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<h1>High Court upholds gift tax on bonus shares as a gift to investment companies</h1> The High Court of Karnataka upheld the assessing authority's decision to levy gift tax on bonus shares issued by the assessee company, ruling in favor of ... - Issues involved:The issues involved in this case include the correctness of the order passed by the Income Tax Appellate Tribunal regarding the levy of gift tax on shares and bonus shares for the assessment year 1987-88.Issue 1: Levy of gift tax on sharesThe Revenue challenged the order passed by the Income Tax Appellate Tribunal, contending that the bonus shares issued by the assessee company amounted to a gift and should be subject to tax. The Revenue argued that the Tribunal misinterpreted the provisions of the Companies Act and Gift Tax Act, leading to an erroneous finding that the bonus shares did not constitute a gift. The Revenue relied on Supreme Court decisions to support their argument that bonus shares held as stock in trade are subject to tax. The assessing authority found that the value of the gift in respect of the bonus shares amounted to a significant sum, which should be subject to gift tax. The Court agreed with the Revenue's arguments and held that the bonus shares issued by the assessee company to investment companies constituted a gift, affirming the assessing authority's order.Issue 2: Interpretation of gift tax provisionsThe respondent contended that the bonus shares issued did not amount to a gift as there was no transfer of shares by the assessee company to the investment companies. They argued that the provisions of the Gift Tax Act were not applicable in this case. The respondent relied on legal provisions and previous court decisions to support their stance that the bonus shares did not constitute a gift. The Court examined the provisions of the Gift Tax Act, Transfer of Property Act, and Companies Act, and concluded that the bonus shares issued and transferred to the investment companies did indeed amount to a gift. The Court rejected the respondent's arguments and upheld the assessing authority's order, stating that the bonus shares were subject to gift tax.Conclusion:The High Court of Karnataka ruled in favor of the Revenue, upholding the assessing authority's decision to levy gift tax on the bonus shares issued by the assessee company. The Court set aside the order of the Income Tax Appellate Tribunal and affirmed the assessing authority's order.
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