COMMISSIONER OF GIFT TAX Vs. JINDAL EQUIPMENT LEASING

JUDGEMENT

(1.) The sole question for consideration in these appeals formulated on 18.11.2005, is as follows:

(2.) The necessary facts in this case are that the assessee (M/s Jindal Equipment Leasing & Consultancy Services Ltd) held shares in Jindal Strips Limited (JSL). Similarly, Stainless Investments Ltd. and Mansarovar Investment Ltd (the appellants in GTA 2/2006 and GTA 3/2007)) also held shares. The JSL made an announcement, issuing Partly Convertible Debentures (PCD). According to the scheme, each of its shareholder was entitled to one right share valued at a face value of Rs.10/- (at a premium of Rs.40/-) and a non-convertible portion, at Rs.60/-. The non-convertible portion could, however, be sold to M/s. Citibank at a discounted rate of Rs.38/-. The assesee renounced its rights and obtained consideration therefor. They also claimed losses on account of the difference between the material value shown by them (of the rights issue) and the consideration received by them. The Assessing Officer (AO), while considering the income tax returns, held that the transaction was sham and proceeded to disregard the claim for capital loss. However, the assessment was concluded on the basis that the amounts received were in fact business receipts. The assessee's appeals before the CIT(A) and ultimately to the ITAT were successful. The Revenue appealed to this Court. By a judgment (Commissioner of Income Tax Vs. Jindal Equipment Leasing & Ors. ITA 174/2003 and connected cases), the Court reversed the findings of the ITAT.

(3.) In the meanwhile, Gift Tax Officer formed an opinion that the renouncement of the right issue by the assessee was for inadequate consideration and therefore, amounted to a notional or deemed gift under Section 4(1)(a) of the Gift Tax Act. Notice was issued on the basis that by virtue of second explanation to Section 16(1), failure to file returns, empowered the tax authorities to assess the alleged omission. Taking clue from its order made in the income tax proceedings, the ITAT reversed the stand of the AO. It is in this background that the Revenue urges that the notice under Section 16 in the present case is valid.