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TMI Blog1988 (7) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination of the lease the Society was to yield up to the company the demised premises including all buildings and structures standing thereon and all fixtures, fittings and installations therein in good and tenantable condition. 3. With the funds raised or obtained by the Society partly from its members and partly from M/s New India Assurance Company Ltd., Bombay and M/s Velbilt Private Ltd., Bombay, a sister concern of the assessee-company, the Society constructed 42 apartments which came to be known as "Darshan Apartments". Two of the apartments in this building viz. Flat No. A/91 A/101 and garage space No. 19 were occupied by one Smt. Giraben Sarabhai (Smt. Sarabhai), one of the tenant-members of the Society, who, incidentally, happened to be a sister of Mr. Gautam Sarabhai, the main Director of the assessee-company at the relevant time. 4. The Society committed default in paying rent to the Company and in repaying loans advanced to it by M/s New India Assurance Co. Ltd. and M/s Velbilt Pvt. Ltd., aforementioned. Therefore, the company filed two suits against the Society in the Court of the Judge, Small Causes, Bombay. In its mortgage suit filed in Bombay High Court M/s N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchase price, the sale was completed on 10-3-1971 vide the Conveyance Deed of the date. 7. In the release and discharge of Smt. Sarabhai by the Society of her liability to pay Rs. 1,71,500 as aforesaid, the Gift-tax Officer (GTO) read a taxable gift of that much of value by the assessee-company to Smt. Sarabhai which had escaped assessment in the year 1969-70. He, therefore, issued a notice u/s. 16(1) of the Gift-tax Act, 1958 (the Act) to the assessee-company. A similar notice was also issued for assessment year 1971-72. In response to such notices the company mainly contended (i) that there was no taxable gift in the transaction in question, (ii) that if there was any, it was not from the company to Smt. Sarabhai but, at the most, from the Society to her and (iii) that if at all there was any gift chargeable to the company it was assessable in assessment year 1971-72, as the sale was completed on 10-3-1971. Rejecting all these contentions of the assessee-company the GTO held that the Company had secured the release of the dues of the Society against Smt. Sarabhai by foregoing a substantial part of its own claim for arrears of rent against the Society and thus there was a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised in ground Nos. 2 to 7 in Memorandum of Appeal, was not pressed much at the hearing. Moreover, we have considered the same in Revenue's appeal above and rejected. Ground Nos. 2 to 7 are, therefore, rejected. This leaves us with the first two points, as mentioned above, and we propose to decide them as under. 12. It was urged by Mr. K.C. Patel, Advocate appearing for the assessee-company, that the transaction under consideration must fail as a gift proper or even as a deemed gift for the obvious presence of an element of consideration in it. According to Mr. Patel the release or discharge of its claim for dues from Smt. Sarabhai was made by the Society by way of compromise of its dispute, concerning property, with the assessee-company and such a compromise should be considered as good consideration in money's worth. Mr. Patel further submitted that it was the case of revenue itself that release of discharge as aforesaid by the Society had been made in consideration of assessee-company's foregoing its own claim for arrears of rent against the society. That too, urged Mr. Patel, was a good consideration for the release or discharge, as aforesaid. 13. Mr. Hajela opposed the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he second part is preceded by the word "includes" and it gives an artificial extension to the meaning of the word 'gift' by the use of a fiction implied by the words "deemed to be gift under section 4". 16. Section 4 runs as under : "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 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 ; (b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transferor ; (c) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd thus has a relevance to our study. 17. As stated above a 'deemed gift' has its origin in the second part of the definition of the term 'gift', quoted above. One of the chief characteristics of a gift, with which we are concerned here is that it should have been made without consideration in money or money's worth. The presence of any element of consideration in money or money's worth in a gift would spoil its sanctity. Keeping in view the very concept of gift and the context of its definition in section 2(xii) as a whole, it can hardly be disputed that even a deemed gift u/s 4(1)(c) is required to satisfy, inter alia, the condition relating to absence of consideration. 18. The essence of a gift is its gratuitousness : gratuitousness in the sense that (i) it is unsolicited and (ii) it is made without any return or consideration. The term "consideration" is defined in section 2(d) of Indian Contract Act as follows : "When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act, abstinence or promise is called a consideration for the promis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mely, that in the Gift-tax Act an agreement to transfer property otherwise than for adequate consideration . . . gives rise to a gift to the extent of inadequacy, while, under the definition in the Contract Act that is not so .... Thus the ambit of a gift in the Gift-tax Act is somewhat enlarged and the corresponding area of a contract for consideration artificially narrowed down .... The second thing that has to be noted is the use of the words 'consideration in money or money's worth' in the definition of 'gift' . . . it is undoubtedly the intention of the Gift-tax Act ... to limit the meaning of consideration to something which can be reckoned in terms of money and not to any and every obligation, e.g. promise to marry, which would be a valid consideration under the ordinary law of contracts." (pp. 20-21) 21. In the instant case, the GTO as well as the CGT(A) have positively held that the Society had released or discharged Smt. Sarabhai of her obligation to pay the dues or debt of the Society in consideration of the assessee-company forgoing or forgiving its own claim for arrears of rent from the Society. On the face of it, the consideration for the transaction between the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person responsible" within the meaning of the term used in that clause. In reply Mr. Hajela heavily relied upon the orders of the authorities below and submitted that the assessee-company would be considered a "deemed donor" in the transaction. 26. The above arguments of the learned Counsel bring us to consider the scope of application and field of operation of section 4(1)(c) of the Act as reproduced above, Clause (c) of section 4(1) lays down two conditions of its application. Firstly, there must be release, discharge, surrender, forfeiture or abandonment of any debt contract, or other actionable claim or of any interest in a property by the donor in favour of the donee, and, secondly, the value of the release, discharge, surrender, forfeiture or abandonment must have not been found, to any extent, to the satisfaction of the GTO to have been made bona fide. Both these conditions having been satisfied there would arise a deemed gift 'by the person responsible for the release, discharge, etc.' and to the extent the value of the release, discharge etc. as has not been found to the satisfaction of the GTO to have been made bona fide. 27. The use of the words "person responsib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Society and not the company was the 'person responsible' within the meaning of the term used in clause (c) of section 4(1). 28. The words "bona fide" used in the language of clause (c) are also required to be taken due note of. These words mean "in good faith", "genuinely" which are suggestive of honesty of purpose. They convey absence of intention to deceive and connote that the transaction in question is a true and genuine transaction and not a colourable and sham one and there are no strings of any kind attached to that transaction and that there is no secret or covert arrangement. 29. Once a transaction falling under section 4(1)(c) is found to have been honestly and sincerely made i.e. in good faith and genuinely, recourse to that provision to read a deemed gift in such transaction in order to levy tax cannot be made. It is no doubt true that section 4(1)(c) has been inserted in the statute with the object of roping in so-called business transactions which are really gifts in camouflaged form. But it is not the intention of the Legislature to impose a tax in respect of genuine transactions taken in due course of business. Clause (c) of section 4(1) should, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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