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TMI Blog2011 (9) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the face value of the share allotted to them - These shares were allotted as that of a new shareholder - It is quite understandable that when shares are allotted to a new shareholder, the value as on the date of the purchase should be taken into consideration and not the face value of the share - When the market value of the share is Rs.408.71, the assessee has transferred the share to a new shareholder, who is not an existing shareholder, at the face value of Rs.100/- that too the consideration for the said transfer was adjusted from the amount outstanding to the credit of the purchasers. It is not the case of the assessee that these shares were allotted as bonus or shares on rights basis as contemplated under Section 81 of the Companies Act - This transaction is said to be "transfer" of shares and not "creation" of shares - Therefore, it cannot be said that Section 2(xxiv)(d) of the Gift Tax Act would not apply to the present case - Decided in favour of Revenue. - 212 of 2008 - - - Dated:- 8-9-2011 - MR.JUSTICE ELIPE DHARMA RAO, MR.JUSTICE M.VENUGOPAL, JJ. FOR PETITIONER : J.Naresh Kumar FOR RESPONDENT : T.N.Seetharaman JUDGMENT ELIPE DHARMA RAO, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed gift was determined on Rs.92,61,300/- for which tax was sought. Aggrieved by the order passed by the Gift Tax Officer, the assessee preferred G.T. Appeal No.:I-C/03-04 before the Commissioner of Gift-Tax (Appeals) Coimbatore, who, by order dated 7.6.2004, reversed the finding of the Gift Tax Officer by relying on an earlier decision of the Bangalore Tribunal in Khoday Distilleries Ltd., v. DCIT reported in 81 ITD 438 and also by observing that the two essential conditions of Clause (a) of Section 4(1) of the Gift Tax are not satisfied. Aggrieved by the aforesaid decision of the Appellate Authority, the Revenue took the matter in appeal before the Income Tax Appellate Tribunal in G.T.A.No.10 (Mds)/2004, which, by order dated 16.2.2007, confirmed the finding of the appellate authority. The aforesaid decision is in challenge before this Court at the instance of the Revenue. 3. While admitting the Tax Case Appeal, the following substantial questions of law have been formulated for consideration :- "1. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that there was no gift within the meaning of Section 4(1)(a) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii-a) or clause (iii-b) 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; * * * (xxiv) 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 property; (c) the exercise of a power of appointment (whether general, special or subject to any restrictions as to the persons in whose favour the appointment may be made) of property vested in any person, not the owner of the property, to determine its disposition in favour of any person other than the donee of the power; and (d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person; 7. A reading of this section wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority have considered the issue in favour of the assessee mainly by relying on the decision of the Bangalore Tribunal in Khoday Distilleries Ltd., which was subsequently confirmed by the Supreme Court by the decision reported in (2009)1 SCC 256. Therefore, one has to see as to whether the principle laid down in the aforesaid decision would be applicable to the facts of the present case. 11. In the aforesaid reported decision, on 29-1-1986 the assessee Company, on the other shareholders not exercising the option given to them to take up the right shares issued by the assessee, allotted them to the seven investment companies, who were the shareholders in the Company. Twenty shareholders did not subscribe to the rights issue and consequently the appellant Company allotted them to the remaining seven existing shareholders. The AO held that the said allotment by way of rights issue was without adequate consideration within the meaning of Section 4(1)(a) of the 1958 Act. He further held that the modus operandi was an attempt to evade taxes; that it was a colourable transaction and since the shares allotted were without adequate consideration, there was a deemed gift under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution dated 29-1-1986? (ii) Whether there was any element of gift as defined under Section 2(xii) in the appellant issuing bonus shares in the ratio of 1:23 in Apri1/May 1986?" 13. While answering Question No.1, the Hon'be Supreme Court observed as follows :- "16. There is a difference between renunciation and allotment . In this case, the Department has confused the two concepts. The judgment of the Madras High Court in S.R. Chockalingam Chettiar dealt with the case of renunciation in which case under certain circumstances the renouncer could be treated as a donor liable to be taxed under Section 4(1)(a) of the Gift Tax Act, 1958. That is not the situation here. In the present case, the Department has sought to tax the appellant Company as a donor under the 1958 Act for making allotment of right shares. The Department has not taxed the renouncer shareholders despite the decision of CIT (A). Allotment is not a transfer. Moreover, there is no element of existing right in the case of allotment as required under Section 2(xii) of the 1958 Act. In the case of renunciation for inadequate consideration in a given case Section 4(1)(a) could stand attracted. However, in such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case for the following reasons. 11. In the present case, the assessee company had allotted 10,000 shares each at the face value of Rs.100/- to three individuals, viz., Shri. P. Govindasamy, Shri P. Palanisamy and Shri P. Kumarasamy. It is not in dispute that at the time of allotment of shares, the value of the share as per the market value was Rs.408.71. The difference amount between the face value and the actual value was claimed as tax by the Department. The two essential requirements to bring the transaction within clause (a) of Section 4(1) of the Gift Tax Act are (1) there should be a property and (2) there should be a transfer. According to the assessee, the allotment does not involve transfer and therefore this clause is not attracted. On contra, according to the Revenue, it is a transfer as there was purchase of share from an existing shareholder i.e., the company. From the facts it is seen that the shares have been allotted to three individuals who were interested in the affairs of the company and the amount outstanding to the credit of account were adjusted against the face value of the share allotted to them. These shares were allotted as that of a new shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X
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