1990 (8) TMI 215 - AT - Income Tax

Summary

Issues:
1. Whether the writing off of the balance of debt by the assessee should be considered as a deemed gift for gift-tax assessment purposes.
2. Whether the creation of trusts and subsequent winding up of trusts by selling shares for debt discharge constitute a bona fide business transaction or a deemed gift.
3. Whether the writing off of a debt due to being barred by limitation is justified.

Analysis:
1. The case involved appeals by the revenue against the cancellation of gift-tax assessments made on the assessee by the Commissioner (Appeals). The revenue contended that the writing off of the debt should be treated as a deemed gift. The Gift-tax Officer believed that the writing off amounted to abandonment without consideration and fell within the scope of section 4(1)(c) of the Gift-tax Act.

2. On appeal, the CGT (Appeals) found that the assessee had no other means to realize the debt and was compelled to accept the sale of shares for debt recovery. The CGT (Appeals) accepted that the writing off of the debt was bona fide and cancelled the assessment. The revenue argued that the debts were shown as good and unsecured in the Balance Sheet for earlier years, questioning the bona fides of the writing off process. The assessee defended the transaction as a commercial decision due to deteriorating share values and impracticability under the Indian Trusts Act.

3. The Tribunal confirmed the CGT (Appeals) order, emphasizing that the creation of trusts effectively discharged the original debtors and the subsequent winding up was a commercial decision to recover debt partially. The Tribunal highlighted the impracticability and commercial considerations behind the decision to sell shares and write off the balance. The revenue's argument regarding the creation of trusts without adequate consideration was dismissed, as there was no evidence to suggest inadequate security for debt discharge. The Tribunal also upheld the writing off of a debt due to being barred by limitation as justified.

4. Ultimately, the Tribunal upheld the CGT (Appeals) decision to cancel the deemed gift assessment, as the transaction was deemed a bona fide business decision taken on commercial considerations. The appeals by the revenue were dismissed, confirming the cancellation of the gift-tax assessments.