9911796707
TMI Blog1976 (3) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... essary to refer to certain facts. The petitioner is a subsidiary of the Imperial Chemical Industries Ltd. incorporated in the United Kingdom. The said Imperial Chemical Industries Ltd. is shortly referred to as ICI. It is the case of the petitioner that after the last world war, ICI had decided to make substantial investments in India for manufacture of extended range of products which were previously imported; as a result Alkali Chemical Corporation of India Ltd., hereinafter referred to as ACCI, was substantially expanded and two new companies were promoted, namely, Indian Explosives Ltd., hereinafter referred to as IEL and Atic Industries Ltd., hereinafter referred to as Atic. In or about 1949, the Government of India asked ICI to consider manufacture of commercial blasting high explosives in India. ICI decided to finance foreign exchange requirements for the aforesaid projects by making sterling loans available to the petitioner, namely, ICI (India) Pvt. Ltd., to enable the petitioner to take up equity shares in the aforesaid three manufacturing companies initially in the name of the petitioner with a view to get tax advantage under sections 15C and 56A of the Indian Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing from manufacturing companies to ICI suffered, according to the petitioner, double taxation. The assessee-company was already in existence but the other three companies mentioned hereinbefore were incorporated later. ICI, therefore, devised a scheme by which it could make the investments as desired by it and by which it could also take advantage of the tax relief which could be availed of by the new enterprises under sections 15C and 56A of the Indian Income-tax Act, 1922. The scheme in short was that the ICI would arrange to let the assessee hold the shares in the three companies by investing the money which was to be given by ICI to the assessee. The modus operandi was that the ICI would give that money by way of loan to the assessee who agreed that the shares in the three companies mentioned hereinbefore would be transferred to ICI in satisfaction of the loan at par or issue price as and when desired by ICI. All this was done after negotiations with the concerned department of the Government of India at the highest level with the approval of the Reserve Bank of India. The entire scheme was conceived and put into operation prior to the 30th of November, 1956. There was a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 962-63, who is also by virtue of section 7 of the Gift-tax Act, 1958, the Gift-tax Officer in this case, added a sum of Rs. 14,40,62,901 to the total income as notional capital gains on the ground that the market value of the aforesaid shares was higher than the face value at which these were transferred. On appeal the Appellate Assistant Commissioner deleted the said addition. On the 18th/ 25th April, 1967, the petitioner wrote to the Central Board of Direct Taxes pointing out that the transfer of shares was made by the petitioner to ICI in accordance with the contractual obligation and there was no question of gift. On the 30th June, 1967, the Central Board of Direct Taxes replied that the department had not accepted the position that there was any contractual obligation under which the transfer was made and, therefore, the question of gift-tax liability had to be considered. On the 18th October, 1967, an order was passed by the Appellate Assistant Commissioner in the appeal for the assessment under the Income-tax Act referred to hereinbefore. On the 23rd September 1968, the Income-tax Officer issued a notice under section 147 of the Income-tax Act, 1961, with a view to include t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken as correct, the inference that the transaction was not for the purpose of avoiding or reducing liability to capital gains tax has to follow." The Tribunal confirmed the decision of the Appellate Assistant Commissioner that on the material on record it did not justify the conclusion of the Income-tax Officer that the object of the transfer of the shares of all the three companies by the assessee to the ICI was the avoidance of liability to tax on capital gains which would attract section 52 of the Act. The Supreme Court, in the judgment referred to hereinbefore, was of the opinion that the findings of the Tribunal were amply supported by evidence and were eminently reasonable. On the 14th March, 1973, notice was issued under section 16(1) of the Gift-tax Act, 1958, by the Gift-tax Officer. The petitioner thereupon moved this application on the 22nd March, 1973, under article 226 of the Constitution and obtained the rule nisi. In answer to the rule nisi in the affidavit-in-opposition in paragraph 14 on behalf of the revenue it was stated, inter alia, as follows : " I say that the said notices dated 29th March, 1967, and 14th March, 1972, were lawfully and validly issued. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of Rs. 5,25,30,720 by the petitioner to ICI was a gift in terms of the Gift-tax Act, 1958. Section 4(1)(a) of the said Act provides that where a property is transferred otherwise than for adequate consideration the amount by which the market value of the property at the date of the transfer exceeds the value of consideration shall be deemed to be a gift made by the transferor. On behalf of the petitioner it was contended that evidence relating to financing of capital or the arrangement in this case was available before the Income-tax Officer who was also the Gift-tax Officer on the date of issue of the impugned notice and on this evidence the higher authorities had determined that there was a scheme or arrangement pursuant to which this transfer took place and that finding or conclusion of the higher authorities was on appraisal of the quality of evidence and in view of such finding by the higher authorities up to the Supreme Court it must be held that there was no evidence to hold that there was any gift in this case which had escaped assessment. It was, secondly, contended that the Income-tax Officer in the income-tax assessment had taken the market value as the full valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stence nor the bona fide nature of the agreement was doubted. It is true that the agreement is not embodied in any formal document and not recorded in any formal arrangement; that does not, in my opinion, detract from making the arrangement enforceable in the sense that the petitioner was bound to transfer the shares at par value as and when called upon to do so by ICI. If that is the position then it cannot be said that the transfer was otherwise than for adequate consideration. It is not the case of the revenue that the arrangement referred to hereinbefore entered into prior to November, 1956, was not for any consideration or not for adequate consideration. If once that arrangement was valid and legal, then transactions taking place in view of that arrangement cannot amount to a transfer otherwise than for adequate consideration. In that view of the matter, it must be held that there were no materials for holding that there was any gift in the instant case and as such any such gift assessable to tax has escaped assessment under clause (1) of section 16 of the Act. On behalf of the revenue it was contended that gift as defined under section 4 of the Act constituted deemed gifts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , reliance was placed, on the observations of the Punjab and Haryana High Court in the case of Sardarni Ahilya Raghbir Singh Raja Sansi v. Commissioner of Income-tax [1974] 97 ITR 425 (Punj), where it was held that once the transfer was covered by section 52(1) of the Income-tax Act, 1961, and levy of capital gains made and the transaction was treated as one for full consideration under the Income-tax Act, it must be treated as such for all purposes and hence no gift could be involved in the transaction and no liability arose under the Gift-tax Act. Section 47 of the Income-tax Act, 1961, does not provide that the market value should be treated as the consideration for the transfer for all purposes and the Gift-tax Act as such also does not deal with transactions which take place under section 52 of the Income-tax Act, 1961. Gift under the Gift-tax Act, 1958, must be as defined in clause (xii) of section 2 of the Act including the deemed gift as contemplated by section 4 of the Act. If the transactions came within the mischief of the said definitions then these would be subject to tax, irrespective of the fact that these might be subject to tax under any other provision of the dire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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