1988 (7) TMI 87 - AT - Income Tax

Summary

Issues Involved:
1. Whether the transaction in question constitutes a taxable gift.
2. If a gift is involved, whether it is chargeable to the assessee-company.
3. The appropriate assessment year for the gift, if chargeable.

Detailed Analysis:

1. Whether the transaction in question constitutes a taxable gift:
The primary issue revolves around whether the release or discharge of Rs. 1,71,500 by the Society in favor of Smt. Sarabhai constitutes a taxable gift under the Gift-tax Act, 1958. The assessee-company contended that the transaction did not involve a gift as it was made with consideration. The Gift-tax Officer (GTO) and Commissioner of Gift-tax (Appeals) (CGT(A)) held that the transaction was a deemed gift under Section 4(1)(c) of the Act, as it involved the release of a debt without consideration.

The Tribunal, however, found merit in the assessee's argument that the release was made by the Society as part of a compromise to settle disputes concerning property with the assessee-company. This compromise constituted "consideration in money or money's worth," thus invalidating the transaction as a gift. The Tribunal emphasized that even indirect consideration from a third party would negate the transaction as a gift, referencing the Bombay High Court's decision in Keshub Mahindra v. CGT [1968] 70 ITR 1.

2. If a gift is involved, whether it is chargeable to the assessee-company:
The Tribunal examined whether the assessee-company was the "person responsible" for the release or discharge under Section 4(1)(c) of the Act. It concluded that the Society, and not the assessee-company, had the authority to release or discharge Smt. Sarabhai from her obligation. Therefore, the Society was the "person responsible," and the assessee-company could not be held liable for the gift-tax.

3. The appropriate assessment year for the gift, if chargeable:
The Tribunal considered whether the gift, if chargeable, should be assessed in the assessment year 1969-70 or 1971-72. The GTO and CGT(A) had made a regular assessment for 1969-70 and a protective assessment for 1971-72. The Tribunal upheld the CGT(A)'s decision to cancel the protective assessment for 1971-72, agreeing that the taxable event occurred on 18-12-1968, making the assessment year 1969-70 the correct period for any potential tax liability.

Conclusion:
1. Revenue's Appeal (GTA No. 44/Ahd/86): The Tribunal dismissed the Revenue's appeal, affirming that the taxable event occurred on 18-12-1968, making the assessment year 1969-70 the relevant period. The protective assessment for 1971-72 was rightly canceled.

2. Assessee's Appeal (GTA No. 59/Ahd/86): The Tribunal allowed the assessee's appeal, concluding that no taxable gift or deemed gift was made by the company in favor of Smt. Sarabhai. The assessment to gift-tax for the year 1969-70 was canceled.

In summary, the Tribunal found that the transaction in question did not constitute a taxable gift under the Gift-tax Act, and even if it did, the assessee-company was not the responsible party. The assessment for the year 1969-70 was thereby annulled.