COMMISSIONER OF GIFT TAX Vs. B SATHIAR SINGH

JUDGEMENT

(1.) THE assessee who was carrying on business as a bus operator, formed a (P) Ltd. company under the name of P.S.S. transport (P) Ltd. on 21st March, 1959. He transferred 20 buses belonging to him to the company on 1st July, 1959 for a total consideration of Rs.2, 58, 604/- which was the written down value of these buses in the assessee's account's accounts. On 1st July, 1959 the amount of Rs.2, 58, 604/- was credited to his account in the company's books and later on Rs.90, 000/- out of the said amount was adjusted towards the shares allotted to him and the balance together with the value of the sundry assets sold by him aggregating to Rs.1, 83, 133/-, continued to his credit in the company's accounts.

(2.) THE assessee, his wife and two of his close relatives were shareholders in the company. THE assessee held shares to the value of Rs.90, 000/- while the paid-up capital of the company was Rs.1, 00, 000/- THE ITO, in the IT assessment for the asst. yr.1960-61 relevant to the accounting year ending 13th December, 1959, felt that the assessee was substantially interested in the company and applied the first proviso to s.12B(2) of the Indian IT Act, 1922, hereinafter referred to as the Act, and determined the fair market value of the 20 buses transferred to the company, at Rs.5, 28, 840/- and brought a sum of Rs.2, 216, 703/- to tax as capital gains. This assessment was confirmed by the CIT under s.33A(2) of the Act.

(3.) BEFORE dealing with the above contentions it would be useful to refer to certain facts which are quite material. The written down value of the 20 buses transferred by the assessee to the company in his books on the date of the transfer was Rs.2, 58, 604/- The transfer is admitted to be for the same consideration as the written down value of 2, 58, 604/- In the IT assessment the fair market value of theses buses was fixed at Rs.5, 28, 840/- The GTO treated the difference between the fair market value and the actual amount received by the assessee as consideration for the buses as a gift under the GT Act. Though the assessee contended before the GTO and the AAC that as he had the controlling interest in the company it should be taken that the transferor and the transferee were identical and that, therefore, there was no element of gift involved in the transfer of buses by him to the company. But that contention was given up at the stage of the appeal to the Tribunal. BEFORE the Tribunal was contended that the transfer f the buses by the assessee to the company was for adequate consideration, that the fair market value of the buses as determined by the GTO was arbitrary and excessive and that the fair market value adopted in the IT assessment on a notional basis cannot properly be adopted for gift-tax purposes. On the question as to whether the transfer of the buses by the assessee to the company was for adequate consideration, the Tribunal accepted the assessee's case that the consideration for the transfer of 20 buses consisted of an allotment of 900 fully paid-up shares of Rs.100/- each and accredit entry for Rs.1, 83, 133/-in his current account with the company and that, therefore, if the fair market value of the said 900 shares instead of their face value, is taken into account then the consideration for the transfer of the buses would be adequate. According to the Tribunal the fair market value of the 900 shares allotted was 90 per cent of Rs.5, 28, 840/- i.e., Rs.4, 75, 956/- The said sum along with a cash credit of Rs.1, 13, 133/- was Rs.6, 59, 089/- which is more than Rs.5, 28, 840/- the market value of the buses, as determined in the IT assessment. On the decision of the Tribunal two main questions arise namely (1) what is the consideration for transfer of 20 buses and (2) whether that consideration is adequate.