1982 (10) TMI 95 - AT - Income Tax

Summary

Issues:
1. Assessment of capital gains on transfer of buses.
2. Dispute over the fair market value of the buses.
3. Determination of whether the sale of buses was for adequate consideration.

Analysis:

1. The judgment pertains to a gift-tax appeal by a domestic company involving the assessment year 1975-76. The company, engaged in bus transport, transferred 14 buses to three directors. The Income Tax Officer assessed the company for capital gains under section 52(2) of the Income-tax Act, estimating fair market value at Rs. 5,23,000. However, the Appellate Tribunal, agreeing with the AAC, canceled the levy. Subsequently, one director was assessed for the difference between fair market value and sale price under section 2(22) of the Act. This assessment was also canceled on appeal. The dispute now revolves around the assessment of the difference as a deemed gift, which the Commissioner (Appeals) upheld, leading to the further appeal.

2. The primary contention of the assessee was that the assessed fair market value of Rs. 5,23,000 was inflated and did not reflect the actual market conditions prevailing during the transfer. The period saw significant turmoil in the private bus transport sector due to government actions aimed at nationalization. The enactment of an ordinance and subsequent legal battles created uncertainty and devaluation in the bus market. The assessee argued that the fair market value was lower than assessed, considering the prevailing circumstances and the risk associated with bus ownership post-nationalization efforts.

3. The crucial issue examined was whether the sale of the buses on 1-6-1974 constituted a transaction for adequate consideration. The Tribunal analyzed the market conditions, government policies, and the practicality of the assessed fair market value. It concluded that the assessed value of Rs. 5,23,000 was unrealistic and no reasonable buyer would have paid such an amount at that time. The Tribunal determined that the sale was not for inadequate consideration, as no buyer would have offered the assessed value, thereby canceling the assessment for deemed gift-tax.

In conclusion, the Tribunal allowed the appeal, canceling the assessment for gift-tax, based on the finding that the assessed fair market value did not align with the actual market conditions and practicality of the sale transaction.