AMITA DUA Vs. GIFT TAX OFFICER

JUDGEMENT

(1.) The following question of law arises for consideration :

(2.) The brief facts are that the assessee/appellant was allotted 1960 shares in M/s Dua Engineering Pvt. Ltd. She and her husband exclusively held all shares in the company (the assessee's share holding was to the tune of 12%). The assessee sold 1100 shares bearing face value of Rs.10/- per share to her husband on 31.07.1993. She likewise sold balance 860 shares to her husband on 30.4.1994. Her husband apparently sold the shares to a third party for Rs.1400/-; that transaction was separately reported and assessed to capital gains in accordance with the provisions of the Income Tax Act. The Gift Tax Officer formed an opinion that the sale at Rs.10/- by the assessee of the shares was for inadequate consideration and proceeded to impose gift tax liability by reassessing the transaction valued at Rs.1400/- per share. The total deemed gift, therefore, determined was Rs.15,29,000/- The assessee appealed to the Commissioner of Gift Tax (A), who as well as the ITAT concurred with the GTO's decision and rejected the appeals. At the same time, the Commissioner of Gift Tax acknowledged that under Rule 2 (6) of Schedule III to the Wealth Tax Act, 1957 (which was made applicable by virtue of Rule 11 to the II Schedule to the Gift Tax Act) read with Section 6, an investment company is deemed to be one, which reports income from capital gains, house property or income from other sources yet went on to hold that subsequent sale of property at a much higher price is a relevant circumstance and on that basis, upheld the GTO's order. The ITAT concurred with that too.

(3.) It is argued on behalf of the assessee that revenue authorities were unduly influenced by the valuation of a property i.e. an industrial plot which had devolved upon the assessee's husband in 1991 and which became part of the assets of M/s Dua Engineering Pvt. Ltd. subsequently, after its incorporation. It was submitted that the shares were issued however at face value to all the shareholders i.e. the assessee and her husband, after taking into consideration the value of the property, which was disclosed at around Rs.80,000/- in 1991 as indeed subsequently, in 1993-1994. It was urged that the valuation adopted, by the revenue officials in these cases is premised upon M/s Dua Engineering Pvt. Ltd. being an investment company is plainly erroneous and contrary to the express provisions of law. Learned counsel relied upon the definition of "Investment Company" in Rule 2(6) of Schedule III to the Wealth Tax Act which are made applicable by reference to the provisions of the Gift Tax Act. Since M/s Dua Engineering Pvt. Ltd. did not report any income mainly on the basis of rents, capital gain or income from other sources, it could not be deemed to be an investment company. In such an event, even if it was assumed that the shares sold were for inadequate consideration, the book value of the company (a non-investment company) had to be considered. The book value at that stage was Rs.6.86 per share. The consideration disclosed at which the transaction was finalised was Rs.10/-. Therefore, the question of attracting 'Deemed Gift' provision under Section 4(1) did not arise.