1982 (7) TMI 211 - AT - Income Tax

Summary

Issues Involved:
1. Method of valuation for gift-tax assessments.
2. Arm's length nature of share transactions.
3. Admissibility of the memorandum of agreement as evidence.
4. Validity of family arrangement in the context of gift-tax liability.

Issue-wise Detailed Analysis:

1. Method of Valuation for Gift-Tax Assessments:
The primary issue revolves around the method of valuation for gift-tax assessments. The Gift Tax Officer (GTO) adopted the break-up value method stipulated under rule 1D of the Wealth-tax Rules to compute the gift value. The first appellate authority, however, favored the yield method, which supported the assessee's valuation. The departmental appeals cited authorities to argue that the break-up value method should be preferred, notwithstanding the Supreme Court's decision in CWT v. Mahadeo Jalan [1972] 86 ITR 621, which supported the yield method for investment companies. The departmental representative argued for a 9% capitalization rate instead of 12% and suggested using a three-year average yield instead of five years due to buoyant industrial conditions. The assessee's representative contended that the agreed price had no element of bounty and that the Gift-tax Act does not prescribe any particular method of valuation.

2. Arm's Length Nature of Share Transactions:
The tribunal examined whether the share transactions were conducted at arm's length. The GTO argued that the fair market value differed from the recorded price, warranting treatment as a deemed gift. However, the tribunal found no evidence of collusion or that the dealings were not at arm's length. The tribunal cited a previous case, IT Appeal Nos. 1082 (Mad.) of 1979, to support the view that the best evidence of fair market value is the actual transaction price. The tribunal concluded that there was no material to suggest that the fair market value differed significantly from the agreed price and that variations in valuation methods do not necessarily indicate a gift.

3. Admissibility of the Memorandum of Agreement as Evidence:
During the hearing, the assessee's representative introduced a memorandum of agreement between family members, which was opposed by the departmental representative as new evidence. The tribunal found that the memorandum could not be considered new evidence as it was integral to the share transfers and had been the subject of multiple appeals. The tribunal stated that even without admitting the memorandum, the case could be decided based on the reasoning that the agreed price reflected the fair market value.

4. Validity of Family Arrangement in the Context of Gift-Tax Liability:
The tribunal considered whether a family arrangement could negate the element of gift. Citing the Madras High Court decision in CGT v. Pappathi Anni [1981] 127 ITR 655 and the Supreme Court decision in Sahu Madhu Das v. Mukand Ram AIR 1955 SC 481, the tribunal noted that a family arrangement assumes an antecedent title and does not constitute a gift. The tribunal also referenced the Gauhati High Court's decision in Ziauddin Ahmed v. CGT [1976] 102 ITR 253, which held that a bona fide family arrangement does not amount to a transfer liable to gift-tax. The tribunal concluded that the family arrangement in this case was bona fide and did not attract gift-tax liability.

Conclusion:
The tribunal dismissed the departmental appeals, affirming that the yield method was a valid approach for valuation, the transactions were at arm's length, the memorandum of agreement was admissible, and the family arrangement did not constitute a gift. The appeals were dismissed on all counts.