1993 (11) TMI 89 - AT - Income Tax

Tribunal deems sale of company flats a gift for tax purposes, upholding Gift-tax Act application.

The tribunal upheld the application of section 4 of the Gift-tax Act to the sale of two flats by a private limited company, dismissing the company's ... Deemed Gift, Assessee Issues:1. Applicability of section 4 of the Gift-tax Act in relation to the sale of two flats by the assessee-company.Detailed Analysis:The judgment pertains to an appeal by a private limited company against the order of the Commissioner of Gift-tax (Appeals) regarding the assessment year 1989-90. The company, involved in construction business, had constructed flats in Altamount property, selling most of them except for three flats. Two of these flats were let out on tenancy basis to associated concerns of the company. The Assessing Officer applied section 4 of the Gift-tax Act, levying gift tax on the two flats based on the cost of construction declared by the company. The main issue argued was the applicability of section 4 of the Gift-tax Act in this case, with other grounds not pressed by the company.The company contended that the transaction should not be considered a deemed gift, emphasizing the tenancy rights encumbering the ownership of the flats. The company's counsel argued that the transfer was made in respect of reversionary interest only, with the consideration being adequate. However, the departmental representative argued that the arrangement was a subterfuge to avoid tax liability, asserting that it was a transfer of ownership, not just reversionary rights. The departmental representative further highlighted that the real value of each flat was around Rs. 40 lakhs based on similar sale incidents.After considering the submissions and relevant details, the tribunal analyzed the facts and legal provisions. The tribunal noted that the flats were let out to companies owned by the daughter of the Managing Director of the company, emphasizing the intent of discouraging tax avoidance. The tribunal found that the transaction was not bona fide and was structured to avoid tax liability. The tribunal concluded that the case fell within the scope of section 4 of the Gift-tax Act, upholding the impugned order and dismissing the company's appeal.In conclusion, the tribunal's decision centered on the application of section 4 of the Gift-tax Act to the sale of flats by the company, emphasizing the lack of bona fide in the transaction and the apparent tax avoidance motive, leading to the dismissal of the company's appeal.