EMTICI Engineering Ltd. V. Asstt. Commissioner of Gift Tax

TAXAP/372/2002

AI Insights

The case involves EMTICI Engineering Ltd., the appellant, contesting the valuation of shares sold during the Assessment Year 1978-79, which were subjected to Gift Tax. The shares, belonging to Power Build Ltd., were sold at a price significantly lower than their assessed value by the Departmental Valuation Officer. The Gift Tax Officer assessed a total gift amount under the deeming provision of the Gift Tax Act, 1958, which was contested through various appeals, ultimately reaching the Gujarat High Court. The primary legal contention revolved around the correct application of the Gift Tax Act and Rules concerning the valuation of unquoted shares and the interpretation of 'deemed gift'.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 798688 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 24-12-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961, Gift Tax Act, 1958, Gift Tax Rules
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K M PARIKH
• Assessee Lawyers: R K PATEL
• Keywords: Assessment Year 1978-79; Deemed gift; Gift Tax; Income tax proceedings; Valuation of shares
• Section: 260A; 10(2); 4(1)(a)

Judgement Text

"O/TAXAP/372/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 372 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ EMTICI ENGINEERING LTD.....Appellant(s) Versus ASSTT.COMMISSIONER OF GIFT TAX....Opponent(s) ================================================================ Appearance: MR RK PATEL, ADVOCATE for the Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 6 O/TAXAP/372/2002 JUDGMENT Date : 24/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This appeal u/s.260A of the Income Tax Act, 1961 is filed against the judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad in Gift Tax Appeal No.19/AHD/1995 dated 25.07.2002 whereby, the appeal filed by the assessee was treated as allowed for statistical purposes. 2. Briefly stated, the facts are that the assessee herein is a Private Limited Company. During the Assessment Year 1978-79, the assessee sold 9220 Equity Shares of a closely held company of Elecon Group of Companies by the name of Power Build Ltd. at the rate of 100/- per share. 2.1 The Departmental Valuation Officer valued the shares at Rs.329.11 per share. The assessee had adopted the yield method for valuation whereas, the Assessing Officer had applied Rule 10(2) of the Gift Tax Rules and valued the shares of Power Build Ltd. at Rs. 154.92. The Gift Tax Officer invoked the provision of Section 4(1)(a) of the Gift Tax Act, 1958 and assessed an amount of Rs.5,06,362/- as total gift under the deeming provision of Section 4(1)(a) of the Gift Tax Act. Page 2 of 6 O/TAXAP/372/2002 JUDGMENT 3. Being aggrieved by the order of Gift Tax Officer, the assessee preferred appeal before the CIT(A). The CIT(A) partly allowed the appeal by adopting valuation at the rate of Rs.127.63 per share in respect of the shares of Power Build Ltd. However, against the aforesaid order of CIT(A), the assessee again preferred appeal before the Tribunal. The Tribunal allowed the appeal of the assessee for statistical purposes, by passing the impugned judgment and order. Hence, this appeal at the instance of the assessee. 4. This appeal was admitted on 09.12.2002 in terms of the following two substantial questions of law; “(1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of Section 4(1)(a) of the Gift Tax Act, 1958 read with Rule 10(2) of the corresponding Gift Tax Rules?\" (2) When the mode or manner of valuation of unquoted shares has undergone changes from time to time on the basis of judicial pronouncement and / or legislative changes, can it be said that appellant had made \"deemed gift\" with a view to avoiding tax when the sale effected by the appellant is at a value higher than that worked out by approved registered valuer but accepted under the Income-tax proceedings u/s.144B read with Section 144(3) by the IAC?\" Page 3 of 6 O/TAXAP/372/2002 JUDGMENT 5. We have heard learned counsel for both the sides and perused the material on record. It appears from the record that the Assessing Officer accepted the sale consideration for the disputed transaction, as shown by the appellant- assessee, under the Income Tax proceedings after thorough scrutiny. 6. In our view, the Tribunal has erred in applying the Gift Tax Rules for the purpose of assessment of deemed Gift under the Gift Tax Act in spite of the fact that Wealth Tax Rules are meant for notional depressed valuation in certain situations whereas, the Gift Tax provision pertaining to deemed Gift has direct nexus with the under-valuation of the market value of the property sought to be transferred. 7. Our attention has been drawn to the document at Annexure-L to the memo of appeal, which is an intra-departmental communication dated 28.05.1981 of the Income Tax Department regarding Reference u/s. 144B. It is evident from the said communication that the Income Tax authority accepted that the fair market value estimated at Rs.84/- per share as per the Valuation Report of the registered Valuer was in order and that the provisions of Section 52 could not have been Page 4 of 6 O/TAXAP/372/2002 JUDGMENT invoked. 8. In view of the above, we prefer to answer question no.2 first since it pertains to the provision of Section1 144B r/w. Section 144(3) of the Income Tax Act. Now, in view of the discussion made herein above, the question no.2 as to when the mode or manner of valuation of unquoted shares has undergone changes from time to time on the basis of judicial pronouncement and / or legislative changes, can it be said that appellant had made \"deemed gift\" with a view to avoiding tax when the sale effected by the appellant is at a value higher than that worked out by approved registered valuer but accepted under the Income-tax proceedings u/s.144B read with Section 144(3) by the is concerned, the same is answered in vaour of the assessee and against the Revenue. 9. Insofar as question no.1 is concerned, we are of the view that the Tribunal ought not to have considered it as Gift and should have accepted the valuation put forth by the assessee. In view of the above, the question no.1 as to whether the Tribunal is right in law in its interpretation of Section 4(1)(a) of the Gift Tax Act, 1958 read with Rule 10(2) of the corresponding Gift Tax Rules is answered in favour of the assessee and Page 5 of 6 O/TAXAP/372/2002 JUDGMENT against the Revenue. Both the questions of law are, accordingly, answered. 10. The appeal stands disposed of accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 6 of 6 "