Back
High Court Of Calcutta
SABYASACHI MUKHERJI
I.C.I.(INDIA) PVT.LTD. - Appellant
Versus
GIFT-TAX OFFICER, "B" WARD - Respondent
Matter 186 Of 1973
Decided On : 03/09/1976
GIFT TAX - NOTICE - VALIDITY - TRANSFER OF SHARES - ADEQUATE CONSIDERATION - GIFT - INCOME TAX ACT, 1961, S. 52 - GIFT TAX ACT, 1958, SS. 4(1)(A), 16(1).
Fact of the Case:
The assessee, a subsidiary of ICI (India) Private Ltd., transferred shares of three companies to ICI in repayment of a loan. The Income-tax Officer issued a notice under Section 16(1) of the Gift-tax Act, 1958, alleging that the transfer was a gift and that gift tax was payable. The assessee challenged the validity of the notice, contending that the transfer was made pursuant to a valid and enforceable arrangement, and that there was no gift involved.
Finding of the Court:
The court found that there was a valid and enforceable arrangement between the assessee and ICI, pursuant to which the assessee had obtained loans from ICI on condition that the assessee would invest the said loans in purchasing or acquiring the shares of the three companies. The court held that the transfer of the shares to ICI was made pursuant to this arrangement, and that there was no gift involved. The court also held that the Income-tax Officer did not have any materials to believe that the transfer was a gift, and that the notice issued under Section 16(1) of the Gift-tax Act was therefore invalid.
Issues: 1. Whether the transfer of shares by the assessee to ICI was a gift within the meaning of the Gift-tax Act, 1958. 2. Whether the Income-tax Officer had any materials to believe that the transfer was a gift.
Ratio Decidendi: 1. A transfer of property is a gift within the meaning of the Gift-tax Act, 1958, if it is made otherwise than for adequate consideration. 2. In order to determine whether a transfer is made for adequate consideration, the court must consider the terms of the arrangement pursuant to which the transfer is made. 3. If the transfer is made pursuant to a valid and enforceable arrangement, and the consideration for the transfer is adequate, then the transfer is not a gift.
Final Decision: The court held that the transfer of shares by the assessee to ICI was not a gift, and that the Income-tax Officer did not have any materials to believe that the transfer was a gift. The court therefore set aside the notice issued under Section 16(1) of the Gift-tax Act, 1958.
( 1 ) ON the 29th March, 1967, a notice was issued to the petitioner I. C. I. (India) Private Ltd. by the Gift-tax Officer, 'b' Ward, Companies Dist. IV, Calcutta, intimating that he had reason to believe that the gift made by the petitioner assessable to gift-tax for the assessment year 1962-63 had escaped assessment. The assessee was, therefore, required to file a return of the gift made by the assessee for the aforesaid assessment period. The petitioner replied on the 15th May, 1967, intimating to the Gift-tax Officer that it was unaware of any gift having escaped assessment to gift-tax and accordingly it submitted a nil return in the prescribed form. It is the validity of the said notice, which was issued under Section 16 (1), of the Gift-tax Act, 1958, which is under challenge in this application under Article 226 of the Constitution. In order to appreciate this challenge it is necessary to refer to certain facts. The petitioner is a subsidiary of the Imperial Chemical Industries Ltd. incorporated in the United Kingdom. The said Imperial Chemical Industries Ltd. is shortly referred to as ICI. It is the case of the petitioner that after the last world war, ICI had decided to make substantial investments in India for manufacture of extended range of products which were previously imported ; as a result Alkali and Chemical Corporation of India Ltd. , hereinafter referred to as ACCI, was substantially expanded and two new companies were promoted, namely, Indian Explosives Ltd. , hereinafter referred to as IEL and Atic Industries Ltd. , hereinafter referred to as Atic. In or about 1949, the Government of India asked ICI to consider manufacture of commercial blasting high explosives in India. ICI decided to finance foreign exchange requirements for the aforesaid projects by making sterling loans available to the petitioner, namely, ICI (India) Pvt. Ltd. , to enable the petitioner to take up equity shares in the aforesaid three manufacturing companies initially in the name of the petitioner with a view to get tax advantage under sections 15c and 56a of the Indian Income-tax Act, 1922, with an understanding to transfer the said shares to ICI as and when ICI would call back the loans. On the 1st of October, 1953, method of financing in the case of IEL was specially outlined, discussed and accepted at the meetings between the representatives of the Government of India, of ICI and of the petitioner-company. The meetings were held in or about October, 1953, and the decisions of the meetings relating to financing in the case of IEL were recorded in the minutes. The terms and conditions of the loan arrangement were subsequently set out in an agreement dated the 5th November, 1953, called "the Declaration of Intention" between the Government of India, ICI and the petitioner. The said "declaration of Intention" was relating to the shares of Indian Explosives Ltd. It recorded as follows :"it is Id's present intention to subscribe for so much of this later issue as will ensure that it retains control of the new company. It may be convenient that ICI (India) should for a time hold beneficially the shares which under this agreement are to be allotted to ICI. If this is done, ICI (India) will pay the amount due on allotment and subsequent calls with money borrowed from ICI. Subsequently ICI (India) may repay the loan by transfer to ICI of the shares so held. Government have no objection to this course of action. "
( 2 ) ON the 4th August, 1955, the terms and conditions in respect of the loan arrangement regarding Atic shares covered by an agreement called "declaration of Intention" were entered into. It contained identical terms. On the 13th December, 1955, there was a letter from the chairman of the petitioner to Mr. Iyengar, of the Ministry of Commerce and Industry, setting out the terms and conditions for advancing loans to the petitioner by ICI regarding ACCI. Then there was a letter from the ACCI to the Controlle
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
