AMITA DUA vs. GIFT TAX OFFICER

GTA/1/2007HC DelhiDLHC01028945200722 February 2018Author: HON'BLE MR. JUSTICE S. RAVINDRA BHAT,HON'BLE MR. JUSTICE A. K. CHAWLA6 pages
AI SummaryAllowed

What were the facts?

The assessee, Amita Dua, sold shares of M/s Dua Engineering Pvt. Ltd. to her husband on July 31, 1993, and April 30, 1994, at Rs. 10 per share. The Gift Tax Officer (GTO) reassessed the transaction, valuing the shares at Rs. 1400 per share, deeming a gift of Rs. 15,29,000. The GTO's opinion was that the sale consideration was inadequate. The Commissioner of Gift Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) upheld the GTO's decision. The Commissioner acknowledged that Rule 2(6) of Schedule III to the Wealth Tax Act, made applicable to the Gift Tax Act, defines an investment company based on its income sources. However, the Commissioner and ITAT considered the subsequent higher sale price of the shares by the husband as a relevant circumstance to uphold the GTO's order.

What did the High Court hold?

The High Court held that both the lower authorities and the Assessing Officer erred in applying Schedule III of the Wealth Tax Act to deem M/s Dua Engineering Pvt. Ltd. as an investment company. The Court found that the necessary preconditions for treating the company as an investment company, as defined in Rule 2(6) (gross total income mainly from house property, capital gains, or other sources), did not exist. The judgment noted that M/s Dua Engineering Pvt. Ltd. had hardly any commercial or industrial transactions and did not report significant income. Since the rule defining an investment company was inapplicable, the Court stated that the mechanism for valuing shares of a non-investment company should have been applied. This meant considering the book value of the share, which was Rs. 6.86. Therefore, the consideration of Rs. 10 per share at which the assessee sold her shares to her husband could not be treated as inadequate consideration. The findings of the lower authorities were deemed to be an error of law. The question of law was answered in favour of the assessee.

What were the issues?

1. Whether M/s Dua Engineering Pvt. Ltd. was an investment company within the meaning of Rule 2(6) of Schedule III of the Wealth Tax Act, 1957, for the assessment years in question, making the sale of shares at Rs. 10 per share potentially for inadequate consideration attracting gift tax. Assessee's contentions: The revenue authorities were unduly influenced by the valuation of an industrial plot that became an asset of M/s Dua Engineering Pvt. Ltd. The shares were issued at face value considering the property's value, disclosed at around Rs. 80,000 in 1991 and subsequently in 1993-1994. The valuation by revenue officials, premised on the company being an investment company, is erroneous. M/s Dua Engineering Pvt. Ltd. did not report income mainly from rents, capital gains, or other sources, thus not qualifying as an investment company under Rule 2(6). If it was not an investment company, the book value of Rs. 6.86 per share should have been considered, making the Rs. 10 sale price adequate and negating the 'Deemed Gift' provision under Section 4(1). Revenue's contentions: The findings of the authorities below are based on appreciation of facts and are concurrent. The value of the property, which became an asset of the company, was a relevant consideration for valuing the shares. The glaring fact that the wife sold shares at Rs. 10 and the husband sold the same shares in the same year at Rs. 1400 cannot be ignored. M/s Dua Engineering Pvt. Ltd. did not undertake any commercial or industrial activity, and the lower authorities' findings should not be interfered with.

Which sections of the Income-tax Act were involved?

Section 4(1),Section 6

AI-generated summary — verify with the full judgment below

GTA 1/2007 & 2/2007

$~28-29 * IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: 22.02.2018 + GTA 1/2007

AND GTA 2/2007 AMITA DUA

..... Appellant

Through : Mr. K. Sampath, Adv.

versus

GIFT TAX OFFICER

..... Respondent Through : Mr. Deepak Anand, Adv.

CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A.K. CHAWLA

HON'BLE MR. JUSTICE S. RAVINDRA BHAT (ORAL) %

1.

The following question of law arises for consideration : “Whether the Income Tax Appellate Tribunal was right in law in coming to the conclusion that for the Assessment Years in question M/s Dua Engineering Works Pvt. Ltd. of which the Assessee was the shareholder was an investment company within the meaning of Rule 2(6) of Schedule III of the Wealth Tax Act, 1957?”

2.

The brief facts are that the assessee/appellant was allotted 1960 shares in M/s Dua Engineering Pvt. Ltd. She and her husband exclusively held all shares in the company (the assessee’s share holding was to the tune of 12%). The assessee sold 1100 shares bearing face value of Rs.10/- per share

The order continues below.

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