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High Court Of Calcutta
Ruma Pal
BIRESWAR SARKAR - Appellant
Versus
GIFT-TAX OFFICER - Respondent
Matter 539 Of 1988
Decided On : 04/07/1993
GIFT-TAX ACT, 1958 - SECTION 16 - JURISDICTION OF GIFT-TAX OFFICER - CONDITIONS PRECEDENT - TRANSFER OF ASSETS - INADEQUATE CONSIDERATION - INTERPRETATION OF SECTION 4(1)(A) AND 4(1)(B) - COURT'S POWER TO REVIEW JURISDICTIONAL FACTS.
Fact of the Case:
The petitioner challenged the notice issued under Section 16 of the Gift-tax Act, 1958, seeking to assess him for the assessment year 1982-83. The Gift-tax Officer alleged that the petitioner had sold his business to a private limited company at a consideration less than the market price, resulting in a deemed gift under Section 4(1)(a) of the Act. Additionally, a part of the consideration, Rs. 94,567, was not received by the petitioner, which was also treated as a deemed gift under Section 4(1)(b).
Finding of the Court:
The court held that the Gift-tax Officer had wrongfully assumed jurisdiction as the conditions precedent to the exercise of jurisdiction under Section 16 of the Act were absent. The court found that there was no transfer within the meaning of the Act as the petitioner was the majority shareholder in the company and the transfer was essentially to himself. Additionally, the court found that the Gift-tax Officer had adopted different standards for evaluating the value of the assets transferred and the consideration received, which was not permissible.
Issues: 1. Whether the Gift-tax Officer had wrongfully assumed jurisdiction under Section 16 of the Act? 2. Whether there was a transfer within the meaning of the Act? 3. Whether the Gift-tax Officer had adopted different standards for evaluating the value of the assets transferred and the consideration received?
Ratio Decidendi: 1. The court held that the Gift-tax Officer had wrongfully assumed jurisdiction as the conditions precedent to the exercise of jurisdiction under Section 16 of the Act were absent. The court found that there was no transfer within the meaning of the Act as the petitioner was the majority shareholder in the company and the transfer was essentially to himself. Additionally, the court found that the Gift-tax Officer had adopted different standards for evaluating the value of the assets transferred and the consideration received, which was not permissible. 2. The court relied on the following principles: - The court can consider whether the authorities had wrongfully decided a jurisdictional fact or had acted in excess of jurisdiction without fulfilment of the preconditions on the basis of which the power was to be exercised. - The concept of gift under the Act is the transfer by one person to a third party. - The adequacy of consideration is to be determined in the facts and circumstances of the case. - The same standard of valuation should be adopted for both the assets transferred and the consideration received.
Final Decision: The writ application was allowed, and the rule nisi was made absolute. There was no order as to costs.
( 1 ) IN this writ application, the writ petitioner has challenged the notice issued under Section 16 of the Gift-tax Act, 1958 (referred to as "the Act" ). By the impugned notice, the Gift-tax Officer has sought to assess the petitioner under the Act in respect of the assessment year 1982-83.
( 2 ) THE respondents had disclosed their reasons recorded for the issuance of the impugned notice on December 1, 1987. In that notice, the Gift-tax Officer has said that by an agreement dated March 27, 1982, the petitioner had sold his business which he was carrying on under the name and style of "b. Sarkar Johuri" to a private limited company known as B. Sarkar Johuree Private Limited. By that agreement, the petitioner was to receive a sum of Rs. 3,29,567. 09 being the book value of the petitioner's assets from the company. It is further stated that the petitioner was "interested from both sides" and that consequently the sale was made at a consideration less than the market price. According to the Gift-tax Officer, the value of assets over liabilities was reduced by a sum of Rs. 68,20,761. The difference between the actual consideration and the market value being considerable, the petitioner was liable to pay gift-tax in respect of such difference under Section 4 (1) (a) of the Act. Additionally, a part of the consideration under the agreement for the sale of the assets by the petitioner to the company, a sum of Rs. 94,567 which was to have been received by the petitioner had not been so received. This was also treated as a deemed gift.
( 3 ) IT appears that on January 28, 1983, the petitioner filed a return for the assessment year 1982-83 in response to the notice under Section 16 (1 ). In the return the taxable gift was shown as nil.
( 4 ) BY a letter dated February 15, 1988, the Gift-tax Officer wrote to the petitioner stating that the sale had been made at book value disregarding the real market value of the difference of assets over liabilities. It is further stated "it is a fact that you were holding controlling shares of B. Sarkar Johuree Private Limited which was formed at the same address with the obvious purpose of acquiring your proprietary business". It was further stated that the petitioner was interested from both sides and that the lower consideration was payable because of the petitioner's nexus and control over the company. It was further stated that the difference between the market price, the value of property and consideration for transfer which worked out to Rs. 68,20,761 was a deemed gift under Section 4 (1) (a) of the Act. It was further stated in that letter that the sum of Rs. 94,567 out of the agreed consideration money had not been received by the petitioner. Therefore, the petitioner was asked to show cause as to why these two sums should not be treated as gift made by the petitioner to the company. The petitioner filed this writ application on February 24, 1988. Affidavits have been filed. The petitioner has, inter alia, submitted that the Gift-tax Officer had wrongfully assumed jurisdiction inasmuch as the conditions precedent to the exercise of the jurisdiction under Section 16 of the Act were absent. These conditions included (1) a finding that there was a transfer within the meaning of the Act, and (2) that there had been a transfer for inadequate consideration. As far as the first precondition is concerned, it is submitted by the petitioner that there had in fact been no transfer because it was the admitted case that the petitioner was the majority shareholder in the company and by transferring the business of the petitioner to the company the petitioner had in fact transferred it to himself. It is submitted that the concept of gift as envisaged under the Act was the transfer by one person to a third party. The petitioner has relied upon the following decisions in this context : GTO v. Venesta Foils Limited, ICI (India) Pvl. Ltd v. GTO and GTO v. Id (India) P. Ltd.
( 5 ) AS far as th
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