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Assessment under section 4(1)(a) of the Gift-tax Act for inadequate consideration in a property transfer by a holding company to a wholly owned subsidiary. Analysis: The appeal was against the assessment made under section 4(1)(a) of the Gift-tax Act, involving a property transfer by a private limited holding company to its wholly owned subsidiary. The property in question was a piece of land transferred for Rs. 4,20,000, despite a market value of Rs. 8,48,000 as per government guidelines. The Gift Tax Officer (GTO) considered the transfer inadequate and deemed the difference as a gift for tax purposes, a decision upheld on appeal. In the appeal, the assessee argued that the transfer was not for inadequate consideration and that being a transfer between related entities, it should not be treated as a transfer at all. The consideration was in the form of shares, and the accounting treatment did not indicate under-valuation. The revenue contended that the transfer was without adequate consideration due to the variance between stated consideration and market value, considering the entities as separate for tax purposes. The tribunal analyzed the provisions of section 4(1)(a) of the Gift-tax Act and referred to a Madras High Court case to determine inadequacy of consideration. It was emphasized that mere estimation of market value higher than consideration is insufficient to declare it inadequate unless the price is shockingly low and the transaction not bona fide. The tribunal found that the transfer in question did not involve inadequate consideration, especially considering the property's rental income, valuation factors, and exemption under stamp duty laws. The tribunal highlighted the special treatment of transfers between holding companies and wholly owned subsidiaries under tax laws and judicial precedents. It noted that even if the transfer had been without consideration, it would have been exempt if made in the course of business. The tribunal concluded that the provisions of section 4(1)(a) were not applicable in this case, and the assessment of deemed gift was canceled. The appeal was allowed based on the analysis of the transaction, valuation factors, and legal precedents.
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