1988 (10) TMI 79 - AT - Income Tax

Tribunal upholds assessments, no deemed gift in transaction to partnership under Gift-tax Act.

BASHIRUDDIN BABUKHAN. Versus GIFT TAX OFFICER.

BASHIRUDDIN BABUKHAN. Versus GIFT TAX OFFICER. - TTJ 033, 294, Issues Involved:1. Validity of the reopening of assessments.2. Determination of whether a gift was involved in the transactions.Detailed Analysis:1. Validity of the Reopening of Assessments:The Tribunal examined whether the reopening of assessments by the Gift Tax Officer (GTO) under Section 16(1)(a) was valid. The GTO had reopened the assessments on the basis that the assessees had transferred property to a partnership firm for inadequate consideration, which constituted a deemed gift. The Tribunal noted that the assessees did not provide required details in their original gift tax returns, such as full descriptions of properties transferred, dates of transfer, names and addresses of transferees, values of consideration, and actual consideration received. This omission was deemed sufficient for reopening the assessments, as it constituted a failure to give full and true disclosure of materials necessary for assessment.The Tribunal referenced the Delhi High Court's decision in Sushila Devi Jain vs. CIT, which held that failure to disclose full and true materials in the return justified reopening the assessment. The Tribunal rejected the argument that the transfer of property to a partnership was not a transfer for this purpose. It clarified that the term 'transfer' in the Gift-tax Act includes any transaction intended to diminish the value of one's own property and increase the value of another's property.The Tribunal also dismissed the contention that the GTO already had all necessary materials from the Income Tax proceedings, emphasizing that disclosure in one set of proceedings does not imply disclosure in another. The Tribunal distinguished the case from the Calcutta High Court decision in GTO vs. ICI (India) Ltd., highlighting that the facts of the current case involved an existing gift-tax proceeding where the assessees failed to disclose material facts.2. Determination of Whether a Gift Was Involved in the Transactions:On the merits, the Tribunal analyzed whether the transactions constituted a deemed gift under Section 4(1)(a) of the Gift-tax Act. The section applies where property is transferred for inadequate consideration, and the market value exceeds the consideration. The Tribunal accepted that there was a transfer of property to the partnership, but it questioned whether the consideration was less than the market value.The Tribunal referenced the Supreme Court's decision in Sunil Siddharthabhai, which held that the amount credited to a partner's capital account is a notional figure and does not represent true consideration. The Supreme Court observed that the credit entry in the partner's capital account is intended for adjusting rights among partners and does not reflect a debt due by the firm to the partner. The Tribunal concluded that the consideration for the transfer included the partner's willingness to take on business risks, liabilities, and potential losses, which cannot be monetarily evaluated.The Tribunal emphasized that the transfer of property to the partnership was for the purpose of conducting business and earning profits, not to create rights in the property for others. Therefore, it was impossible to say that the transfer was for inadequate consideration. The Tribunal also referenced a decision by the Jaipur Bench of the Tribunal in GTO vs. His Highness Sri Gaj Singh, which held a similar view.Conclusion:The Tribunal held that the reopening of the assessments was valid but concluded that there was no deemed gift involved in the transactions. The appeals were allowed, and it was determined that the transfers to the partnership did not constitute gifts for inadequate consideration under the Gift-tax Act. The Tribunal's decision was based on established legal principles, including the Supreme Court's ruling in Sunil Siddharthabhai.