Commissioner of Gift-tax vs Nelson and Co.

R. Jayasimha Babu, J.—It is the contention of the Revenue that the consideration for which the assets of the firm were transferred by the

partners to a company in which the same partners are the shareholders and which company continues to carry on the same business that was being

carried on by the erstwhile firm is not ""adequate"", thereby attracting the provisions of Section 4(1)(a) of the Gift-tax Act, 1958. This argument

proceeds on the assumption that adequate value referred to in that statutory provision is the same as market value.

This court rejected that very contention in the case of Commissioner of Gift-tax Vs. Indo Traders and Agencies (Madras) P. Ltd., . It was held

therein that adequate consideration referred to in the Gift-tax Act is not the same as the market value and adequacy is to be determined with

reference to all the circumstances and keeping in view the nature of the transaction whether it is bona fide and whether the consideration stated was

the whole amount of the consideration.

The facts of that case are somewhat similar to the facts of this case. Therein also the Tribunal had found that the shareholders of the company

and the partners of the firm, the company and the firm being the parties to the transactions were the same and there was no deemed gift by one to

the other, as the transaction was a bona fide one and the consideration was the true consideration that had been paid by one party to transaction to

the other. It was also held that when the transfer was of a concern, the Gift-tax Officer should not take up only one item of asset, viz., goodwill and

try to evaluate that alone for arriving at the value of the gift.

In this case also, the amount treated by the Gift-tax Officer as gift is the amount, which in the opinion of the Gift-tax Officer was the value of the

goodwill which he valued at Rs. 3,51,801 a small sum of Rs. 3,655 was treated as a deemed gift in respect of an item of machinery, which in his

opinion, was undervalued being below the market value and the sum of Rs. 54,432 in respect of stock which again he thought, was not valued at

the market rate. There was no finding that the transaction was not bona fide or that the amount stated as the consideration was not the true and

correct amount paid by the company to the firm. There is no dispute about the fact that the partners in the firm and the shareholders in the

company are identical and the same business is continued by the company.

Counsel submitted that the Department had not accepted the judgment of this court in the case of Commissioner of Gift-tax Vs. Indo Traders

and Agencies (Madras) P. Ltd., . Counsel is unable to point out any decision of the apex court overruling this judgment or taking a view contrary

to one taken by this court.

We are in respectful agreement with the ratio of the decision of the court in the case of Commissioner of Gift-tax Vs. Indo Traders and

Agencies (Madras) P. Ltd., .

The question referred to us is, therefore, answered in favour of the assessee and against the Revenue. The assessee will be entitled to costs in a

sum of Rs. 1,000.