Commissioner of Gift Tax vs K.V. Srinivasan and Others

N.V. Balasubramanian, J.—The batch of tax case references arises under the Gift-tax Act, 1958. The years of assessment with which we

are concerned are 1972-73 and 1973-74 and there are three assessees who are the respondents in all the tax cases. All the assessees were

shareholders in a private limited company called, Haritha Private Limited along with other family members. The members of the family sold the

shares among themselves in the company called Union and Co. Pvt. Ltd. The assessees computed the capital gains arising out of the sale on the

basis of consideration received against the assets on the basis of the figures furnished by them. Subsequently, the assessment was reopened on the

ground that the value shown by the assessee did not represent the fair market value. The Gift-tax Officer reopened the assessment and brought to

tax the difference between the value shown by the assessee and the value arrived at on the basis of a method which, according to him, was the

most suitable method and levied the tax on the difference in the value of the shares under the provisions of the Gift-tax Act. On appeal by the

assessees before the Appellate Assistant Commissioner, the Appellate Assistant Commissioner cancelled the reassessment and on further appeal

by the Department, the Tribunal held that the Gift-tax Officer had no jurisdiction to levy tax u/s 4(1)(a) of the Gift-tax Act, as the assessees have

chosen to adopt one method of valuation of shares and merely because there was a different method which would have resulted in a higher value,

which was not adopted by the assessee that is not a ground for the Gift-tax Officer to adopt that method and Section 4(1)(a) of the Act was not

attracted. Challenging the order of the Appellate Tribunal, the Revenue has come to this court by way of reference on the following questions of

law :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the reassessment made u/s 16 and

also in holding that the assessee was not liable to be taxed u/s 4(1)(a) of the Gift-tax Act, on the difference between the fair market value of the

shares sold and the sale consideration received treated as a deemed gift ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding and had valid materials to hold that there

was no underassessment in the assessee''s case ?

We have set out the facts earlier. The facts clearly reveal that at the time of original assessment, the assessees have shown the value of the

shares transferred by adopting a method prescribed by the Central Board of Direct Taxes. It is not disputed that the assessees returned the value

of the shares transferred by them in a recognised method of valuation and it is not permissible for the Gift-tax Officer to adopt a different method of

valuation which might yield a higher value. Therefore, it is not open to the Gift-tax Officer to hold that there was a deemed gift within the meaning

of Section 4(1)(a) of the Act by choosing to adopt another method of valuation. In our opinion, the Tribunal has come to the correct conclusion in

holding that there was no deemed gift. As the Tribunal found that it was a bona fide transaction and the value as returned by the assessee was

arrived at on the basis of a recognised method of valuation, we do not find any infirmity in the order of the Appellate Tribunal.

Accordingly, we answer the common questions of law referred to us in the case of all the assessees in the affirmative, against the Revenue and in

favour of the assessees, The assessees are entitled to the costs of Rs. 750 one set.