TaxTMI 
TaxTMI 
2001 (2) TMI 265
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....ily, particularly, the brothers, M/s. K.L. Ramachandra, K.L. Srihari, K.L. Padmanabhasa and K.L. Swamy, who are the directors of the company. On 22-11-1985 the members of the family, floated the following seven investment companies: (a) Honeywell Investments Private Limited (b) Panchanganga Investments Private Limited (c) Vyjayanthi Investments Private Limited (d) Macdonald Investments Private Limited (e) Sri Gurunath Investments Private Limited (f) Pancha Kalyani Investments Private Limited (g) Peterescot Investments Private Limited. On 30-11-1985, in an extraordinary general body meeting of the company, additional equity shares of one lakhs were authorised the face value of which was Rs.10 each. On 1-12-1985, each of the seven investment companies purchased one share each from the existing shareholders of the family at the face value of Rs.10 per share. On 1-1-1986, in the meeting of the Board of Directors of the company, it was decided to allot one lakh shares to the seven investment companies. Accordingly, the first six companies mentioned above were allotted 14,500 shares each and the last mentioned company was allotted 13,000 shares. On 20-1-1986 the f....
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....,007 X 23). After allowing basic exemption of Rs.20,000 the taxable gift was accordingly computed at Rs.5,06,33,970 on which a gift-tax demand of Rs.1,51,90,191 was raised. 14. Aggrieved by this order, the assessee-company went to the CIT(A) who in the impugned order upheld the levy of Gift-tax in respect of the right shares but deleted the levy in respect of the bonus shares. The assessee is aggrieved by the order of the CIT(A) upholding the levy of gift-tax in respect of the right shares. The department is also aggrieved by the order of the CIT(A) in deleting the levy of gift-tax in respect of bonus shares. This is how, the cross appeals under consideration have come up before us. 5. We have heard Shri S. Sukumar, the learned counsel for the assessee and Shri Ramesh, the learned DR. Shri Sukumar, vehemently objected to the gift-tax assessment made in this case. According to him, the allotment of shares by the company to its shareholders did not involve any element of gift because of the fact that the basic ingredients of section 2(xii) of the Gift-tax Act, defining the term 'Gift' are not satisfied in the present case. In this connection, he points out that there is no tran....
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....the seven Companies. Further, the rights issue is followed by bonus issue within five months. Therefore, it is logical to hold that all this exercise was done with an intention to keep the hold of Khoday family over M/s. Khoday India Ltd. In other words this is a colourable transaction. By this method the assessee tried to evade taxes as the company's directly allotting shares to the Directors would have attracted the deeming provisions of section 2(22) of the IT Act, 1961. That is why the Khoday group floated the investment company. In the circumstances, I hold that the shares allotted by way of rights issue were without adequate consideration within the meaning of Section 4(1)(a) of Gift-tax Act. Accordingly the difference between the value of the shares on yield basis and the face value of Rs.10 at which the shares were allotted is brought to tax, as per the working below: --------------------------------------------------------------- The value (of a shares of face value at Rs. 10) according to yield basis vide Annexure A &nb....
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.... Accordingly, the amount of gift which is worked out below is brought to tax. --------------------------------------------------------------- Value of each share on yield basis vide Annexure 'B' Rs. 12.24 Less: Consideration paid Nil Gift per share Rs. 12.24 Gift liable to tax in respect of 23,00,161 (1,00,007 X 23) shares is Rs.2,81,53,970." --------------------------------------------------------------- He also relies upon the following remarks made by the learned CIT(A): "5. I have gone through the sub....
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....e following case laws with regard to the various contentions raised in support of the Revenue: * CIT v. Sahu Jain Ltd. [1976] 103 ITR 135 (SC) * CIT v. M.A. Alagappan [1977] 108 ITR 1000 (Mad.) * CIT v. TISCO [1994] 206 ITR 196 (Bom.) * D.M. Naterwalla v. CIT[1980] 122 ITR 880 (Bom.) * McDowell & Co. Ltd.'s case * Tata Engg. & Locomotive Co. Ltd. v. State of Bihar [1964] 34 Com. Cases 458 (SC) * United States v. Milwaukee Regrigerator Transit Co. [1905] 143 Fed. 247. * CIT v. Sri Meenakshi Mills Ltd. AIR 1967 SC 819 * Juggilal Kamlapat v. CIT AIR 1969 SC 932. 10. We have carefully considered that rival submissions and the evidence on record in the light of the various case laws cited by both the parties. The Learned DR's argument that the assessee itself consented for the levy of gift tax on the basis of valuation of shares on yield basis is not true as the entire levy was subject-matter of dispute before the CIT(A). Here the question to be examined is whether gift-tax is attracted in respect of the allotment of right shares and bonus shares made by the assessee company to the seven investment companies mentioned above. The term 'Gift' is defined in Se....
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....s to the investment companies who had paid the consideration in money's worth being the face value of the shares to which they subscribed. Thus, there is payment of consideration in money and this resulted in increased in the authorised or paid up share capital of the assessee-company. In doing so, the assessee-company fulfilled the contractual obligation of allotting the shares. This being purely a contractual transaction for adequate transaction and there being no existing property which was transferred at the time of allotment of shares, we are of the view that the definition of gift as contemplated in the Gift-tax Act, 1958 is not satisfied in the present case. 11. Since there was no existing movable property at the time when the assessee-company allotted the shares, the question whether there was inadequate consideration in the transfer does not arise at all. This question would have been relevant in the case of an existing shareholder or shareholders transferring his or their shares to another person or persons for a consideration less than the prevailing market value of the shares on the date of transfer. Moreover, the Companies Act is also clear that a company cannot hol....
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....earned CIT(A) has opined that the family members have tried to avoid Wealth-tax. These allegations are not substantiated by any tangible or concrete evidence and, therefore, the reliance placed on McDowell & Co. Ltd.'s case is misconstrued. As regards the various case laws relied on by the learned DR mentioned in para 9 supra, we have to observe that the ratio of those decision is not applicable to the facts of the case before us. The first case quoted by the learned DR is in respect of the status of a company and the other case laws pertain to capital gains or perquisites assessable in the hands of the directors or the company or other issues but not definitely on the leviability of gift-tax under the Gift-tax Act 1958. In the present case before us, there is no assessability to capital gains. The question involved in whether the provisions of the Gift-tax Act are attracted to the facts of the present case. Moreover, even if McDowell & Co. Ltd.'s case is invoked, it will apply only in a case where tax evasion in praesenti in real terms is established if the stratagem adopted by the assessee is given full play. In other words, the revenue authorities will not be justified in relyin....