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TMI Blog1982 (10) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... hile dealing with the income-tax assessment, it appears, the valuation of these properties was referred to the Valuation Officer of the income-tax department under section 55A of the 1961 Act. That authority had determined the fair market value of the property on the date of sale at Rs. 2,69,400. The difference between the fair market value thus determined and the declared valued came to Rs. 1,14,400. From this difference, it was considered that the sale was made for inadequate consideration and there was a deemed gift to that extent within the meaning of section 4(1)(a) of the Gift-tax Act, 1958 ('the Act') by the assessee to the firm and liable to gift-tax in the hands of the assessee. Therefore, proceedings to bring to tax the escaped gift were initiated and notice under section 16(1) of the Act was issued. In response, the assessee filed a return of gift showing the original gift assessed to tax repeating the same contention that since on the sale of these properties capital gains tax had already been paid, there could be no element of gift. 3. Rejecting this contention and relying upon the decision of the Full Bench of the Kerala High Court in the case of ITO v. K.P. Varghese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm was none other than its managing partner. It would mean that even after the sale, the assessee continues to have a share in the property. There could not, therefore, be much of a question of the assessee making a profit and in any case, this is a very relevant consideration in the test of adequacy of consideration. Judged by this test, there is adequate consideration far from there being inadequate consideration even if it is considered that the fair market value of this property was higher than the declared value. He also pointed out that the reliance placed by the department on the Kerala High Court decision in Varghese's case is no more of any consequence because that decision has been reversed by the Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597. 6. The learned departmental representative relied upon the orders of the authorities below and made a strong plea that this is a clear case of sale for inadequate consideration and the provisions of section 4(1)(a) were clearly attracted and that the assessee cannot seek to argue to evade the payment of gift-tax by merely stating that the valuation adopted by the Valuation Officer did not represent the market value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved or having been established by the department that there was an attempt to evade the payment of gift-tax. Section 4(1)(a) lays down that---- " where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor :" The crucial words are 'otherwise than for adequate consideration' and 'market value'. 9. First of all it should be found out that the transfer had been otherwise than for adequate consideration. What Shri Srinivasan argues is that the adequate consideration spoken of in this section need not necessarily be in terms of money or money's worth received by the seller, i.e., the assessee, but it could be of various considerations including that of business consideration. The fact that she was the managing partner of the firm to which the properties were sold and, therefore, she was obliged, in order to keep the firm going, not to burden it with too much of a price, is certainly a very valid business consideration. If the firm had been burdened with, let us say, the market value of Rs. 2,47,300 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, that was accepted as real for the levy of capital gains tax. Still the authorities seem to think that what was determined by the Assistant Valuation Officer is ultimate and it correctly represents the market value with which we are unable to agree, that being a valuation given by an expert and is capable of having a great persuasive value. But it is not final and is subject to verification. It is in that context, we would say that that being only an expert evidence, it is entitled to such respect as an expert evidence would be entitled to, and no more than that and in that view we would say that his estimate is not final. In the above case, the Madras High Court has further laid down another salutary principle, viz., that the investigation to be made under section 4(1)(a) can only be to see whether there is any attempt at evasion of tax or whether the relevant transaction is bona fide. If the consideration which passed between the parties can be considered to be reasonable or fair, it cannot be considered to be inadequate. Therefore, the point to be determined is whether the assessee had indulged in any attempt to evade tax, whether the relevant transaction is bona fide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty transferred is higher than the declared consideration, it does not automatically mean that section 4(1)(a) is attracted so as to confer jurisdiction on the revenue to infer that the difference is a deemed gift made by the transferor. We are, therefore, unable to agree with the revenue that there is a deemed gift within the meaning of section 4(1)(a) in the sale made by the assessee. 13. Before we part with this matter, we may point out that the Madras High Court in the case cited by the assessee of Indo Traders has made the following illuminating observation : ". . . The relevancy of the market price as shown by the provision is only to fix the quantum of the value of the gift after it is found that the transaction was for inadequate consideration. When once the GTO assumes jurisdiction and is in a position to establish that the property has been transferred otherwise than for adequate consideration, then there is no option for him but to take the market value of the property as on the date of the transfer and compare it with the value of the consideration as shown by the parties. The difference will be deemed to be a gift made by the transferor..." Thus, the purpose of and o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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