Madhya Pradesh : Indore Bench H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 169,428 which was subjected to capital gains tax was not taxable as a gift ?

High Court Of Madhya Pradesh : Indore Bench

Commissioner Of Gift Tax vs. Porwal Udyog (India)

Section GT 26(3)

P.D. Mulye & R.K. Verma, JJ.

Misc. Civil Case No. 341 of 1986

7th October, 1986

Counsel Appeared

R.C. Mukati, for the Revenue

BY THE COURT :

This is an application filed by the applicant under s. 26(3) of the GT Act, 1958, calling upon the Tribunal, Indore, to make a reference to this Court on the following question of law proposed by the applicant: “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 169,428 which was subjected to capital gains tax was not taxable as a gift ?In fact, the amount was not charged as a short- term capital gain, as it has been deleted in appeal ?”

2. The facts giving rise to this application may be stated, in brief, thus : The respondent-assessee by a sale deed dated September 7, 1974, transferred its factory building, outhouses and agricultural lands of the firm to certain persons including its partners and some strangers. The consideration for these assets was Rs. 1,85,572 which was the book value of these assets. The ITO was of the view that the consideration disclosed by the assessee was much below the fair market value of the assets. He referred the matter to the Departmental Valuer who estimated the fair market value at Rs. 3,55,000. The difference of Rs. 1,69,428 was charged as a short-term capital gain. Simultaneously, the ITO, acting as GTO, charged it as a deemed gift under the GT Act.

3. The CIT (A) deleted the addition of Rs. 1,69,428 made by the ITO being the short-term capital gains.According to the applicant, this decision was accepted by the Department.

4. Simultaneously, gift-tax proceedings were also commenced against the respondent-assessee on the basis that it was a deemed gift. However, when the matter went up before the Tribunal, relying on the Supreme Court decision in K. P. Varghese vs. ITO (1981) 24 CTR (SC) 358:(1981) 131 ITR 597 it came to the conclusion that capital gains and gift-tax could not stand together as they arose out of one and the same transaction and, therefore, ultimately declined to make a reference to this Court as submitted by the applicant.

5. Learned counsel for the applicant submitted that, no doubt, when the appeal was heard by the Tribunal, the fact was not brought to its notice that the Department had accepted the order by which the capital gain was deleted though that fact was brought to the notice of the Tribunal when an application for making a reference to this Court was made. Learned counsel, therefore, submitted that as the Department had given up its claim for capital gains tax, under the deeming provision, gift-tax could be levied on the basis of the valuation put forth by the valuer. He, therefore, submitted that, considering the facts and circumstances of this case, the Tribunal should be called upon to make a reference regarding the proposed question of law submitted by the applicant.

6. However, after hearing learned counsel and after going through the authority referred to above, we are of the opinion that this is not a fit case in which the Tribunal should be called upon to make a reference as proposed by the applicant, as the Tribunal has given valid reasons for rejecting that prayer.

7. In these circumstances, the application is dismissed and we decline to call upon the Tribunal to make a reference on the proposed question of law as submitted by the applicant.

[Citation :182 ITR 485]

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