COMMISSIONER OF GIFT TAX Vs. M. A. UNNERRIKUTTY

JUDGEMENT

(1.) This Gift Tax Appeal filed by the Revenue is against the order of the tribunal holding that there is no gift involved in the transfer of land and building to the firm,

(2.) We have heard the learned senior counsel Shri. P. K. Ravindranatha Menon appearing for the appellant, and Shri. P. Balakrishnan, learned counsel appearing for the respondent / assessee. Counsel for the appellant contended that the findings of the first appellate authority as well as the tribunal are absolutely illegal and arbitrary, if not perverse. We do not know how the first appellate authority and the tribunal can come to a conclusion that a Pvt. Ltd. Company can transfer the land and building in question to the firm, after conclusive finding by this Court in the wealth tax cases that the Company had never become the owner of the property as there was no valid transfer of ownership from the respondent / assessee and his wife to the Company. So long as the Company has not become the owner of the property, it cannot transfer the land and building in question to the Firm and the findings to the contra recorded by the two authorities below is palpably wrong. In fact the only question is whether there is a valid transfer of the land and building involved in this case by the respondent / assessee and his wife to the Firm justifying assessment with reference to S.2(xxiv)(b) of the Gift Tax Act. This is not considered either by the first appellate authority or by the tribunal. This should have been done with reference to the relevant provisions of the Partnership Act, the income tax assessments and the Accounts of the partnership firm, namely Kalpaka Tourist Home. Since, by virtue of the conclusive findings by the Wealth Tax Authorities, including this Court that the transfer of land and building by the respondent / assessee in favour of the Company has not taken, place, the respondent / assessee and his wife continued to be the owners of the property. If the owners of the property have allowed the land and building to become property of the Firm, which can happen either by execution of a Deed in favour of the Firm or by operation of S.14 of the Partnership Act, 1932, then certainly there is a transfer amounting to gift by virtue of S.2(xxiv)(b) of the Gift Tax Act. Since the two appellate authorities have found that transfer was by the Pvt. Ltd. Company to the Firm which, to our mind, is absolutely incorrect, they had no occasion to consider whether there was a transfer of the assets by the respondent / assessee and his wife to the partnership firm. Admittedly, no transfer deed is executed by these two joint owners in favour of the Firm. Therefore, the only question to be considered is whether there was a transfer of the assets by the respondent / assessee and his wife to the partnership firm. If the owners of the property have allowed the land and building to be treated as assets of the Firm, which will be disclosed in the Accounts of the Firm, then the property is vested in the Firm by virtue of operation of S.14 of the Partnership Act, which is as follows:

(3.) A copy of the Partnership Deed produced before us does not show that the land and building is brought as original assets of the firm. However, as is seen from the above Section, even assets later acquired and brought become the assets of the firm. Therefore, even at a later date, if the land and building were brought as assets of the Firm by crediting in the capital account of the partners, then it becomes the asset of the firm and so long as the original owners do not treat the entire value of the property theirs by crediting their capital account, there is a transfer within the meaning of S.2(xxiv)(b) attracting gift tax. The only relevant finding so far as the issue in question on record, is that the Assessing Officer who has given a finding in the assessment order, though not with figures that the land and building stand credited in the capital account of the partners. Unfortunately, this finding in the assessment order which is the sole basis of the assessment, escaped the attention of the two appellate authorities.