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TMI Blog1993 (2) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... . The GTO was not satisfied with the argument of the assessee. Therefore, relying on the decision of ITO v. Buragadda Satyanarayana [1977] 106 ITR 333 (AP) and decision of Punjab Haryana High Court in the case of Sardarni Ahilya Raghbir Singh Raja Sansi v. CIT [1974] 97 ITR 425 and also the decision of the Tribunal in the case of Neelam Kumar Oswal [GT Appeal Nos, 21 to 23 (Chd.) of 1984 dated 27-10-1986] for assessment year 1976-77 held that Rule 1D was mandatory and in the absence of any such rule in the Gift-tax Act, the same rule should be followed. 3. When the matters came before the CGT (Appeals), the assessee had pleaded that orders of the GTO were not sustainable because he had not given any specific finding as to the inadequacy of the consideration which is a pre-requisite for invoking the provisions of section 4(1)(a) of the Gift-tax Act. Further, there is no finding that the transaction of sale was not bona fide. In the absence of these two findings, the GTO's orders cannot be sustained. Reliance was placed on the decision of Allahabad High Court in the case of CGT v. Sardar Wazir Singh [1975] 99 ITR 104 at page 107 and decision of Madras High Court in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trust. It is submitted that the revenue authorities had invoked provisions of section 4(1)(a) merely on suspicion that the market value is higher than what had been declared without bringing any proof of the same. It is submitted that the cases relied on the Assessing Officer are distinguishable on facts itself. In the case before the Andhra Pradesh High Court in Buragadda Satyanarayana"s case. The issue was regarding computation of capital gain and the ITO, applying the provisions of section 52 of the Act estimated the capital gains. Application of section 4(1)(a) was never before the Hon'ble Andhra Pradesh High Court. Similarly, in the case of Sardarni Ahilya Raghbir Singh Raja Sansi, the assessee had transferred 100 shares at the face value of Rs. 1000 each. The question before the Hon'ble Pb. Hr. High Court was about the applicability of section 52 of the Income-tax Act where they have held that transfer is covered under section 52 of the Income-tax Act. In both these cases, applicability of section 4(1)(a) was never considered. In the case of Neelam Kumar Oswal, the question before the GTO was about the valuation of shares under section 6(1) of the Gift-tax Act. The words " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 252 it held that the shares has to be valued as laid down by SC in CWT v. Mahadeo Jalan [1972] 86 ITR 621 (SC) (valuation under section 6 of G.T. Act). Anjana Rani Oswal 1974-75 CIT (Appeals) deleted the deemed gift addition made on the sale of shares of M/sOWM Ltd. by order dated 31-3-1992 (copy enclosed). Suchita Oswal 1980-81 CIT (Appeals) deleted the deemed gift addition made on the shares of M/s OWMLtd. by order dated 8-5-1992 (copy enclosed) " It is further pointed out that the assessee had filed following proof to show that the shares were sold at Rs. 12 to Rs. 12.50 per share : " 1. Details of sale of shares of Oswal Woollen Mills Ltd. registered by the company in Sept. 1979 transacted between third parties at Rs. 12 per share. 2. Copy of the ITO, Distt. 1(4), letter dated 6-8-1979 addressed to Smt. Banarso Devi Oswal Public Charitable Trust knowing whether the Trust had sold the shares of Oswal Woollen Mills Ltd. 3. Copy of advertisement given by the Trust for sale of shares appearing in Daily Tribune dated 2-8- 1979. 4. Copy of the letter dated 23-11-1979 received from Advertising Manager of Tribune that no offer was received by them. 5. Copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , yield method under WT Act could have been applied for determination of values. 7. The learned assessee's counsel also raised additional alternative plea that the action of revenue authority whereby they have treated it as deemed gift contravene the provision of section 15(6)(b)(i) of the Gift-tax Act, 1958 read with rule 11A of Gift-tax Rules. Since this was a legal ground, it was admitted at the time of hearing. The argument of the learned counsel for the assessee is that where the market value of any property transferred by way of gift is to be taken into account. The Assessing Officer was under duty to refer the valuation of such shares to the Valuation Officer. If he has not referred the matter to the Valuation Officer, it is in contravention of the provisions of section 16A of the Gifttax Act and the entire exercise for bringing the difference between sale price and market value to tax is null and void. Reliance was placed on the decision of Madhya Pradesh High Court in the case of M.V. Kibe v. CWT [1987] 168 ITR 82 and the decision of Punjab and Haryana High Court in the case of Raj Paul Oswal v. CWT [1988] 171 ITR 489 where it is held that in such circumstances, referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction was considered by the Hon'ble Madras High Court in the case of Indo Traders Agencies (Madras) (P.) Ltd. Here, the facts were that the assessee-company acquired the whole of business of a partnership firm with all its assets and liabilities as shown in the balance sheet. One of the assets of the firm was goodwill which was valued at Rs. 3,000. In subsequent year, the company transferred the assets and liabilities excluding bank balances and refunds, if any, that may be due in respect of sales tax to another firm. As the assets of the company were greater than its liabilities, the firm paid the difference to the company. In the balance sheet of the assessee-company, there was no mention of any goodwill as a separate item of asset. The GTO was of the view that not only assets and liabilities were transferred but also the goodwill ; therefore, he invoked the provisions of section 4(1)(a). When the matter came before the Hon'ble Madras High Court, it observed as under : " Inadequacy of price does not depend upon a person giving pretium affectionis, from any peculiar motive, beyond what any other man would give, the reasonable price. But, further unless the inadequacy of price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) relieves the revenue of all burden of proof regarding the extent of understatement or concealment. It does not create any fictional receipt. It does not deem as receipt something which is not in fact received." In the case of Porwal Udyog (India), the company transferred some assets. The question arose whether the consideration disclosed by the assessee was much below the fair market value of the assets or not. The Hon'ble Madhya Pradesh High Court, following the decision of the Supreme Court in the case of K.P. Varghese held that the deemed profits were not liable to gift-tax. In view of these decisions, it is amply clear that the burden of proof lies on the department to show that the consideration was not adequate. If there is no material on record to substantiate this fact, then provisions of section 4(1)(a) cannot be invoked. After the Department has crossed this hurdle, the computation part comes thereafter. It will be pertinent to mention here that while delivering this decision of Indo Traders Agencies (Madras) (P.) Ltd.'s case, the Hon'ble Madras High Court considered the decision of S. V.R. v. Cycle Mart's case and it was mentioned that in that case, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat they must be read together. ' Gift ' occurring in section 47(iii) of the Income-tax Act means transfer made without consideration and not what is deemed to be gift for the purposes of the Gift-tax Act. 14. From the above discussion, it is clear that the question before the Hon'ble Punjab and Haryana High Court and Hon'ble Andhra Pradesh High Court was under section 52(1) of the Income-tax Act where the definition is materially different from section 4(1)(a) of the Gift-tax Act. In Gift-tax Act, the opening words show that it is a fictional clause under which the gift-tax is charged. Before a gift-tax is charged under this section, i.e., section 4(1)(a), the burden lies on the Department to prove the inadequacy of the consideration and if this burden is not discharged, provisions of section 4(1)(a) cannot be invoked to tax the deemed gift at the hands of the assessee. It is a different matter that upon filing a return, the Assessing Officer can issue notice to ensure that the assessee has not omitted to disclose any gift or has not understated the amount or value of such gift. But while invoking this provision, he has to cross the hurdle of inadequacy of the consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived at the value of the deemed gift at nil on the basis of the reasons given by the AAC in his order in income-tax proceedings as above said, it has become only academic." 16. Again when the question of taxability arose in 1974-75 in Raj Paul Oswal's case, the Tribunal observed as under : '. . . No material is brought on record to convince us why the rate quoted by the share brokers of Delhi Stock Exchange should not be adopted. Again no material is also brought to controvert the finding that there was no relation, business or otherwise between the purchaser and the seller on the basis of which it could be said that the transaction was not bona fide. From the advertisement given by about six persons for the sale of such shares, it is seen that aggregate lot of 29,000 shares was advertised for sale. What is the position with regard to the sale of shares by other group of assessees is also not brought to our notice. The decisions relied on by the DR would go in favour of the assessee on the basis of facts found by us. We, therefore, decline to interfere." 17. In addition to these evidences, the assessee had filed correspondence between the legal heir of Smt. Banarso Devi Os ..... X X X X Extracts X X X X X X X X Extracts X X X X
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