THE COMMISSIONER OF GIFT TAX, CALICUT vs. K.P. VAROO CHILDREN TRUST

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ITR/59/2000HC KeralaKLHC01015354200002 July 2008Author: HONOURABLE MR.JUSTICE V.K.MOHANAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR4 pages

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What did the High Court hold?

The High Court held that the Tribunal's order was consistent with the law declared by the Supreme Court. The Court noted that the Tribunal had based its decision on a High Court ruling later confirmed by the Supreme Court in COMMR. OF GIFT TAX V. T.N. LOUIZ, 245 I.T.R. 831. Furthermore, the Court considered the Supreme Court's decision in JAGATRAM AHUJA V. COMMISSIONER OF GIFT TAX, 246 I.T.R. 609, which was directly on the point and in favor of the assessee. Despite the revenue's reference to SUNIL SIDDHARTH BHAI V. CIT, the High Court found no grounds for interference. Therefore, the reference application was disposed of by answering the question in favor of the assessee and against the revenue. The operative direction was to answer the reference accordingly.

What were the facts?

This is a Tax Reference Application filed by the Commissioner of Gift Tax, Trivandrum, against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The assessment year(s) are not explicitly stated. The core issue revolves around whether there was a deemed gift under Section 4(1)(c) of the Gift Tax Act, 1958, concerning shares relinquished by a partner in favor of other partners upon the dissolution of a firm. The ITAT had decided the matter based on a High Court decision, which was later affirmed by the Supreme Court. The revenue sought to challenge this, but the High Court considered further Supreme Court precedents.

What were the issues?

1. Whether there is a deemed gift under Section 4(1)(c) of the Gift Tax Act, 1958, in respect of shares relinquished by one partner in favor of others of a dissolved firm (question of law). Assessee's contentions: The assessee argued that the Tribunal's decision was in line with Supreme Court pronouncements. Specifically, the assessee relied on the Supreme Court decision in JAGATRAM AHUJA V. COMMISSIONER OF GIFT TAX, 246 I.T.R. 609, which was directly on point and supported their position. Revenue's contentions: The revenue, represented by the Commissioner of Gift Tax, referred to a Supreme Court decision in SUNIL SIDDHARTH BHAI V. CIT, 156 I.T.R. 509, 519. However, the High Court found this decision did not warrant interference with the Tribunal's order.

Which sections of the Income-tax Act were involved?

Section 4(1)(c)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 2ND JULY 2008 / 11TH ASHADHA 1930 ITR.No. 59 of 2000() -------------------- (RA NO. 314/COCH/97 IN GTA NO. 20/COCH/1992 OF THE ITAT, COCHIN BENCH) APPLICANT: ----------- THE COMMISSIONER OF GIFT TAX, TRIVANDRUM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) RESPONDENTS: ------------- SRI. K.P. VAROO CHILDREN TRUST, C/O. M/S. POPULAR AUTOMOBILES, KALASIPALAYAM, BANGALORE 560 002 BY ADV. SRI.JOSE JOSEPH THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 02/07/2008 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR & V.K. MOHANAN, JJ. -------------------------------------------- I.T.R. No. 59 OF 2000 -------------------------------------------- Dated this the 2nd day of July, 2008

JUDGMENT Ramachandran Nair,J. Heard standing counsel appearing for the applicant and counsel appearing for the respondent-assessee. The issue referred to this Court is whether there is deemed gift under Section 4(1) (c) of the Gift Tax Act in respect of shares relinquished by one of the partners in favour of others of the dissolved firm. It is seen that the Tribunal has decided the matter based on the decision of this Court which was later confirmed by the Supreme Court in the decision in COMMR. OF GIFT TAX V. T.N. LOUIZ, 245 I.T.R. 831. Counsel for the assessee brought to our notice another decision of the Supreme Court which is directly on the point and in favour of the assessee. It is reported in JAGATRAM AHUJA V. COMMISSIONER OF GIFT TAX, 246 I.T.R. 609. Even though counsel for the revenue referred to the decision of the Supreme Court in SUNIL SIDDHARTH BHAI V. CIT, 156 I.T.R. 509, 519, we

2 do not think any interference with the Tribunal's order is warranted because their decision is consistent with law declared by the Supreme Court in the above two decisions. Consequently we dispose of the reference application by answering the question in favour of the assessee and against the revenue. A copy of this judgment under the seal of the High Court and signature of the Registrar General shall be forwarded to the Income tax Appellate Tribunal, Cochin Bench, Cochin. (C.N.RAMACHANDRAN NAIR) Judge. (V. K. MOHANAN) Judge. kk

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