9911796707
TMI Blog2000 (5) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... es at book value in terms of the Agreement executed on 25-9-1985. The firm did not own any immovable property. The Memorandum of Articles of Association was drawn and has been placed in the paper book. The Agreement by which the business was transferred to the Limited Company is to be found on pages 30 to 31 of the paper book. From the Agreement, it is seen that Party of the First Part, i.e. partners of the firm M/s Jain Farm Agencies have assigned business of M/s Jain Farm Agencies along with the name, assets and all liabilities, as a going concerti, to JEF PVC Pipes (P.) Ltd. for a value referred to in the balance sheet of the said business drawn on 15-9-1985. It was mutually agreed between the parties to hand over all the properties to the Limited Company on 15-9-1985. As a result of the Agreement, the partners of the firm were entitled to carry on any other business in any other name except as M/s Jain Farm Agencies and could carry on any other business except that of manufacturing and selling of PVC pipes. The consideration agreed between the parties was partly paid by way of allotment of shares of JEF PVC Pipe (P.) Ltd. to the Party of the First Part, i.e. the partners and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of the Company were valued at a much higher figure, it was considered necessary to issue notice under section 16. The assessee filed a 'NIL' return of Gift. The reasons for the assessee's contention that there was no gift involved have been enumerated in paras 4 and 5 of the assessment order. The crux of the submissions of the assessee before the Assessing Officer was that there was no transfer and hence there was no gift and that the provisions of Gift-tax Act were not applicable to the case of the Firm. These contentions were rejected by the Assessing Officer on the ground that the Firm and partners are separate entities for taxation purposes. According to him, the assignment deed is made between the Firm through its partners, first part and Company through its directors, second part, showed that the assets of the firm were transferred to the Company. For Gift-tax purposes, transfer included assignment also. According to the Assessing Officer there was clear transfer from the Firm to the Company, as the Firm was not dissolved till the date of transfer. The Assessing Officer then further held that the transfer could not be called a transfer to self, because both the Firm and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Calcutta High Court in GTO v. Venesta Foils Ltd. [1980] 124 ITR 660 was distinguishable. A holding Company in that case owned a subsidiary and, therefore, there could be said to be same persons involved. But the Firm and the Company could not be said to be same persons, although partners and shareholders may be same. (4) The assets whose market value was more was transferred at a lesser consideration. [This seems to be the reading of the CIT(A) of section 4(1)(a)]. (5) The transferee valued the assets after nine months of the transfer, but it is not the case of the assessee that in a period of nine months, due to certain exceptional circumstances, the market value of the assets rose to a figure at which it was revalued. The Assessing Officer was, therefore, justified in adopting the value of assets at market value on the date of transfer. (6) The contention of the assessee that against the transfer of the asset at book value, the partners had been allotted shares. If there was any revaluation of the assets, consequently there would be increase in the value of the shares also would arise and there cannot be any question of gift, was not corrects Reliance of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Moreover, in this case, the transaction was between partners of the Firm on one hand and the Company on the other hand. The consideration was paid by the Company to the partners by way of allotment of shares, though partners have acted collectively in transferring the business as a going concern, the transaction could be regarded as one between the partners and the Company and charge of Gift-tax if at all could not be against the Firm as has been held by the Assessing Officer and the CGT(A). 12. Shri Adhir Jha, the learned D.R. strongly supported the orders of the authorities below. He submitted that a Firm is a taxable entity under the Gift-tax Act. In support of this contention, he relied upon the judgment of the Allahabad High Court in CGT V. S.B. Sugar Mills [1979] 120 ITR 126 and the judgment of the Madras High Court in CITV. Bharani Pictures [1981] 129 ITR 244. 13. We have considered the rival submissions and perused the facts on record. In the case of Aminchand Pyarelal, the Hon'ble High Court of Calcutta has clearly held that a Firm is not included in the definition of 'person' under section 2(xviii) 6f the Gift-tax Act and hence, the firm is not an assessable entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... older subsequently on 21-3-1986. As regards the second observation of the CGT(A), the learned counsel submitted that actually the revaluation was done much afterwards and not by the assessee-firm but by the Company. As regards the third observation, the learned counsel submitted that no attempt to find out the market value was made. There was no finding about the actual consideration passed between the parties. Shri Sathe further submitted that on the date of transfer, the partners alone became shareholders in the transferee Company. In consideration of the transfer of running business, including all the assets and liabilities, there was exchange by way of allotment of shares to the partners and the balance was kept as partners' deposits at the Firm's insistence. This constituted a single transaction and it was for adequate consideration. The intrinsic value of the shares received was equivalent to the value of the assets transferred as well as liabilities and the amount shown as deposits. Consequently, the consideration received on transfer of assets and liabilities was equal to the market value of the shares and cannot be said that there was any inadequate consideration. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t consideration for deciding the adequacy of consideration. There was no gift, according to the Tribunal, on the transfer of stock-in-trade. Merely because subsequently the price realised for the stock-in-trade was higher, it did not follow that on the date when the transaction took place there was a higher price for them and that should be taken as adequate consideration. It was further held that when the transfer was as a going concern, the GTO could not pick out only one item of asset, namely, goodwill alone, and try to evaluate it for arriving at the value of the gift. The High Court confirmed the findings of the Tribunal and while doing so, the High Court has extensively considered the interpretation of section 4(1)(a). As is seen from page 320 of the judgment, according to the Revenue, the adequacy of the price was to be judged only in the light of the market value of the property and there could be no other yardstick which could be applied to a situation like this. The Hon'ble High Court specifically disagreed with this proposition by stating that adequacy of the consideration has to be considered with reference to the facts of the case and the market value is not yardstick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders in the Company and the purpose of the transaction was merely to reorganise the form in which the business was carried on, there could be said to be no motive for not stating the consideration. In fact, if we consider the beneficial ownership of the transferor and the transferee, it remains the same. Same persons who owned the business continued to own it despite the fact that they now owned it as a Company. There was thus an adequate consideration when shares were allotted to the partners on transfer of the business as a going concern and the allotment of shares covered the entire assets of the business. The allotment of shares, therefore, though at a stated face value, could be equivalent in its intrinsic worth of its entire asset and on that ground also, there cannot be said to be any inadequacy in consideration. In our opinion, the decision of the Madras High Court in Indo Traders Agencies (Madras) (P.) Ltd.'s case is an authority for the proposition. The Assessing Officer, on one hand, has totally failed to apply any of the conditions of section 4(1)(a), the CGT(A) on the other hand, did not interpret the section correctly when he held that for the purpose of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revaluation resulted only in bock entry. The revaluation result has no significance, except to show some healthy figures in the balance sheet and there could be no advantage obtained by the transferors nor by the transferees because subsequently the Company revalued the assets. 21. In the light of above discussion, we hold that the authorities below have wrongly applied the provisions of section 4(1)(a) of the Gift-tax Act. This ground accordingly succeeds. Ground No. [V (1 to 4): "IV.1.The ld. CGT(A) erred in confirming that the amount of gift is the difference between revalued figure of assets and the book value of assets at which they were transferred. 2. He erred in deeming the revalued figure of assets as the fair market value of the assets. 3. He failed to appreciate that the transferee Company had revalued the assets on the basis of replacement cost and the same cannot be equated to value realisable on its disposal. 4. The appellant prays that it be held that 'replacement value' of asset cannot be taken as market value of assets." This ground in some sort is a repetition of the earlier ground. The assessee has contended that the transferor Company had revalu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ambit of the charging section by clear words, he cannot be taxed at all. Just like the Indian Income-tax Act, 1922, under the Gift-tax Act, 1958, and the Income-tax Act, 1961, an association of persons or body of individuals have been specifically brought in as units of assessment. It is only under the Wealth-tax Act, 1957, that the charge is on 'every individual, Hindu undivided family and company' and not on an association of persons or a body of individuals or a firm. If the language of section 3 of the Wealth-tax Act, 1957, is contrasted with the provisions of other cognate statutes it will clearly appear that the intention of the Legislature was not to treat an association of persons or a body of individuals or a firm as a unit of assessment for the purpose of imposition of wealth-tax." The aforesaid ratio laid down by the Apex Court can be applied to the present case. Section 3 of the Gift-tax Act is the charging section which provides that Gift-tax in respect of gifts made by a person shall be chargeable to tax. The word "person' has been defined in clause (xviii) of section 2 which does not include the 'Firm' unlike Income-tax Act. That implied means that Legislature n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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