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TMI Blog2010 (1) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... tax (Central), Ludhiana v. M/s Rockman Cycle Industries (P) Ltd., Ludhiana. 2. The brief facts relevant for disposal of the present appeals and emanat-ing from the record, are that during the period of the assessment year 1986-87, the assessee purchased redeemable non-cumulative preference shares of Rs. 100 each for Rs. 50,00,000 of Hero Investments Private Limited, Ludhiana. The shares purchased were 4 per cent. non-cumulative preference shares even if the dividend was declared in any year, the yield from these shares was only 4 per cent. The market value of the shares did not exceed Rs. 30 per share and the assessee paid Rs. 70 per share in excess of the market value. Therefore, the assessing authority treating it to be a case of escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction of 50,000-4 per cent. non-cumulative preference shares at the face value of Rs. 100, the market value of which did not exceed Rs. 30 per share, did not involve any gift." 8. We have heard the learned counsel for the parties and have gone through the material on record and the relevant provisions of law with their valuable help. 9. Above being the position, now the core question, that arises for determination is, whether the transaction of 50,000-4 per cent. non-cumulative preference shares at the face value of Rs. 100 each, the market value of which, did not exceed Rs. 30 per share, would involve any gift-tax under section 4(1)(a) of the Act or not. Thus, it be seen that the facts of the case are neither intricate nor much disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that "a transfer of any building or part thereof referred to in clause (iii), clause (iiia) or clause (iiib) of section 27 of the Income-tax Act by the person who is deemed under the said clause to be the owner thereof made voluntarily and without consideration in money or money's worth, shall be deemed to be a gift made by such person." 14. Sequelly, section 2(xxiv) of the Act posits that "transfer of property" means any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes-(a) the creation of a trust in property ; (b) the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso to sec-tion 4 (1) (a), even transfer of such property/transaction where the value of the consideration for the transfer is determined or approved by the Central Government or the Reserve Bank of India, is not leviable to gift-tax. It means, actually the value of transferred property had to be considered on the relevant date and section 4(1)(a) would not apply where the consideration for the transfer is approved by Central Government. 17. An identical question arose before the hon'ble apex court in Khoday Distilleries Ltd.'s case [2008] 307 ITR 312. In that case, the assessee-company allotted all the rights shares to other shareholders. The Assessing Officer held that the allotment of the rights shares was without adequate consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jalan and Co. v. Calcutta Stock Exchange Association Ltd., AIR 1964 SC 250 has held that "in company law 'allotment' means the appropriation, out of the previously un-appropriated capital of a company, of a certain number of shares to a person. Till such allotment the shares do not exist as such. It is on allotment in this sense that the shares come into existence." The ratio of the hon'ble apex court 'mutatis mutandis is applicable to the facts of the present case. 20. It is not a matter of dispute that in the instant case, during the period of the assessment year 1986-87, the assessee purchased redeemable non-cumulative preference shares at the face value of Rs. 100 each with a return of 4 per cent. directly from M/s. Hero Investment Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. So, the question of element of/deemed gift did not arise at all at the rate of Rs. 100 per share at the relevant time. Not only that, as the value has been fixed by the Government under the company law, therefore, the proviso to section 4(1)(a) of the Act is fully attracted in the obtaining circumstances of the case. 22. In the light of the aforesaid reasons, it is held that the value of the trans-action/transfer of the shares did not involve the element of gift at the relevant time and is fully covered by the proviso to section 4(1)(a) of the Act. Therefore, the gift-tax is not leviable on the indicated transaction of the assessee and the question of law is accordingly answered in favour of the assessee. 23. For the reasons rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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