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TMI Blog2001 (5) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The subsidiary companies had no other asset. The value of the jewellery as determined by the Assessing Officer being Rs. 13,91,350 the real value of the shares may be said to be Rs. 13,91,350, but there was thus no gift involved in the transaction for whatever is the value of the jewellery is in fact the value of the shares transferred in consideration. In the circumstances, the Assessing Officer committed an error in treating the transaction between the parties as a "deemed gift." The High Court was in error in holding that in the facts and circumstances of the case the transaction could be held to be a "deemed gift" within the purview of section 4(1)(a) of the Act and in holding the assessee liable for the tax. Accordingly, the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee fully paid equity shares of the face value of Rs. 100 each, the face value of all the shares being Rs. 5,69,400. The jewellery thus transferred became the only asset of the twelve companies and the shares transferred to the assessee were the entire shareholding of the twelve private limited companies. Since the assessee did not file any gift-tax return, a notice under section 16(1) of the Act was served upon the assessee pursuant to which the assessee filed a "nil" return. Thereafter a notice under section 15(2) of the Act was issued and the proceeding for assessment was taken up. In the assessment proceeding the assessee took the stand that it had transferred jewellery to the twelve subsidiary companies of a book value of Rs. 5,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the contention of the Revenue on this point. In the reference application filed by the Revenue the question quoted earlier was referred to the High Court. The High Court came to the conclusion that the Tribunal had committed an error in law in coming to the conclusion that the difference of Rs. 8,21,950 on the sale of the jewellery by the assessee to its twelve wholly owned subsidiary companies was not liable to gift-tax under the provisions of the Act and accordingly answered the question in the negative in favour of the Revenue. The High Court did not accept the contention that in the case of the transfer of the entire paid up shareholding of the twelve subsidiary companies in lieu of the jewellery transferred by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads as under : "4. (1) For the purposes of this Act,--- (a) where property is transferred otherwise than for adequate consideration, the amount by which the value of the property as on the date of the transfer and determined in the manner laid down in Schedule 11, exceeds the value of the consideration shall be deemed to be a gift made by the transferor : Provided that nothing contained in this clause shall apply in any case where the property is transferred to the Government or where the value of the consideration for the transfer is determined or approved by the Central Government or the Reserve Bank of India." Ordinarily, a gift is a transfer of property without consideration ; but for the purpose of the Act a transfer for inadeq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two items of property should be similar and on such evaluation if it is found that there is appreciable difference between the value of the two properties then the transaction will be taken as a "deemed gift" to the extent as provided in the section. It is to be found that the transaction was on inadequate consideration and the parties deliberately showed the valuation of the two properties as the same to evade tax. Such a conclusion cannot be drawn merely because according to the Assessing Officer there is some difference between the valuation of the property transferred and the consideration received. In the present case, as noted earlier, the face value of the shares of the 12 fully paid subsidiary companies of the assessee was Rs. 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, he would be liable to be taxed under the Act ; the same person may, in order to avoid the tax, transfer properties for a paltry consideration so as to get out of the operation of the Act then he can be made liable under section 4(l)(a). It is this attempt at evasion which was sought to be thwarted by enacting section 4(l)(a). A similar view was taken by the Kerala High Court in the case of CIT v. Jacobs (P.) Ltd. [1999] 237 ITR 433. The High Court of Madras in the case of CGT v. D. Surendranatha Reddy [1998] 233 ITR 21 observed that adequate consideration is not necessarily what is ultimately determined by someone else as market value ; unless the price was such as to shock the conscience of the court, it would not be possible t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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