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1979 Supreme(Mad) 247
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE SETHURAMAN & THE HONOURABLE MR. JUSTICE BALASUBRAMANYAN
Commissioner of Gift Tax, Tamil Nadu-I - Appellant
Versus
Indo Traders and Agencies (Madras) Private Limited - Respondent
Case No : No
Decided On : 14 June 1979
The adequacy of consideration is a matter for the parties and it is not necessary for the consideration to be equal to the market value of the property transferred.
Headnote:
GIFT TAX - Transfer of business as a going concern - Consideration - Whether transfer was for adequate consideration - Whether there was a gift - Interpretation of s. 4(1)(a) of the Gift-tax Act, 1958.
Fact of the Case:
A private limited company transferred its business as a going concern to a firm. The GTO assessed the company to gift-tax on the ground that the transfer was not for adequate consideration. The company appealed to the AAC and the Tribunal, both of which held that the transfer was for adequate consideration and that there was no gift.
Finding of the Court:
The court held that the transfer of the business as a going concern was not for inadequate consideration and that there was no gift. The court interpreted s. 4(1)(a) of the Gift-tax Act, 1958, to mean that the adequacy of consideration is a matter for the parties and that it is not necessary for the consideration to be equal to the market value of the property transferred.
Issues: 1. Whether the transfer of the business as a going concern was for adequate consideration? 2. Whether there was a gift?
Ratio Decidendi: The court held that the transfer of the business as a going concern was not for inadequate consideration and that there was no gift. The court interpreted s. 4(1)(a) of the Gift-tax Act, 1958, to mean that the adequacy of consideration is a matter for the parties and that it is not necessary for the consideration to be equal to the market value of the property transferred.
Final Decision: The court answered question No. 1 in T.C. No. 158 of 1975 in the affirmative and in favour of the assessee. The court did not consider it necessary to answer question No. 2 in T.C. No. 158 of 1975. The court answered question No. 1 in T.C. No. 343 of 1978 in the affirmative and in favour of the assessee. The court did not consider it necessary to answer questions Nos. 2 and 3 in T.C. No. 343 of 1978.
SETHURAMAN J.
These two tax cases arise out of an order of the Tribunal dated May 18, 1974. At the instance of the Commissioner of Gift-tax, the first reference was made, and as he was not satisfied with the questions actually referred, a further petition under s. 26(2) of the G.T. Act was filed as a result of which certain other questions were directed to be referred and they form the questions referred in T.C. No. 343 of 1978 We shall first deal with the reference under s. 26(1) of the G.T. Act and that is in T.C. No. 158 of 1975. The questions referred therein are as follows
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that there was no deemed gift within the meaning of section 4(1)(a) of the Gift-tax Act, 1958, in the assessee's case ?
2. Whether, on the facts and in the circumstances of the case, the gift made in the assessee's case would be exempt under section 5(1)(xiv) of the Gift-tax Act, 1958 ?" *
The assessee is a private limited company, which came into existence on 19th May, 1948, with three shareholders, viz., P. R. Dharmarajan, P. R. Ramanathan and P. S. Ramaswamy, who were also directors of the said company. This company acquired as a going concern the whole of the business of a partnership by name "Indo Traders and Agencies" with all the assets including the goodwill and liabilities of the said business. The resolution of the board of directors of the assessee, dated 24th June, 1948, shows that the assets and liabilities as disclosed in the balance-sheet of the firm, were taken over by the company. In the balance-sheet of the firm, one of the assets is "goodwill" valued at Rs. 3, 000. This company carried on business for several years. At an extraordinary general meeting held on 2nd May, 1964, the directors of the company were authorised to transfer all the assets and liabilities of the company to the firm known as "Indo Traders and Agencies" which was to come into existence on 5th May, 1964. An agreement was entered into with the firm. The resolution passed at the meeting was to the effect that the company should execute a deed of transfer pursuant to the agreement entered into, and the resolution, in so far as it is material, runs as followsThe company shall transfer and the firm shall take over from the company its business with all its stock-in-trade, sundry debtors, furniture and fixtures, office equipment, cycle, refrigerator, etc., loans and advances (excluding bank balances) belonging to the company in connection with the said business as existing on May 6, 1964, together with the goodwill of the business, import-export quota rights and licence rights, permits, privileges, concessions and rights attached to the business, for a consideration equal to the book value of the assets, less liabilities according to the books as on the said date
(4) The company shall put the firm in possession of all the assets of the business on 6-5-1964, and the firm shall be entitled to continue to carry on the said business as a going concern in the name of 'Indo Traders & Agencies' or in such other name or names as the firm may decide
(5) The firm shall be entitled to and liable to carry out all pending contracts, the particulars of which shall be furnished by the company to the firm.
"The deed of transfer executed on 2nd June, 1964, contained more or less the same clauses, as extracted above. The assets of the business as on 6th May, 1964, taken over by the firm, came to Rs. 1, 67, 666.07. The liabilities taken over came to Rs. 1, 52, 952.85. There was a difference of Rs. 14, 713.25 which was described as the amount due to the assesseecompany from the firm. In other words, the firm by paying this amount took over all the assets as well as the liabilities as mentioned above
The GTO issued a notice under s. 16(1) of the G.T. Act and in response to it, the assessee filed a "nil" return on 22nd September, 1967. In the view of the GTO, the assessee had tran
