) TMI 255 - AT - Income Tax

Summary

Issues Involved:
1. Validity of proceedings under Section 16(1) of the Gift Tax Act.
2. Determination of the date of transfer of shares.
3. Whether the sale of shares constitutes a deemed gift under Section 4(1)(a) of the Gift Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 16(1) of the Gift Tax Act:

The assessee challenged the initiation of proceedings under Section 16(1) of the Gift Tax Act, arguing that the reasons recorded by the Assessing Officer (AO) for issuing the notice were not valid. The AO had initiated proceedings based on the belief that the transfer of shares was made for inadequate consideration, constituting a deemed gift. The Tribunal found that the AO had sufficient material to justify the initiation of proceedings, as the consideration for the transfer of shares was found to be inadequate. The Tribunal upheld the validity of the notice under Section 16, rejecting the assessee's arguments.

2. Determination of the Date of Transfer of Shares:

The primary issue was whether the date of transfer should be the date of the agreement to sell the shares or the date of registration of the transfer in the company's register. The Tribunal noted that in similar cases involving other assessees from the same group, the date of the agreement was taken as the date of transfer. The Tribunal criticized the inconsistent approach of the Department in treating the date of registration as the date of transfer in the present case. Citing the Supreme Court's decision in V.R. Shelat vs. P.J. Thakar, the Tribunal held that the date of transfer should be the date of delivery of share certificates along with the execution of the transfer deed, not the date of registration in the company's register. The Tribunal directed the AO to verify the actual date of delivery of the share certificates and decide accordingly.

3. Whether the Sale of Shares Constitutes a Deemed Gift under Section 4(1)(a) of the Gift Tax Act:

The assessee argued that the difference between the agreed price and the market value of the shares was justified due to factors such as the shares being sold ex-dividend, the transaction being conducted without a broker, and the bulk nature of the sale. The Tribunal found the difference between the agreed price and the market value to be nominal and not significant enough to constitute a deemed gift. Citing the Madras High Court's decision in CGT vs. Indo Traders and Agencies (Madras) (P) Ltd., the Tribunal held that unless the price difference was so significant as to shock the conscience of the court, it could not be considered inadequate consideration. The Tribunal concluded that the Department's approach in treating the difference as a deemed gift was incorrect and allowed the assessee's appeal on this ground.

Conclusion:

The Tribunal upheld the validity of the proceedings under Section 16(1) of the Gift Tax Act but directed the AO to verify the actual date of delivery of the share certificates to determine the correct date of transfer. The Tribunal also ruled that the difference between the agreed price and the market value of the shares did not constitute a deemed gift, allowing the assessee's appeal on this ground. The appeal was partly allowed for statistical purposes.