1982 (10) TMI 96 - AT - Income Tax

Summary

Issues Involved:
1. Whether the sale of properties by the assessee to the firm constituted a gift under section 4(1)(a) of the Gift-tax Act, 1958.
2. Adequacy of consideration in the sale transaction.
3. Determination of market value and its relevance.
4. Motive of tax evasion.

Issue-wise Detailed Analysis:

1. Whether the sale of properties by the assessee to the firm constituted a gift under section 4(1)(a) of the Gift-tax Act, 1958:
The primary issue was whether the sale of properties by the assessee to the firm, of which she was the managing partner, for Rs. 1,55,000 constituted a gift under section 4(1)(a) of the Gift-tax Act, 1958. The Gift-tax Officer (GTO) had determined that the fair market value of the property was Rs. 2,69,400, leading to a deemed gift of Rs. 1,14,400. The Appellate Assistant Commissioner (AAC) upheld this view but reduced the fair market value to Rs. 2,47,300, resulting in a deemed gift of Rs. 92,300. The Tribunal, however, concluded that the department sought to levy gift-tax on a gift that was never made. The Tribunal emphasized that the revenue must establish the motive of evasion of tax, which was not demonstrated in this case.

2. Adequacy of consideration in the sale transaction:
The Tribunal examined whether the sale was for adequate consideration. The assessee argued that the consideration need not be purely monetary but could include business considerations. The Tribunal agreed, noting that the assessee, as the managing partner, had valid business reasons for selling the property at Rs. 1,55,000 to avoid burdening the firm. The Tribunal held that this business consideration constituted adequate consideration, and thus, there was no deemed gift.

3. Determination of market value and its relevance:
The Tribunal scrutinized the determination of the market value by the Valuation Officer, which was reduced on appeal. The Tribunal referred to the Madras High Court's ruling in Indo Traders & Agencies (Madras) (P.) Ltd., stating that unless the price shocks the conscience of the court, it cannot be deemed inadequate consideration. The Tribunal found the sum of Rs. 1,55,000 to be reasonable and noted that the valuation by the Valuation Officer, though persuasive, was not final.

4. Motive of tax evasion:
The Tribunal underscored the principle laid down by the Supreme Court in Varghese's case, which places the onus on the revenue to prove the conditions of taxability, including the motive of tax evasion. The Tribunal found no evidence or allegation of tax evasion by the assessee. The Tribunal also highlighted that the transaction was bona fide, and the consideration was reasonable and fair.

Conclusion:
The Tribunal concluded that the sale of properties by the assessee to the firm did not constitute a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958. The Tribunal reversed the orders of the authorities below and allowed the appeal, emphasizing that the revenue failed to establish the motive of tax evasion and that the consideration was adequate and reasonable.