2002 (8) TMI 76 - HC - Income Tax

Transfer of jewellery to company deemed taxable gift under Gift-tax Act; court upholds bequest decision & valuation rules.

The court held that the transfer of jewellery to the company constituted a taxable gift under the Gift-tax Act as it met the criteria of a voluntary ... Gift Tax Act, 1958 - 'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the transfer of jewellery (27 items of gold, diamonds, rubies, etc. stated to be of the value of Rs. 7.5 lakhs) to the company called, M & L Investments Pvt. Ltd., amounts to a taxable gift within the meaning of section 6(2) of the Gift-tax Act?' - we reframe the question as under: 'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the transfer of jewellery (27 items of gold, diamonds, rubies, etc. stated to be of the value of Rs. 7.5 lakhs) to the company called, M & L Investments Pvt. Ltd., would amount to a gift?' - we answer the question of law as reframed by us in favour of the Revenue and against the assessee. It is made clear that it is open to the assessee to raise all objections that are open to her in law before the Gift-tax Officer including the question of levy of gift-tax on the transaction in question. Issues Involved:1. Whether the transfer of jewellery to the company amounts to a gift under the Gift-tax Act.2. How the value of the transferred property should be evaluated for gift-tax purposes.3. Applicability of section 6(2) of the Gift-tax Act and rule 11 of the Gift-tax Rules in determining the value of the gift.Issue-Wise Detailed Analysis:1. Whether the transfer of jewellery to the company amounts to a gift under the Gift-tax Act:The court considered whether the transfer of jewellery by the assessee to M & L Investments Private Limited constituted a gift. The Gift-tax Officer determined it was a gift, as the transfer was voluntary and without consideration, intending to diminish the value of the transferor's property and increase the company's property value. The Commissioner of Income-tax (Appeals) disagreed, stating the transfer was revocable and thus void. The Appellate Tribunal found that the transfer of jewellery for 74 months constituted a bequest and thus a gift. The court upheld this view, noting that the definition of 'gift' under section 2(xii) of the Gift-tax Act includes voluntary transfers without consideration. The court concluded that the transfer of jewellery met these criteria, making it a taxable gift.2. How the value of the transferred property should be evaluated for gift-tax purposes:The Appellate Tribunal did not initially address the valuation of the gift, as the lower authorities had not applied section 6(2) of the Gift-tax Act and rule 11 of the Gift-tax Rules. The court noted that the value of the gifted property should be determined according to these provisions. The Tribunal remitted the matter to the Gift-tax Officer to apply section 6(2) and rule 11 to ascertain the value of the gift. The court agreed with this approach, emphasizing that the valuation should be conducted per the specified legal provisions.3. Applicability of section 6(2) of the Gift-tax Act and rule 11 of the Gift-tax Rules in determining the value of the gift:The court examined the applicability of section 6(2) and rule 11, which pertain to the valuation of gifts that are not revocable for a specified period. The assessee's counsel argued that these provisions were inapplicable as the jewellery did not generate income. However, the court noted that the Tribunal had remitted the matter to the Gift-tax Officer to determine the value using these provisions. The court refrained from expressing a definitive opinion on the applicability of section 6(2) and rule 11, allowing the assessee to raise all relevant objections before the Gift-tax Officer. The court clarified that if the machinery section fails to determine the value, the charge under the Act would also fail.Conclusion:The court answered the reframed question of law in favor of the Revenue and against the assessee, confirming that the transfer of jewellery amounted to a gift under the Gift-tax Act. The case was disposed of with the provision that the assessee could raise all legal objections before the Gift-tax Officer, including the applicability of section 6(2) and rule 11 in determining the gift's value.