TaxTMI 
TaxTMI 
TaxTMI 
2011 (9) TMI 40
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....the assessee had allotted shares to the persons who are interested in the company for inadequate consideration, a notice under Section 16(2) was issued for the deemed gift. However, a Nil return was filed by the assessee on 7.2.2001 and it was stated that allotment of shares of the company does not involve any transfer and for a gift there should be movable or immovable property and there should be a transfer and further stated that the question of inadequate consideration would not arise and the company had issued the shares only at the face value. The submission of the Assessee has been rejected by the Gift Tax Officer by observing that the assessee is a private company in which interest of the public is not involved, that the shares were issued to the persons who were interested in the affairs of the company and that the amount outstanding to the credit of their account in the Company's Books were adjusted against the face value of the share allotted to him. By observing as stated above, the Gift Tax Officer came to the conclusion that, as per Section 4(1) of the Gift Tax Act, when a property is transferred otherwise than for adequate consideration, the amount by which the value....
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....of his own property and to increase the value of the property of any other person, then it would amount to transfer of property, whereas, the respondent as the owners of the existing shares, had reduced to the value of the shares to the extent of fresh allotment, thereby value of the shares of other people were increased to that extent and, therefore, to the extent of transfer of assets of the company to the reduced value, they are entitled to pay the difference in the share amount and they would come under the purview of Section 2(xxiv)(d) and as such section 4(1)(a) could be invoked. 5. Learned counsel appearing for the assessee supported the decision of the Tribunal and contended that the concurrent finding of the Appellate Authority as well as the Tribunal is based on the decision of the Supreme Court in Khoday Distilleries Ltd., case and as such it does not call any interference from this Court. 6. We have carefully considered the submissions made by the learned counsel for the parties. In order to appreciate the respective contentions of the parties and to resolve the controversy we consider it appropriate to extract definitions of gift and transfer of propert....
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....g up by a person of something which was his own, conveyance means transfer of ownership, assignment means the transfer of the claim, right or property to another, settlement means settling the property, right or claim conveyance or disposition of property for the benefit of another, delivery contemplated therein is the delivery of one's property to another for no consideration and payment implies gift of money by someone to another. Clause (d) of Section 2(xxiv) speaks of a transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of another person. 8. Coming to the contentions, it is the stand of the appellant Revenue that the allotment of shares in favour of three persons who are interested in the affairs of the company amounts to "transfer" as defined in 2(xxiv) and, therefore, the assessee is liable. 9. The basis for rejecting the stand of the assessee by the Gift-tax Officer was that the shares were issued to the persons interested in the affairs of the company and the amount outstanding to the credit of their account in the Company's Books were adjusted ....
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....e Department not against the appellant Company but it ought to have initiated gift tax proceedings against the existing shareholders who had renounced their rights. Having so held, CIT (A) came to the conclusion that the entire exercise undertaken by the appellant was to avoid payment of wealth tax and, therefore, it was held that the Company was liable to pay gift tax for transfer of the said shares to the seven investment companies. This decision of CIT (A) stood reversed by the Tribunal which decided the appeal filed by the Company against the Department. The Tribunal came to the conclusion that the allotment of rights by the appellant did not constitute transfer as it did not involve any existing property at the time of such allotment. According to the Tribunal, the seven investment companies made payment towards the face value of the shares and, consequently, it cannot be said that the contract was without consideration. It was further held that in this case there was no element of gift under Section 4(1)(a) as there was no transfer of property as defined under Section 2(xxiv) of the 1958 Act. Aggrieved by the decision of the Tribunal, the Department preferred Gift Tax Appeal ....
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....x Act against the shareholders who had renounced their rights, particularly when CIT (A) has specifically said so in her order. For the aforestated reasons, we hold that the word allotment indicates creation of shares by appropriation out of the unappropriated share capital to a particular person and that such creation did not amount to transfer. That, in any event, liability to pay gift tax would be on the donor (shareholder) who exercises the option to renounce and not on the appellant Company. Accordingly, Question 1 is answered in favour of the appellant and against the Department." Ultimately, the Apex Court allowed the appeal preferred by the assessee Company. 14. From the facts of the aforesaid decision, it is seen that there were 27 existing shareholders and the company had allotted rights share to seven investment companies out of 27 as the remaining 20 did not subscribe to the rights issue. The Apex Court, keeping in view of its earlier judgment in Sri Gopalan Jalan and Company (1964) 3 SCR 698, had came to a conclusion that in the Khoday Distilleries case the allotment of shares have been used to indicate the creation of shares by appropriation out of the....
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....een done in Khoday Distilleries case. This transaction is said to be "transfer" of shares and not "creation" of shares. Therefore, it cannot be said that Section 2(xxiv)(d) of the Gift Tax Act would not apply to the present case. 12. The facts of the present case can also viewed from another aspect. An individual assessee sold a house-site for a consideration to a Trust on the market value. The Sub-Registrar adopted the guideline value for stamp duty purposes, which was higher than the market value. The claim of the assessee was that the market value should be adopted. In a similar situation, this Court in Commissioner of Gift-tax v. Dr.Mrs. Malini Krishnan reported in (2002) 258 ITR 0414, observed as follows :- "The Commissioner has rightly stated that a broad view should be taken while deciding the question as to whether the gift is a deemed gift. It is only is cases where the difference in price is abnormal, the conclusion that the vendor has consciously given away to the buyer a valuable thing at a much lesser value only to favour the buyer can be reached, and the question of deemed gift would arise." (Emphasis added) 13. Applying the said principle to t....