COMMISSIONER OF GIFT TAX Vs. GAUTAM SARABHAI LIMITED

JUDGEMENT

(1.) . The Income Tax Appellate Tribunal, Ahmedabad Bench "C" has referred the following question of law for the opinion of this Court under Section 26 of the Gift Tax Act, 1958 :

(2.) The relevant Assessment Year is 1969-70. The assessee - Private Limited Company was assessed for the said year under Section 15(3) of the Act. Notice was issued under Section 16(1) on the assessee company in respect of the waiver of the outstanding amount of Rs.1,67,500=00 as payable by Smt. Giraben Sarabhai to the Housing Society as contribution in respect of apartments Nos.A/91 and A/101 and garage space No.19 as well as an amount of Rs.4,000=00 deposited by the Housing Society with the Small Causes Court, Bombay in Civil Suit No. 531/5728 of 1965 by the Housing Society. The Co-operative Housing Society had entered into a composite agreement with the assessee and Smt. Giraben on 18th December 1968 whereunder the reversionary rights of the assessee in the land which was leased to the Housing Society were purchased by the Society for Rs.20.55 lakhs from the assessee and the assessee was to withdraw two suits filed by it against the society. In that agreement, by clause (8), it was agreed that the society will waive the aforesaid two amounts which were payable by Smt. Giraben who was the sister of one of the Directors of the assessee company, to the society. The Gift Tax Officer found that the agreement dated 18-12-1968 was a composite agreement dealing with several disputes and it was provided therein that even if the sale of reversionary rights did not take place, it would not vitiate the other agreements contained therein. The G.T.O. noted that, from clause (8) of the agreement, it was clear that Smt.Giraben was discharged fully from the liabilities towards the society. While dealing with the contention that the assessee company had not made any gift, and that, if anything was relinquished, it was by the society and not by the assessee company, the G.T.O. held that the company had forgone its claim in the two suits which contained claims for rent dues against the society and agreed to sell reversionary rights in the land on its part, and, on the part of the society, the claim against Smt. Giraben was to be given up and a sum of Rs.20.55 lakhs was to be paid for the reversionary rights. The G.T.O. held; "Thus, there is mutual consideration. Forgoing of dues from Smt. Giraben Sarabhai amounting to Rs.1,71,500=00 by the society is part and parcel of the consideration of the composite agreement." It was held that, in between the assessee company and the society, there was consideration for forgoing the dues from Smt. Giraben Sarabhai and therefore, on the part of the society, there was no gift in favour of Smt. Giraben Sarabhai. However, the situation was different in the case of the assessee company in relation to the securing of the release of dues from Smt. Giraben Sarabhai by the society. It was held that the company did not get any consideration from Smt. Giraben Sarabhai for getting her the release from the society. On the other hand, it had paid the consideration to the society by agreeing to composite agreement forgoing its claim and agreeing to sell its reversionary rights in the land for Rs.20.25 lakhs which amounted to paying the dues of Smt. Giraben Sarabhai to the society by the assessee company without getting in turn anything from Smt. Giraben. It was held that this was clearly a gift or atleast a deemed gift. The G.T.O. observed that Gautam Sarabhai, Director of the Company, is brother of Smt. Giraben Sarabhai and this relationship may have played a part in the gift by the company to Smt. Giraben Sarabhai. The G.T.O. accordingly held that the release amount of Rs.1,71,500=00 by the order dated 13-3-1982 was a gift by the company and taxed an amount of Rs.1,61,500=00 after deducting the statutory exemption of Rs.10,000=00.

(3.) The Commissioner of Gift Tax (Appeals) dismissed the assessee's appeal by finding in paragraph 4 of his order that; "There was a direct and distinct surrender of a right and an actionable claim by the assessee company in favour of Ms. Giraben Sarabhai, who was not at all a party to the original lease......". It was held that the assessee company had surrendered its actionable claim vis-a-vis M/s Malabar Co-operative Housing Society to provide monetary benefit to Ms. Giraben Sarabhai who was the sister of the main director of the assessee company. The appellate authority found no infirmity in the view taken by the G.T.O. and upheld his order.