Stock exchange membership transferred below market value can trigger deemed gift-tax, but the same shortfall cannot be taxed twice.
Transfer of stock exchange membership for less than market value was treated as transfer of property capable of attracting deemed gift-tax on the undervalued portion, because the membership card was regarded as an asset transferable for consideration. The same shortfall, however, could not be taxed again under the Income-tax Act after being brought to tax as a deemed gift. Capital gains were confined to the actual consideration received, not the amount already subjected to gift-tax, thereby preventing double taxation of the same difference.
Issues: (i) Whether the membership of a stock exchange is property and, on its transfer by nomination, attracts gift-tax and capital gains tax; (ii) Whether the same amount can be brought to tax again under the Income-tax Act after being treated as deemed gift under the Gift-tax Act.
Issue (i): Whether the membership of a stock exchange is property and, on its transfer by nomination, attracts gift-tax and capital gains tax.
Analysis: The membership card of the stock exchange was treated as an asset capable of being transferred for consideration. The Court followed the earlier view that where such membership is transferred for less than its market value, the difference between market value and disclosed consideration falls within the deeming provision relating to gifts. On the facts, the market value was taken at Rs. 10,00,000 and the disclosed consideration at Rs. 6,00,000.
Conclusion: The transfer attracted deemed gift-tax on the difference of Rs. 4,00,000, and the consideration actually received was assessable for capital gains purposes.
Issue (ii): Whether the same amount can be brought to tax again under the Income-tax Act after being treated as deemed gift under the Gift-tax Act.
Analysis: Once the difference between market value and disclosed consideration was taxed as deemed gift, that very difference could not again be subjected to income-tax. Capital gains had to be computed on the actual consideration received and not on the amount already treated as deemed gift. This avoided double taxation of the same amount under both enactments.
Conclusion: The same amount could not be taxed twice, and capital gains were confined to the actual consideration of Rs. 6,00,000.
Final Conclusion: The appeals were resolved by sustaining deemed gift-tax on the undervalued portion of the transfer while preventing the same amount from being taxed again under the Income-tax Act, with capital gains confined to the consideration actually received.
Ratio Decidendi: Where a stock exchange membership is transferred for consideration lower than its market value, the shortfall can be taxed as deemed gift, but the same shortfall cannot be assessed again as income under the Income-tax Act; capital gains must be computed on the actual consideration received.
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