9911796707
TMI Blog1979 (4) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the agreement, the assets were taken over at their book value plus pound 8,63,000 being the surplus on revaluation of plant and buildings with liabilities and the residue of the consideration was paid and satisfied by the issue to Venesta Ltd. of 98 shares of pound 1 each of Venesta Foils Ltd. credited as fully paid up. By and on the basis of another agreement dated November 30, 1961, India Foils Ltd., a company similarly incorporated as a subsidiary to Venesta Foils Ltd., purchased and acquired from the said company with effect from January 1, 1961, as a going concern that part of its undertaking comprising the Indian business consisting of manufacture and sale of aluminium foils and foil products carried on at its factory at Kamarhatty near Calcutta. The Indian business consisted, inter alia, of buildings, plant, machinery, raw materials at their book value shown in the books of the respondent on the date of transfer. As a part of the agreement, India Foils Ltd. took over all liabilities of the Indian business including a liability of pound 2,04,328. The residue of the consideration for the sale and purchase was satisfied by the issue of 998 shares of pound 1 each credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, the appellant No. 1 was bound to disclose the materials for such belief before the jurisdiction could be assumed. The impugned notice was, therefore, illegal and invalid. In any event, it was contended by way of amendment of the petition that the alleged gift was not made during the previous year relevant to the assessment year. On this application, this court issued a rule nisi on June 15, 1970, and the appellants on service entered appearance and contested the rule by filing an affidavit-in-opposition affirmed on December 4, 1971 by Debi Dayal, the GTO, G-Ward, who issued the impugned notice. It was stated there as follows : " 2. (a) Venesta Ltd, a company incorporated in U.K. by an agreement dated 31st December, 1959, transferred all its assets to Venesta Foils Ltd. (whose capital was 100 shares of pound 1 each). At the time of its incorporation two shares of pound 1 each had been issued to Venesta Ltd. As a consideration of the aforesaid transfer, Venesta Foils Ltd. took over all the liabilities of Venesta Ltd. and also transferred 98 shares of pound 1 each to Venesta Ltd. (b) After the aforesaid transfer Venesta Foils Ltd. continued the business for about one y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company to India Foils Ltd. By the aforesaid transfer India Foils Ltd. received assets amounting to Rs. 2,17,78,348.51. In consideration of the aforesaid transfer India Foils Ltd. was required to issue 998 shares of pound 1 each credited as fully paid up. Inasmuch as the said transfer was shown by the petitioner-company to have taken place on January, 1961, the transaction had to be considered for the purpose of the Gift-tax Act in the assessment year 1961-62 for which the previous year was the year ending on 31st March, 1961. The petitioner-company had not hitherto been assessed to income-tax. The gift-tax return should have been filed by the petitioner-company on the aforesaid transaction for the assessment year 1961-62 before 30th June, 1961. Inasmuch as no gift-tax return was filed by the petitioner-company on the aforesaid transaction the taxable gift escaped assessment for the assessment year 1961-62 by reason of the petitioner's omission or failure to make a return under section 13 of the Gift-tax Act. 6. Inasmuch as assets valued at more than Rs. 2 crores had been transferred for a very nominal consideration, the Gift-tax Officer issued a notice under section 16 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G.T. Act, 1958, may be noted. " 2. Definitions.-In this Act, unless the context otherwise requires,-...... (xii) 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer or conversion of any property referred to in section 4, deemed to be a gift under that section ; (xiii) 'Gift-tax Officer' means the Income-tax Officer authorised to perform the functions of a Gift-tax Officer under section 7. " " 3. Charge of gift-tax.-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, 1958, a tax (hereinafter referred to as gift- tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the 1st day of April, 1957) at the rate or rates specified in the Schedule. " " 4. Gifts to include certain transfers.-(1) For the purposes of this Act,- (a) 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 exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear. Under cl. (b), even when there is no such omission or failure, the GTO may assume jurisdiction when he has reason to believe, in consequence of any information in his possession, that taxable gift has escaped assessment. Different periods of limitation for service of a notice on the assessee containing all or any of the requirements as of a notice under sub-s. (2) of s. 13 have been provided, at any time within eight years under cl. (a) and four years under cl. (b) of the end of the assessment year and thereafter for assessment or reassessment of any taxable gift which has escaped assessment. We are concerned here with cl. (a) since no return was filed by the respondent in respect of taxable gifts made by it during the previous year of the assessment year. According to the GTO as appearing from his affidavit the respondent transferred its assets in India to India Foils Ltd. for inadequate or no consideration. As a result of the aforesaid transaction there was a taxable gift in the relevant year for which the respondent should have filed a return under the provisions of the G.T. Act, 1958. It has been contended by Dr. D. Pal that it is nowhere stated in the affidavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n value thereof. The book value of the assets was Rs. 83,31,590 on the date of transfer while the written down value was Rs. 80,58,538 so that net profit was assessed at Rs. 2,73,052. The sale price to India Foils Ltd. was accordingly accepted as the book value appearing in the books of the assessee-company on the date of transfer and the value of the shares was to be taken at the break-up value, that is, the value of the net assets of the company whose shares the transferor had received. If the ITO took a view relating to the transaction in regard to income-tax assessment, could he, the same person, as a GTO, take a different view of the same transaction, which it is said, is the position in the present case ? According to the respondent, the case of the revenue that the taxable gift had escaped assessment was not on account of its non-filing of any return but by reason of change of opinion of the GTO regarding the said price. In such a case s. 16(1)(a) of the Act cannot be attracted as the second condition has not been satisfied. The learned judge has taken the view that even if the assessee had filed a return, the GTO being the same person, could not have taken the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The respondent put great stress on the valuation of assets made by the ITO in regard to its assessment of income for the relevant assessment year. The ITO has accepted the value of assets transferred by the assessee to India Foils Ltd. at their book value in computing profits on such transfer of assets under s. 10(2)(vii), second proviso. This position is also accepted by the GTO as para. 5 of the affidavit of Deba Prasad Majumdar dated September 27, 1972, indicates. The point in controversy is not what was the value of assets transferred nor is it directly material for the G.T. Act. The material point is whether the consideration paid by the transferee-company for the acquisition of such assets for money or money's worth was adequate or inadequate. If the consideration so paid was adequate, there will not be any question of gift at all. The transferee may pay no consideration at all in which case, the value of the assets transferred will be the amount of gift. Where, however, the consideration is paid in money or money's worth but it is less than the value of the assets transferred, there will be a deemed gift for excess assets transferred after deducting from the value of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of pound 10,000 sells it to a company in consideration of shares to him he will find it cheaper to form a company with pound 1,000 share capital than one with pound 10,000 for it makes no difference to him, if he obtains control of the whole of the shares, whether 1,000 of pound 1 shares (worth pound 10 each) or 10,000 shares (worth pound 1 each) are allotted to him and he will rather have 1,000 shares issued to him, in effect at a premium of pound 9 per share. In the case of a limited company, its assets will appear in the commencing balance-sheet as pound 10,000 with the share capital at the nominal par value of pound 1,000, and the remaining balance of pound 9,000 has to appear in the balance-sheet, on the same side as capital under some other title such as " share premium ". It is further observed : " Prior to 1948, share premiums could be treated totally differently from share capital ... now section 56 of the 1948 Act provides that where a company issues shares at a premium a sum equal to the total amount of the premium shall be transferred to the ' Share Premium a/c ' which for most purposes must be treated as though it were share capital. This reform is eminently sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay all liabilities of Venesta Foils Ltd. in respect of the business under transfer and " The residue of the consideration for the said sale and purchase hereby agreed to be made shall be paid and satisfied by the issue to Venesta Foils Ltd. or its nominees 998 shares of pound 1 each credited as fully paid in the capital of the subsidiary (that is in India Foils Ltd.). " It is obvious that on the terms of the above agreement, the allotment of the shares as the residue of consideration was intended to cover the entire assets transferred less liabilities undertaken by the transferee-company. " Gift " under the definition of s. 2(xii) is a transfer by one person to another of any existing movable and immovable property made voluntarily and without consideration in money or money's worth. The consideration of the sale before us is not without consideration though not of money, but undertaking of payment of liabilities as also allotment of shares. The liabilities as on the date of transfer had a worth in money and was in effect so quantified in terms of money. So when the transferee under the terms of agreement agreed to pay the liabilities attached to the business which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in respect of the impugned transaction as defined in s. 2, cl. (xii), but we make it clear that we have not based our decision on this aspect, since no argument was advanced by the parties in this respect thereof. A point was raised by Mr. P. Pal, learned advocate for the respondent, contending that there was no gift during the previous year relevant to the assessment year 1960-61. The year closed on December 31, 1960, while under the agreement, the assets were taken over with effect from January 1, 1961. The contention possibly sustainable otherwise, cannot be accepted as the transaction was accepted even by the assessee as having taken place on December 31, 1960. The contention not originally made before the trial court was introduced by an amendment. There is no averment or explanation in regard to the assessment of the respondent under the I.T. Act for the assessment year 1961-62 with accounting period ending on December 31, 1960, where the above transaction has been taken into consideration as taking place within the accounting period at the instance of the respondent. The said order of assessment has also been strongly relied on by the respondent. There is accordingly no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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