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TMI Blog2013 (6) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ions have been formulated:- (1) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal erred in law in deciding the addition of Rs.1,33,09,149/- on account of deemed gift within the meaning of the provisions of Section 4 (1) (a) of the Gift Tax Act by holding that the transfer of property was made for adequate consideration, while the price paid by the respondent for acquiring the shares of the closely held companies of the Sahara Group was much more than the value of these shares as worked out in the manner laid down in Schedule II of the Gift Tax Act. (2) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the transfer of property was made for adequate consideration within the meaning of the provisions of Section 4 (1) (a) of the Gift Tax Act as according to the provisions of Section 79 (1) of Indian Companies Act, the company whose shares were acquired by the respondent had no power to sell the shares at less than the face value, without appreciating that the transactions between the respondent and the closely held companies of the Sahara Group were collusive tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies. In appeal, the Commissioner of Gift Tax (Appeals)/First Appellate Authority, vide its order dated 31.8.2001, upheld the challenge of the assessee to the validity of the re-assessment proceedings as according to the Commissioner of Gift Tax (Appeals), the Assessing Officer was not in possession of any information to the effect that the market value of the shares or break-up value of the shares was less than the price paid by the assessee for acquisition of the shares. The Commissioner of Gift Tax (Appeals) held that the provisions of Section 4 (1) (a) would not be applicable where the assessee had paid consideration in excess of the market value, in view of the provisions of Section-79 of the Companies Act and concluded that unless the requirements specified in sub-section (2) thereof are complied with, a company cannot issue shares at a discount. Feeling aggrieved by the order of the First Appellate Authority, the Revenue preferred appeals against the order dated 31.8.2001 passed by the Commissioner of Gift Tax (Appeals)- III, Lucknow. The Tribunal, by the impugned order, consolidated the appeals and decided the same by a common judgment and order 31.8.2005. As regard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the respondent and the closely held companies of the Sahara Group were collusive transaction in which shares of the said companies were acquired by the respondent by paying much more than the value of those shares as determined in the manner as laid down in Schedule II of the Gift Tax Act. Furthermore, the funds for purchasing the said shares were also made available to the respondent by certain cash rich companies of the same group. Lastly, it has been submitted that the ratio laid down in the case of Khoday Distilleries Limited versus C.I.T. and another [(2008) 307 ITR 312 (SC)], which has been relied upon by the respondents, is not applicable as the facts and issue involved in the present appeals are quite different than that involved in the aforesaid case. Section 3 of the Gift Tax Act is the charging provision. Sub-section (2) thereof provides that subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the 1st day of April, 1987, gift-tax in respect of the gifts, if any, made by a person during the previous year, at the rate of thirty percent on the value of all taxable gifts. The term 'gift' in tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be capable of being valued in the manner laid down in Schedule II of the Act. A perusal of Rule 1 of Schedule II further makes it clear that the said Schedule prescribed the methodology for determining the value of properties other than cash. A fortiori, property referred to in the opening words of Section 4 (1) (a), is capable of being evaluated in terms of Schedule II and hence, as the subject matter of the alleged transfer in the present case is cash, section 4 (1) (a) can have no application whatsoever. Our view is fortified by the judgment of the Supreme Court in CIT versus B.C. Srinivasa Setty, [1981 Vol.128 ITR 294 (SC)]. In Sri Gopal Jalan & Co. versus Calcutta Stock Exchange Association Limited [AIR 1964 SC 250] and Khoday Distilleries Limited versus C.I.T. [supra], the Apex Court held that there is a vital difference between the creation of shares and the transfer thereof. An allotment of shares by a company results in creation of shares by appropriation out of the un-appropriated share to a particular person and hence, such creation does not amount to a transfer. In the later decision, the Supreme Court held that when shares were allotted by a company pursuant to a ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t observed as under:- "...The market value of the stock-in-trade has been taken to the price subsequently realised. There is no information on record to show that even in May or June, 1964, the goods shown in the books commanded a higher market value. Merely because, subsequently, the prices realised were higher, it does not follow that on the date when the transaction took place there was a higher price for them, and that it should be taken into account as adequate consideration. 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 consideration as shown by the transferor. If the Legislature had contemplated as a universal rule that the market value should alone be the criterion for te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be issued on a discount authorized by resolution of the Board of Directors of the company and sanctioned by Company Law Board. In the case of the appellant, shares were sold on face value of Rs.10 per share. A Company has no power to sell shares at less than face value. If the appellant has purchased shares or has subscribed to right issue of closely held companies at face value of shares, it cannot be said that the appellant has made any gift." The Appellate Tribunal while rejecting the appeal of the Department endorsed the above view taken by the First Appellate Authority. In the case of Reva Investment Pvt. Ltd. versus CGT [2001 Vol.249 ITR 337 (SC)], the Apex Court held that for invoking the provisions of Section 4 (1) (a) inquiries have to be made regarding - (i) the exercise of a 'transfer of property'; (ii) the extent of consideration given, i.e. whether the consideration is adequate. It is imperative upon the Assessing Officer to show that the property has been transferred otherwise than for adequate consideration. The finding as to the inadequacy of the consideration is the essential sine qua non for application of the provisions of deemed gift. The provision is to ..... 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