A.C. OF GIFT TAX vs. SARABHAI PVT LTD

Facts

The Revenue is in appeal against the order of the Income Tax Appellate Tribunal (ITAT) dated September 23, 1999, for assessment year 1985-86. The assessee, Sarabhai Pvt Ltd, filed a Gift Tax return showing gift value as Nil. The Assessing Officer (AO) passed an assessment order, which was challenged by the assessee before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) allowed the appeal. The Revenue then appealed to the ITAT, which dismissed the appeal. The Revenue has now filed this Tax Appeal before the High Court. The dispute pertains to gift tax levied by invoking Section 4(1) of the Gift Tax Act, with the Revenue contending that the Tribunal erred in interpreting Section 15(6) read with Rule 11A of the Income Tax Act.

Held

The High Court held that the appeal deserves to be dismissed in view of the concurrent findings of the CIT(A) and the Tribunal. The Tribunal, in its findings, considered that Section 4(1)(a) of the Gift Tax Act cannot be invoked for bonafide transactions without any attempt of tax evasion. It noted that the difference between the market value determined by the DVO (Rs. 178.49 lakhs) and the value shown by the assessee (Rs. 143.50 lakhs) was Rs. 35 lakhs, which is much less than the percentage prescribed in Gift-tax Rules or Wealth-tax Rules (33 1/3% or Rs. 50,000). The Tribunal clarified that the rules do not state that the lesser of the two figures should be adopted and that the Rs. 50,000 limit is to avoid references of small cases. The Tribunal also found merit in the assessee's contention that the valuation relied upon by the AO was made under the WT Act as on 31.3.84, and the property was partly occupied by legal tenants, making comparable transactions of vacant properties an unfair basis. The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's appeal, finding the transaction to be bonafide and not a case for invoking Section 4(1)(a) for treating the sale as a deemed gift. The question of law was answered in favour of the assessee.

Key Issues

1. Whether the appellate tribunal is right in law and on facts in deleting gift tax levied by invoking the provisions of section 4(1) of the Gift Tax Act? (Question of law and fact, concerning Section 4(1) of the Gift Tax Act). Assessee's contentions: - The Tribunal has followed the decisions of the Calcutta High Court in GTO v. V. Foils Ltd. (124 ITR 660) and the Madras High Court in CGT v. Indo Traders & Agencies (Madras) Pvt. Ltd. (131 ITR 313). - The issue is squarely covered by the Supreme Court decision in Reva Investment Pvt. Ltd. vs. Commissioner of Gift-Tax (249 ITR 337). - The CIT(A) noted that no adverse inference was drawn in Income-tax proceedings, making it arbitrary to draw such an inference under the Gift-tax Act. The CIT(A) also relied on the Calcutta High Court's observation that a transfer where the alleged donor owns all shares of the alleged donee is not a gift. Revenue's contentions: - The Tribunal wrongly interpreted Section 15(6) read with Rule 11A of the Income Tax Act. - The Rules do not specifically provide that the lesser of the two figures, Rs. 50,000 or 33% of the declared value, is to be adopted, yet the Tribunal observed contrary to the provisions.