O/TAXAP/331/2000 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 331 of 2000 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to civil judge? A.C. OF GIFT TAX Appellant(s) Versus SARABHAI PVT LTD. Opponent(s) Appearance: MR NITIN K MEHTA, ADVOCATE for Appellant(s) No. 1 MR RK PATEL, ADVOCATE for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 9 O/TAXAP/331/2000 JUDGMENT Date : 24/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, appellant has challenged judgment and order dated 23.9.1999 passed by Income Tax Appellate Tribunal, Ahmedabad Bench B ,Ahmedabad in G.T.A. No. 10/Ahd/1994 for assessment year 1985-86. 2. While admitting this appeal on 6.11.2000, this Court has framed following substantial question of law: Whether appellate tribunal is right in law and on facts in deleting gift tax levied by invoking provisions of section 4(1) of Gift Tax Ac and in doing so, erred in interpreting section 15(6) read with Rule 11A of Income Tax Act and Rules ? 3. facts of present case are that assessee has filed return of Gift Tax on 31.5.1991. notice under sec. 16(1) of Gift Tax Act was issued to assessee. In response to said notice, assessee has shown value gift made during previous year at Rs. Nil. Thereafter, after considering material on record, assessment order came to be passed. Against said assessment order, Page 2 of 9 O/TAXAP/331/2000 JUDGMENT appeal before CIT(A) has been preferred by assessee which was allowed. Against said order of CIT(A), Revenue has preferred appeal before ITAT which was dismissed, against which, present Tax Appeal is preferred by Revenue before this Court. 4. Heard learned advocates appearing for parties and considered submissions. Learned advocate for appellant has taken us through both orders, order passed by CIT(A) as well as Tribunal and has submitted that Tribunal has wrongly interpreted section 15(6) read with Rules 11A of Income Tax Act. Rules do no specifically provide that lesser of two figures 50,000/- or 33% of declared value is to be adopted, inspite of that, Tribunal has observed contrary to provisions. However, learned advocate for respondent has submitted that Tribunal has followed decision of Calcutta High Court in case of GTO v. V. Foils Ltd. reported in 124 ITR 660 (Cal) and decision of Madras High Court in case of CGT v. Indo Traders & Agencies (Madras) Pvt. Ltd.,reported in 131 ITR 313 and now issue is squarely covered by decision of Apex Court in case of Reva Investment Pvt. Ltd. vs. Commissioner of Gift- Tax, reported in 249 ITR 337. Learned advocate for appellant has made endeavor to take us through reasons and object as to why Page 3 of 9 O/TAXAP/331/2000 JUDGMENT provision has been introduced. Section 48 of Gift Tax Act, reads as under: 48. Section 21 of Amending Act has amended section 15 of Gift-tax Act which view to enabling Gift-tax officer to refer valuation of any property transferred by way of gift to Valuation Officer for ascertaining market value of such property. References under new provision will lie only after 31st December, 1972, as provision of section 21 of Amending Act will come into force with effect from 1st January, 1973. Under new provision, Gift- tax Officer may refer valuation of any property to Valuation Officer in case where assessee has got property valued by registered valuer and Gift-tax Officer is of opinion that value as estimated by registered valuer (i.e. person registered s valuer under section 34AB of Wealth-tax Act) is less than fair market value of asset. Other cases in which reference may be made to Valuation Officer would be where Gift tax Officer is of opinion that fair market value of property exceeds value of property as returned by more than 33 1/3rd of value returned or by more than Rs. 50,000, whichever is less, or where, having regard to nature of property and other relevant circumstances, Gift-tax Officer considers it necessary to do so. Page 4 of 9 O/TAXAP/331/2000 JUDGMENT 5. CIT(A) in para 2.5 and 2.6 has observed as under: 2.5 There is no doubt that gift tax proceedings are different than proceedings under Income-tax Act. Even then fact that no adverse inference has been drawn in Income-tax proceedings during assessment as well as acquisition proceedings it will look arbitrary to draw such inference under Gift-tax Act. Because person will under state actual consideration only to save capital gains tax generally. If it is found that there has been no avoidance or evasion of capital gains tax it may not appear very logical to say that consideration is under stated for purpose of Gift-tax Act. For this reason also Assessing Officer was not justified in applying provisions of section 4(1)(a) of Gift-tax Act in this case. 2.6 Coming to legal aspect of case it is seen that obitery by Hon ble High Court in case of Venesta Foils Ltd. (supra) makes it very clear that when transfer is between holding and subsidiary company there is no gift. It will be pertinent to reproduce obitery of Hon ble Court- Gift basically is transfer by one person to another person. In this case there was really no such transfer since V.G. Ltd, alleged donor owned all dhstr of Ltd. alleged dones. Viewed in this light also there was no gift in respect of impugned transaction as defined in Sec.2 clause (xii). I would therefore hold that addition made by Assessing Officer Page 5 of 9 O/TAXAP/331/2000 JUDGMENT in this case is neither sustainable on facts not in law. I would therefore, delete addition of Rs. 34,99,000/-. 6. Tribunal, in paras 6,7, and 8 has observed as under: 6. We have carefully considered facts and circumstances of case as well as rival contentions made before us. It is well settled that provisions of sec. 4(1)(a) of G.T> Act cannot be invoked in case of transactions which are bonafide and no attempt of evasion of tax is discernible. If consideration which passed between parties can be considered to be reasonable or fair, it cannot be considered to be inadequate. Adequate consideration is not necessarily that is ultimately determined by someone else as market value. Their lordship of Madras High Court observed in CGT v. India Traders and Agencies 131 ITR 313 that unless price realised for transfer was such as to shock conscious of Court, if would not be possible to hold that transaction is otherwise than for adequate consideration. Rule 11A of GT Rules as well as rule 3B of WT Rules fairly bring out legislative intention for accepting declared value of asset for purposes of wealth tax and gift assessments if difference between declared value and fair market value is less than 33 1/3% or Rs.50,000/-. In instant case, market value as determined by DVO under W T Act as on 31.3.84 is Rs. 178.49 lakhs whereas realised Page 6 of 9 O/TAXAP/331/2000 JUDGMENT value shown by assessee is Rs. 143.50 lakhs. difference being merely Rs.35 lakhs which is much less than percentage prescribed in Gift- tax Rules or Wealth-tax Rules. Ld. DR made valiant effect to support department s case by pointing out that since difference is more than 50,000/-in instant case, rule 11A of GT Rules is attracted. 7. We are not impressed with this argument. Rules do not specifically provide that lesser of two figures 50,000 or 1/3% of declared value is to be adopted. There is therefore, no justification for re- writing rule by adding words whichever is less . well accepted rules of interpretation of statutes expressly negate any such construction. It appears to us that amount of Rs. 50,000 is mentioned in aforesaid rules under statutes so as to obviate possibility of references of small cases by AO to valuation cell. percentage of 33 1/3% indicated in rules appears to lay down standard of acceptability of declared value for purposes of wealth-tax and gift tax assessments. In our opinion transaction in question involving sale of Kashmir House by assessee to its 100% subsidiary is bonafide transaction and does not reflect any attempt of tax evasion on part of assessee company. It is further to be noted that valuation being relied upon by Ao for treating transfer as deemed gift has been made under WT Act estimating market value as on 31.3.84. We find merit in contention of ld. Page 7 of 9 O/TAXAP/331/2000 JUDGMENT counsel that property in question was partly occupied by legal tenants and comparable transactions replied upon by DVO in respect of vacant properties do not afford fair and reasonable basis for estimating market value in assessee s case. 8. Regarding reliance placed by ld. Counsel on decision of Calcutta High Court in case of v. Foils Ltd. we find that ld. Judges observed at page 673 that gift is basically transfer by one person to another person and no such transfer is involved if donor viz. V. Foils Ltd. owns all share of alleged dones viz. India Foils Ltd. However, decision of High Court has not been based on this premise as specifically pointed out by their Lordships. This decision may therefore render no direct support to assessee s case. However, circumstance that transderee in instant case is 100% subsidiary company and difference in sale consideration and market value estimated by DVO is much less than prescribed percentage of 33 1/3% as per rule 11A of GT Rules support bonafide of transaction. In our opinion, this is not fit case for invoking provisions of sec. 4(1)(a) of GT Act for treating sale transaction as deemed gift. For reasons as discussed above we uphold order of CGT(A) and dismiss appeal of revenue. 7. In view of concurrent finding, and more particularly, finding recorded by CIT(A) in para 2.5 and 2.6 and finding recorded by Page 8 of 9 O/TAXAP/331/2000 JUDGMENT Tribunal in paras no. 6,7 and 8, as well as decision of Calcutta High Court in case of GTO v. V. Foils Ltd. reported in 124 ITR 660 (Cal) as reproduced hereinabove, appeal deserves to be dismissed. We are in complete agreement with view taken by Tribunal. question is answered in favour of assessee and against Revenue. present Tax Appeal is dismissed. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 9 of 9 A.C. of Gift-tax v. Sarabhai Pvt. Ltd