9911796707
TMI Blog1986 (9) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal to the AAC. Before him, it was contended that the transaction is void ab initio. The minor son had signed the share transfer application form which in law he is not permitted to do. Though the company has acted on the application presented by both parties, viz., the transferor who is a major and the transferee who is a minor, still, in view of the incapacity of the minor to enter into contract under section 11 of the Indian Contract Act, 1872, no gift was involved and the transaction was void ab initio. Realising that the transaction is an invalid transaction, the minor reconveyed the shares to the father subsequently. Alternatively, it was pleaded that even if the transaction amounted to a gift, the value of the gift was worked out by the GTO on the basis of the break-up value according to rule 1DD. The assessee pleaded for the yield method of valuation of the unquoted equity shares in view of the decision of the Supreme Court in CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38. The AAC rejected the contention of the assessee that no gift was involved. He held that the minor had in fact received gift of shares from his father. He has also remarked that the minor in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction, he relied on the decision in the case of CGT v. R. Alagiriswamy [1977] 108 ITR 672 (Mad.), and also the decision of the Andhra Pradesh High Court in Smt. Valluri Janakamma's case. He took us through the provisions of the articles of association of the company, particularly clauses 18 and 19 thereof, and submitted that unless the share transfer application form was executed by persons competent to contract, the company cannot validly act on the same. Even if it had acted, it would be illegal and not binding. Therefore, he contended, the gift was an invalid gift. 5. Shri Ramakrishna Rao objected to the remarks of the AAC that the minor was represented by his mother and natural guardian. In this context, he referred to the share transfer application form (pages 7 and 8 of the paper book) in which the assessee had signed as transferor and the minor has signed as transferee, and therefore, there was no basis for the observation of the AAC that the minor was represented by his mother. Without prejudice to the above, he submitted that the AAC ought to have applied the yield method for valuation of the shares. 6. Shri N. Santhanam, the learned departmental representative, reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lving immovable properties of joint family and, therefore, held to be void ab initio. The shares in question in the case before us do not belong to any joint family and they originally belonged to the assessee who is an individual. Therefore, we reject his contention. 8. Another contention is that the minor has subscribed his signature to the share transfer form in the column against 'transferee' and as a minor is incompetent to contract under section 11 the share transfer form presented to the company suffered from an incurable informity and, therefore, even though the company acted on the said share transfer application presented by both the transferor (the assessee father) and the transferee (the minor son), the transaction is an illegal one and void ab initio. In this connection, the assessee relies on clauses 18 and 19 of the articles of association of the company and also the decision of the Rajasthan High Court in Malu Khan Lalu Khan's case. That was a case in which the minor was shown as a major for the purpose of securing excise contract and he had given a bid in the auction to obtain licence for country liquor in violation of the provisions of the Excise Act and the Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed the concerned share transfer form in his capacity as the transferee, inasmuch as the minor can act only through his guardian (in this case father and natural guardian) and the said guardian had subscribed his signature in the transfer form though as transferor, and inasmuch as the said guardian as managing director had participated in the meeting of the board of directors approving the transfer, we fail to see any force in the contention of the assessee that because a minor had subscribed his signature, in the circumstances of the case, the transfer made by the company should be held invalid. Even if it is held that the transfer of shares in favour of the minor effected by the company in its books is invalid, there is no denying the fact that there was a transfer anterior to the transfer in the books of the company and this anterior transfer was done by the father when he made the gift of these shares by delivery of the scrips. So, one and the same person in his capacity as donor has given delivery of the share certificates and in his capacity as father and natural guardian of the minor took delivery of the share certificates. At this point itself, the gift is complete and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s annexed to the sold shares of the cestui que trust. " The High Court also referred to the decision of the Madras High Court in R. Subba Naidu v. CGT [1969] 73 ITR 794 wherein it was held that the transfer of interest in the shares from the transferor to the transferee is independent of the requirement of its registration for purposes of Companies Act as without an anterior transfer there can be no question of applying for registration of it. The High Court then came to the conclusion that the gifts were completed within the meaning of the term in the Act on 26-11-1956 when the share certificates were delivered to the donees. Applying the ratio of the decision of the Rajasthan High Court cited supra, we have no hesitation in holding that the gift was complete when the father delivered as possession as donor and took possession of the share certificates as father and natural guardian. Therefore, we reject the contention of the assessee that because the share transfer application was signed by the minor, the transaction was void ab initio. There is no invalidity in the gift on the facts and in the circumstances of the case and the contention of the assessee fails. 10. As a matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of the purchaser being entitled to be registered as holder subject to the articles, but the fact that a special buyer would for his own special reasons give a higher price than the price in the open market shall be disregarded. " In the case of Smt. Kusumben D. Mahadevia, the Supreme Court declined to consider the question whether the valuation of shares should have been made for purpose of gift-tax on the basis of break-up value method by reason of rule 10(2) as it did not arise out of the order of the Tribunal. So, this case will not come to the rescue of the revenue. These are unquoted equity shares and their market value as on the date of gift has to be ascertained. In the case of Seth Hemant Bhagubhai Mafailal v. N. Rana Iyer, GTO [1983] 144 ITR 737, the Bombay High Court, after considering rule 10(2) in juxtaposition with section 6(1) of the Act and after referring to Mahadeo Jalan's case and after considering the import of the words 'if sold in the open market' occurring in section 6(1), held that it is only the profit-earning method (yield method) which can be properly applied for the valuation of unquoted equity shares. In this case, the assessee has not valued his ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
