9911796707
TMI Blog1990 (9) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1979-80 onwards. The assessment year for the gift-tax assessment which is presently before us is for the assessment year 1980-81 and the valuation date was shown as 31-3-1980. The GTO mentioned that the assessee with his father and mother formed a partnership to run a lodging house. The contribution to the partnership by the assessee was at Rs. 1,35,000 by way of the site mentioned above. He observed that though it was a case of transfer within the meaning of section 2(47) of the IT Act, the assessee is not to receive any consideration at all in lieu of this transfer. The GTO considered the provisions of section 2(xii) of the Act as well as section 4(1)(b) and subsequently, the GTO came to the conclusion that full consideration has not passed to the assessee and consideration that had not passed and not intended to be passed, shall be deemed to be the gift made by the transferor. The assessee before the GTO relied on the decision of the Hon'ble Karnataka High Court in the case of D.C. Shah v. CGT [1982] 134 ITR 492. The GTO found that the facts of the present case were different. He pointed out that in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions and secure substantial loans and the other partners Smt. Yashodamma also could render similar services. It was pointed out that these two partners had their own properties; whereas the assessee has no other property other than the share in the firm and, therefore, it was not correct to say that there is adequate consideration passed or not intended to pass. It was noted also that Shri Narayana contributed nearly Rs. 2,65,000 and the lady partner also contributed her capital and stood guarantee for the loans. Apparently, the business was running into loss and it was contended that in future, there would be no buyer to take the property having such liability substantially. The assessee also referred to the decision in the case of Sunil Siddharthbhai. Amongst other things, it was submitted that the partner's share in the net partnership assets on the date of dissolution or on his retirement is also a share which will be depending upon the deduction of the liabilities and prior charges. The assessee also placed reliance on the decision in the case of D.C. Shah. 4. The CIT(A) observed that the totality of the factors affecting the value has to be taken into consideration, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) all these factors cannot be evaluated strictly in terms of monetary value in order to judge the adequacy of the consideration. He pointed out that the GTO had not proved by any material that the consideration was inadequate. In the circumstances, he concluded that the assessee, has contributed the said property as a gift in course of business in the partnership which is exempt under section 5(1)(xiv) of the GT. Act. He directed the GTO, therefore, not to subject the said property to gift-tax under section 4(1)(b). Hence, this appeal by the revenue. 7. It is argued vehemently by the learned Departmental Representative that the CIT(A) erred in coming to the above conclusion while ignoring various basic facts brought out by the assessing officer. It is also argued that there was no question of exemption under section 5(xiv) as there was no business at that point of time. It is stressed that there was no business as the existence of the firm was not brought prior to the contribution of the above asset by the present partner to the partnership. It is also argued that the fair market value as declared by the assessee in the wealth-tax return and as supported by the approved v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfers his personal asset to the partnership firm there can be no reckoning of the liabilities and losses which the firm may suffer in the years to come, and that it was impossible to conceive of evaluating the consideration acquired by the partner when he brings his personal asset into the partnership firm when neither can the date of dissolution or retirement can be envisaged nor can there be any ascertainment of liabilities and prior charges which may not have arisen yet. In the context of that case, the Hon'ble Supreme Court held that it cannot be said that the consideration which a partner acquires on making over his personal asset to the firm as his contribution to its capital cannot fall within the terms of section 48. It is, therefore, the contention of the assessee's learned counsel that in the case of the assessee, the assessing officer has wrongly taken the amount credited to the assessee's capital account as consideration and the balance being the difference in the value, should be treated as deemed gift. It is urged that the CIT(A) has properly appreciated the different facts of the case before giving the above direction. 11. The assessee's learned counsel further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 4(1)(a) deals with a situation in which the consideration in respect of the property transferred was found to be inadequate; whereas section 4(1)(b) deals with a situation in which consideration shown had not passed or not intended to pass either in full or in part. Neither of the parties before us has placed copy of the partnership deed on the basis of which, the property owned by the assessee was transferred as capital contribution by the assessee to the firm. Accordingly, we have to go by the findings given by the authorities below as well as the materials placed before us by both the sides. Apparently, the assessee owned a plot of land as his personal asset which he contributed to the said partnership with the object of raising a building for running a lodging house and for which loans would be acquired or obtained from different institutions by efforts of other partners. The case of the revenue is that the value of that property contributed by this assessee was admittedly stood at Rs. 4,50,000 which was shown in the wealth-tax return for 1979-80, which was just before commencement of the partnership and that value was supported by the assessee's approved valuer and was asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on his transfer of the asset owned by him to the firm as contribution to the capital of the said firm, for which no consideration was received by him. Therefore, the transfer was without any consideration at all. 17. The assessee's learned counsel, amongst other things, has also raised the point that apart from the consideration of Rs. 1,35,000 shown as credit in the capital account of the assessee's books of account, the assessee was entitled also to specific share of profit or loss of the partnership, which by itself should be considered as the consideration in view of the assets so handed over by the assessee to the partnership. It is argued by him that as to what was the value of such interest of the assessee in the earning capacity of the firm, the same cannot be ascertained or determined and in such a situation, there was no question of evaluating such property and there was nothing to be considered at all. 18. As indicated earlier and in view of the decisions referred to before us, there was no consideration at all which was received by the assessee in respect of the asset transferred by him to the partnership firm. Therefore, this is a case of transfer without any con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket value of the property should be restricted only to Rs. 4,50,000. 20. We have indicated earlier that the GTO took action in view of the provisions of section 4(1)(b) of the GT Act; whereas the assessee's counsel stresses the point that section 4(1)(b) was not attracted at all. On behalf of the revenue, however, it is pointed out that though section 4(1)(b) was not attracted the facts of the case falls within the mischief of section 4(1)(a) and, therefore, wrong mentioning of section would not vitiate the order of the GTO. In this connection, we may refer to the provision of the charging section. Section 3 of the G.T. Act provides that there shall be charge, a tax, referred to as the gift-tax, in respect of gifts, if any, made by a person at the rate or rates specified in the schedule and as relevant to that year. Section 4 was under the heading 'Gifts to include certain transfers'. Thus section 4(1)(a) provides that for the purpose of the Act, there would be deemed gift in respect of a consideration which was not found to be adequate or where the consideration for the transfer had not passed or was not intended to be passed. In our opinion, the provisions of section 4(1) is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ona fide for the purpose of such business, profession or vocation. According to the assessee, it was for the purpose of carrying on a business of the partnership firm that the assessee had made the said transfer to the firm and, therefore, the CIT(A) has rightly concluded that the transfer was made in course of carrying on of the business by the said firm and the exemption was allowable to the assessee. The learned counsel for the revenue, on the other hand, submits that there was no business at all prior to the formation of the partnership firm, and it is argued, in the circumstances, that there can be no gift when there was no business in existence at that point of time. The case of the revenue in that event from that angle, the CIT(A) went wrong in giving relief to the assessee. 23. After considering the submissions made before us, it is seen that section 5(1)(xiv) contemplates exemption in respect of a gift made in course of carrying on a business. It, therefore, presupposes the existence of business which is being carried on and in that process, some gift was found to have been bona fide for the purpose of carrying on such business which is in existence. In that view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition has not been fulfilled, as in our opinion, at the time of the transfer, there was no business at all and the business was yet to be commenced by the partnership firm. Accordingly, there is no question of making a gift in course of carrying on the business, when such business is non-existent at the relevant point of time. 25. As mentioned earlier, the department had taken the value of the property after excluding Rs. 1,35,000 being the amount credited in the assessee's capital account and only the balance thereof was brought to tax under the Gift-tax Act, i.e., the subject matter before the Appellate Tribunal is limited to that extent. Although Rs. 1,35,000 cannot be considered as consideration at all in view of the decision cited earlier, the amount to be considered in the present case will have to be restricted to only to the amount which was considered by the GTO in the assessment, i.e., after excluding Rs. 1,35,000 which was not the subject-matter of dispute. As far as the enhanced value by applying a rate of Rs. 600 per sq. yd. is concerned, this part of the order of the GTO cannot be sustained. For the purpose of gift-tax matters, the amount of Rs. 4,50,000 as admit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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