COMMISSIONER OF GIFTT TAX Vs. BINDU JOSEPH

JUDGEMENT

(1.) This appeal is filed under Section 27A of the Gift Tax Act 1958 [in short 'the Act'], at the instance of the Revenue. Challenge is against Annexure C order passed by the Income Tax Appellate Tribunal, whereby Annexure B order passed by the Commissioner of Income Tax [Appeal] has been affirmed, holding that the transaction involved does not involve any gift in terms of Section 4(1) (a) of the Act to attract any tax liability.

(2.) The facts are as given below : The assessee herein was a partner of the firm run under the name and style as M/s Leo Rubbers, Kottayam. In the course of business as above, there was a reallocation of shares, whereby the share of the assessee in the firm came to be brought down from 19.5% to 11.25 % with simultaneous increase in the share of another partner by name Suman Vijoo, whose existing share of 3 % was enhanced to 11.25%. In other words, extent of shares held by the assessee was reduced by 8.25%, while that of the other partner by name Suman Vijoo got enhanced by 8.25%. This reallocation of shares was taken note of by the assessing authority, who issued a notice to the assessee pointing out that transaction was exigible to tax in terms of the Gift Tax Act and in turn, directing the assessee to file return accordingly. Return was filed by the assessee pointing out that the transaction would not attract tax liability under the Gift Tax Act. It was also pointed out that the 'additional share capital' was contributed by the other partner by name Suman Vijoo, and she had also undertaken to 'discharge various duties' for the firm, besides furnishing 'collateral securities' in respect of various financial transactions of the firm. The person by name Suman Vijoo had also offered 'personal guarantee' for various financial transactions and it was effected in the course of business, for the best interest of the firm, by virtue of which, no tax liability was to be attracted.

(3.) After hearing both the sides, the contentions put forth by the assessee were repelled and the assessing officer, as per Annexure A order dated 28.03.2002, held that the reduction in the shares of one partner, resulting in proportionate increase of shares of another partner would constitute a 'gift' in terms of Section 4 (1) (a) of the Act and that tax was liable to be paid for the resultant/differential amount treating the same as gift. Reliance was also sought to be placed on the verdict rendered by the Division Bench of this Court reported in [1988] 170 ITR 518 [K.K. Achuthan Vs. CGIT]. The assessee took up the matter in appeal before the Commissioner, challenging the course and events with specific reference to the facts and figures and also the relevant provisions of law/binding judicial precedents. Reliance was also sought to be placed on the verdict rendered by the Apex Court reported in [2001] 249 ITR 518 (S.C.) [CGT Vs. D.C. Shah and Others]. The subsequent decision rendered by the Apex Court as reported in [2003] 261 ITR 279 [Sree Narayan Chandrika Trust Vs. Commissioner of Gift Tax], which was passed placing reliance on D.C. Shah's case [cited supra], was also brought to the notice of the appellate authority. After detailed deliberation, the appellate authority held, as per Annexure B order, that the transaction did not involve any gift. It was accordingly, that Annexure A order was set aside and Annexure B order was passed in favour of the assessee. Though the matter was taken up further [by the Revenue] before the Tribunal, it did not yield any positive result, but for dismissal as per Annexure C order dated 16.02.2007, which made the Revenue to approach this Court by way of this appeal, raising/suggesting two substantial question of law, in the following terms :