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1974 Supreme(Mad) 360
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RAMANUJAM & THE HONOURABLE MR. JUSTICE V RAMASWAMY
Commissioner of Gift Tax - Appellant
Versus
B. Sathiar Singh and Others - Respondent
Case No : Tax Case No. 218 of 1968
Decided On : 21 August 1974
The doctrine of substance cannot be imported or applied in tax matters and that how a transaction has been put through by parties is alone material in considering the taxability or otherwise of that transaction.
Headnote:
GIFT TAX - Transfer of buses by assessee to company - Whether transfer was for adequate consideration - Tribunal held that consideration for transfer of buses was allotment of 900 fully paid-up shares of Rs. 100/- each in the company plus a sum of Rs. 1, 83, 133 credited to the assessee's current account with the company - Revenue contended that the Tribunal erred in treating the allotment of shares as part of the consideration for the transfer of buses - Held, the transfer of buses by the assessee to the company was for inadequate consideration and the assessee was liable to gift tax.
Fact of the Case:
The assessee, who was carrying on business as a bus operator, formed a (P) Ltd. company under the name of P.S.S. transport (P) Ltd. on 21st March, 1959. He transferred 20 buses belonging to him to the company on 1st July, 1959 for a total consideration of Rs. 2, 58, 604/- which was the written down value of these buses in the assessee's account's accounts. On 1st July, 1959 the amount of Rs. 2, 58, 604/- was credited to his account in the company's books and later on Rs. 90, 000/- out of the said amount was adjusted towards the shares allotted to him and the balance together with the value of the sundry assets sold by him aggregating to Rs. 1, 83, 133/-, continued to his credit in the company's accounts.
Finding of the Court:
The Tribunal has taken the view that the substance of the transaction is that the assessee got 900 shares from the company plus Rs. 1, 83, 133/- as consideration for the 20 buses transferred and therefore the transfer of buses should be taken to be partly for cash and partly for shares. This view of the Tribunal proceeds on the basis that the allotment of shares was in exchange for some of the buses. Apart from the fact that the entries in the accounts do not show that the buses were transferred partly for cash and partly for shares, the question is whether the company could have allotted its shares for anything other than cash under the provisions of the Indian Companies Act.
Issues: Whether the transfer of buses by the assessee to the company was for adequate consideration under s. 4(a) of the GT Act ?
Ratio Decidendi: The doctrine of substance cannot be imported or applied in tax matters and that how a transaction has been put through by parties is alone material in considering the taxability or otherwise of that transaction. The allotment of shares by the company to the assessee cannot be dissociated with the transfer of buses, and that the bargain between the company and the assessee was that in lieu of the transfer of buses by the assessee he will get from the company 900 shares as also a cash consideration of Rs. 1, 83, 133/-.
Final Decision: The transfer of buses by the assessee to the company was for inadequate consideration and the assessee was liable to gift tax.
RAMANUJAM, J.
The assessee who was carrying on business as a bus operator, formed a (P) Ltd. company under the name of P.S.S. transport (P) Ltd. on 21st March, 1959. He transferred 20 buses belonging to him to the company on 1st July, 1959 for a total consideration of Rs. 2, 58, 604/- which was the written down value of these buses in the assessee's account's accounts. On 1st July, 1959 the amount of Rs. 2, 58, 604/- was credited to his account in the company's books and later on Rs. 90, 000/- out of the said amount was adjusted towards the shares allotted to him and the balance together with the value of the sundry assets sold by him aggregating to Rs. 1, 83, 133/-, continued to his credit in the company's accounts.
2. The assessee, his wife and two of his close relatives were shareholders in the company. The assessee held shares to the value of Rs. 90, 000/- while the paid-up capital of the company was Rs. 1, 00, 000/-. The ITO, in the IT assessment for the asst. yr. 1960-61 relevant to the accounting year ending 13th December, 1959, felt that the assessee was substantially interested in the company and applied the first proviso to s. 12B(2) of the Indian IT Act, 1922, hereinafter referred to as the Act, and determined the fair market value of the 20 buses transferred to the company, at Rs. 5, 28, 840/- and brought a sum of Rs. 2, 216, 703/- to tax as capital gains. This assessment was confirmed by the CIT under s. 33A(2) of the Act.
3. In the GT assessment for the asst. yr. 1960-61, the GTO held that the difference between the fair market value of Rs. 5, 28, 840/- and the actual amount received as consideration for the buses amounts to a gift under s. 4(2) r/w s. 6 of the GT Act. He therefore levied gift-tax on Rs. 2, 70, 236/-. The assessee preferred an appeal to the AAC of Gift-tax contending that as the had the controlling interest in the company, he retained the same value of the buses even after they were transferred to the company, that there was no element of gift in the transfer and that the fair market value fixed is also incorrect. the AAC held that as the transferor and the transferee were no identical there was no justification to treat the transaction as anything other than a gift, and confirmed the order of the GTO.
4. There was a further appeal by the assessee to the Tribunal. The Tribunal held that the consideration for the transfer of 20 buses was the allotment of 900 fully paid-up shares of Rs. 100/- each in the company plus a sum of Rs. 1, 83, 133 credited to the assessee's current account with the company, that the real value of theses 900 shares cannot be taken to be their face value of Rs. 90, 000/-, that the real value of the shares should be taken as 90 per cent of the real value of the buses transferred, that if so taken, the transfer of the 20 buses by the assessee to the company would be for adequate consideration and that the assessee was not, therefore, liable to gift-tax.
5. At the instance of the Revenue the following question has been referred to this Court for opinion under s. 26 of the GT Act :
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the transfer of 20 buses by the assessee to the company was for adequate consideration under s. 4(a) of the GT Act ?" *
6. The learned Counsel for the Revenue firstly contends that the Tribunal has made an erroneous approach to the question involved in the case and that the adequate consideration or not has to be decided strictly with reference to the form of the transaction entered into between the company and the assessee and not with reference to the substance or the ultimate effect of the transaction. According to Balasubramanyam for the Revenue the doctrine of substance cannot be imported or applied in tax matters and that how a transaction has been put through by parties is alone material in considering the taxability or otherwise of that transaction. It is pointed out that in this case ther
