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2001 Supreme(SC) 845
2001(4) Supreme 4
SUPREME COURT OF INDIA
(From Gujarat High Court)
S.P. Bharucha and D.P. Mohapatra, JJ.
Reva Investment Pvt. Ltd. -Appellant
versus
Commissioner of Gift Tax, Gujarat II -Respondent
Civil Appeal No. 1934 of 1998
Decided on 2-5-2001
Counsel for the Parties :
For the Appellant : R.F. Nariman, Sr. Advocate, P.H. Parekh, Sameer Parekh and Ms. Deepmala Ranganathan, Advocates.
For the Respondent : Harish N. Salve, Solicitor General, Rajiv Tyagi and Ms. Sushma Suri, Advocates.
IMPORTANT POINT
In case of the transfer of the entire paid up shares holding of the twelve subsidiary companies in lieu of the Jewellery transferred by the assessee the value of Jewellery is in fact the value of the, shares transferred in consideration and then there will be no deemed gift under Section 4(1)(a) of Gift Tax Act, 1958.
Headnote:Gift Tax Act, 1958-Section 2(xii) r/w 4(1)(a)-Definition of gift-Includes the transfer or conversion of any property referred to in Section 4 (as deemed gift)-Appellant transferred Jewellery to its twelve Subsidiary Companies of book value Rs. 5,69,400/- in exchange of their entire shares of equal value-Revenue assessed market value of jewellery at Rs. 13,91,350/- on the date of transfer and sought to levy gift tax on the difference amount i.e. Rs. 8,21,950/- -Appellant Tribunal negatived it but made a reference to High Court-High Court upheld it as a taxable gift-Appeal to Supreme Court-Whether there was a deemed gift under Section 4(1)(a)? (No)-Appeal allowed.
Held : If the transaction involves transfer of certain property in lieu of certain other property received then the process of evaluation of the two items of property should be similar and on such evaluation if it is found that there is appreciable difference between the value of the two properties then the transaction will be taken as a deemed gift to the extent as provided in the Section. It is to be found that the transaction was on inadequate consideration and the parties deliberately showed the valuation of the two properties as the same to evade tax. Such a conclusion cannot be drawn merely because according to the assessing officer there is some difference between the valuation of the property transferred and the consideration received. (Para 11)
In the present case, as noted earlier, the face value of the shares of the 12 fully paid subsidiary companies of the assessee was Rs.5,69,400/- which was taken to be the value of the jewellery that was transferred in exchange by the assessee to the subsidiary companies. The subsidiary companies had no other asset. The value of the jewellery as determined by the assessing officer being Rs.13,91,350/- the real value of the shares may be said to be Rs.13,91,350/-, but there was thus no gift involved in the transaction for whatever is the value of the jewellery is infact the value of the shares transferred in consideration. In the circumstances the assessing officer committed an error in treating the transaction between the parties as a deemed gift . (Para 12)
In view of the discussions in the foregoing paragraphs, it is clear that the High Court was in error in holding that in the facts and circumstances of the case the transaction could be held to be a deemed gift within the purview of Section 4(1)(a) of the Act and in holding the assessee liable for the tax. Accordingly, the appeal is allowed; the judgment of the High Court under challenge is set aside and the order of the Tribunal is confirmed. There will, however, be no order as to costs. (Para 17)
JUDGMENT
D.P. Mohapatra, J.-This appeal filed by the assessee is directed against the judgment of the Gujarat High Court on a reference made by the Appellate Tribunal under Section 26(1) of the Gift Tax Act, 1958 (hereinafter referred to as the Act ). The question which was referred for opinion reads as follows:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the difference of Rs. 8,21,950/- on the sale of the jewellery by the assessee to its 12 wholly owned subsidiary companies was not liable to gift tax under the provisions of the Gift Tax Act, 1958."
The High Court disposed of the reference by answering the question in the negative, in favour of the Revenue and against the assessee. Hence this appeal.
2. The factual backdrop of the case relevant for the present proceeding may be stated thus:
The assessee is a private limited investment company and the assessment relates to the assessment year 1976-77. The assessee transferred jewellery to twelve private limited companies which were wholly owned subsidiary companies of the assessee and in return the twelve private limited companies transferred to the assessee fully paid equity shares of the face value of Rs.100/- each, the face value of all the shares being Rs. 5,69,400/-. The jewellery thus transferred became the only asset of the twelve companies and the shares transferred to the assessee were the entire share holding of the twelve private limited companies. Since the assessee did not file any gift tax return, a notice under Section 16(1) of the Act was served upon the assessee pursuant to which the assessee filed a nil return. Thereafter a notice under Section 15(2) of the Act was issued and the proceeding for assessment was taken up.
3. In the assessment proceeding the assessee took the stand that it had transferred jewellery to the twelve subsidiary companies of a book value of Rs. 5,69,400/- and received shares from those companies of the face value of Rs. 5,69,400/-; in the circumstances there was no gift involved in the transaction. The case of the Revenue, on the other hand, was that the market value of the jewellery acquired by the assessee amounted to Rs.13,91,350/- on the date of transfer, therefore, there was a gift to the extent of the amount which exceeded the face value of the shares, i.e., Rs. 8,21,950/-.
4. The Gift Tax Officer by his order dated 12.9.1979 held that there was a deemed gift to the tune of Rs. 8,21.950/- for which the assessee was liable to pay gift tax under the Act.
5. On appeal by the assessee, the Commissioner of Gift Tax (Appeals) held that inasmuch as the jewellery is the only asset of the subsidiary companies the value of the consideration was the value of the jewellery and no deemed gift can be attributed. The Appellate Authority set aside the order of the Gift Tax Officer.
6. Both the assessee and the Revenue filed appeals before the Tribunal. The Tribunal upheld the conclusion of the Appellate Authority and held that when the only asset of the purchasing companies is jewellery purchased and their capital consists only of the shares issued to the assessee company, there is no question of any deemed gift as whatever will be the value taken for the jewellery will become the value of fully paid up shares issued to the assessee on the break up method of valuing of shares of private limited companies. The Tribunal rejected the contention of the Revenue on this point.
7. In the Reference Application filed by the Revenue the question quoted earlier was referred to the High Court. The High Court came to the conclusion that the Tribunal had committed an error in law in coming to the conclusion that the difference of Rs. 8,21,950/- on the sale of the jewellery by the assessee to its twelve wholly owned subsidiary companies was not liable to gift tax under the provisions of the Act and accordingly answered the question in the negative in favour of the R
