Income Tax Appellate Tribunal - Mumbai
Trustees Of Mount Nepean Trust vs First Gift-Tax Officer on 22 October, 1986
Equivalent citations: [1987]20ITD365(MUM)
ORDER
R.P. Garg, Accountant Member
1. This is an appeal by the assessee against the order of the Commissioner (Appeals) for the assessment year 1973-74. An interesting point has emerged out of this appeal. The question's whether the transfer of the property for a stated consideration as per the trust deed would give rise to a gift, when its market value on the date of transfer was higher than the stated consideration.
2. The assessee is a trust called 'Mount Nepean Trust', which was created originally by a deed of trust on 2-8-1928 and varied by the deed of revocation and appointment of trust property dated 2-8-1945. The trust was created by one Ardeshir Bomanji Dubash of Bombay, Parsi inhabitant. By the original deed dated 2-5-1928, the Mount Nepean property was settled upon trust together all movables in future brought into or about 'Mount Nepean' by the settlor or his wife Maneckbai Ardeshir Dubash in substitution or addition to the movables then lying there. Shri Ardeshir Bomanji Dubash and Smt. Maneckbai Ardeshir Dubash were the first trustees under the trust deed. The property was to be held by the trustees for the settlor for life with such deviation as the settlor may set 'out from time to time with a power to the settlor to appoint the said four plots or any one or more of them either by deed or deeds revocable or irrevocable or by will or any other testamentary writing upon such of his children or remoter issue subject to the law relating to perpetuities in such manner and proportion and in all respects as the settlor may think fit. This deed was revocable.
3. It was varied by an indenture dated 2-8-1945. By Clause 1 of this later deed, the property Mount Nepean was to be held by the trustees upon the following terms and conditions :
(a) During the lifetime of the settlor to permit the settlor to use and enjoy the two rooms on the second floor of the said 'Mount Nepean' and tower room and the space to accommodate five motor cars and five servant rooms and common use of the basement on the ground floor and drawing room and dining room on first floor and other amenities.
(b) Subject to the provisions aforesaid for residence of the settlor during his lifetime from the date hereof till the death of the last survivor of the settlor's sons Kaikhushru, Ratanji and Bomanji the trustees shall hold the said Mount Nepean. Upon the trusts for use as family residence for the said sons of the settlor with the members of their families as hereafter specified :
(i) The basement of ground floor of the said Mount Nepean with the furniture therein together with the gardens and other amenities surrounding the said Mount Nepean together with the drawing room and dining room on the first floor with all the furniture therein and the vacant plot No. 3 shall be used in common.
(ii) The said Kaikhushru shall use the portion of the second floor now in use of the settlor and the said Kaikhushru and in consideration thereof he shall pay to the trustees from and after the death of the settlor every month Rs. 400 as his contribution to meet the expenses and outgoings of Mount Nepean provided always that the said Kaikhushru shall accommodate in the room now occupied by Kaikhushru's son Byramji, Gulbai daughter of the settlor for which a sum of Rs. 50 per month shall be paid by her to the trustees from and after the death of the settlor as her contribution as aforesaid.
(iii) The said Ratanji shall use the portion now in his use on the first floor and shall pay to the trustees from and after the death of the settlor Rs. 250 per month as his contribution as aforesaid.
(iv) The said Bomanji shall use the portions now in his occupation on the third floor and shall pay from and after the death of the settlor to the trustees Rs. 300 per month as his contribution as aforesaid.
(v) The said Kaikhushru, Ratanji and Bomanji shall be entitled to reside in the respective portions of the premises hereinbefore specified and they may permit to reside such of the members of their own families only as they may in exercise to their absolute discretion think fit. Family members will mean their respective wives, their sons (with the sons' wives if married and their children and issues) and unmarried daughters and married daughters with their husbands and children.
(vi) Subject to as aforesaid the said right of residence hereby granted shall be strictly personal to the sons of the settlor and shall not entitle any of them to transfer or alienate the same to any other person or do any act, deed or thing inconsistent with such personal use. Such right of residence of any member entitled thereto shall forthwith cease or determine and become void if he or she shall attempt to transfer, alienate or incumber the same or if the legal effect or consequence whereof shall be such transfer, alienation or incumbrance or if the beneficiary entitled to such right of residence fails to pay regularly his contribution to the trustees as aforesaid.
(vii) From and after the death of the said Kaikhushru the right of residence in the portion allowed to him shall belong to his wife Dinbai with permissive rights like those hereinbefore mentioned in item (v) as if her name were substituted for Kaikhushru and after her death the said right shall belong to their son Behram with similar permissive rights. Similarly the aforesaid right of residence in the portion allotted to the said Ratanji shall after his death belong to his wife Maneckbai. Similarly the said right of residence in the portion allotted to the said Bomanji shall after his death belong to his wife Jean with permissive rights as aforesaid provided that the said rights or residence shall carry with them the obligations to make monthly contributions as aforesaid provided also that the said respective rights of the wives of the said Kaikhushru, Ratanji and Bomanji shall depend on the directions given by their husbands the said Kaikhushru, Ratanji and Bomanji respectively and may at any time be countermanded by their respective husbands without assigning any reason and such rights as aforesaid shall also ensure for their respective future wives on remarriage (if any) provided such wives are born at the date of this trust deed provided further that such right of any of the widows shall cease from the date of her remarriage, provided always that notwithstanding anything contained in this item the aforesaid rights of residence created in favour of the said Dinbai, Maneckbai and Jean and the said Behram shall ensure for their benefit only so long as the said Mount Nepean remains unsold under the trusts hereof the intent being that if the said Mount Nepean has not been already sold under Clause 6, then on the death of the last survivor of the said Kaikhushru, Ratanji and Bomanji the trustees as provided for in Clause 4 shall proceed to sell the said Mount Nepean freed from such rights of residence in favour of the said Dinbai, Maneckbai, Jean and Behram and such rights shall be deemed to have ceased and come to an end on such sale.
(viii) If any of the said persons entitled to the right of residence as aforesaid does not exercise such right or such right of residence comes to an end by death of the person in whom the said right is vested or otherwise and the portions allotted to the said Kaikhushru, Ratanji and Bomanji respectively and the members of their family or any of them as aforesaid remains vacant or unused, then it shall be at the option of the trustees (although they shall not be bound to do so) to let out the said portion or portions lying vacant as aforesaid at such rent or with obligations to make such contributions and on such terms and conditions and for such period as the said trustees may in their discretion think fit, the first option of refusal being given by the trustees to the other parties or persons who may be residing in the other portions of the said Mount Nepean allotted to them under the provisions hereinbefore contained provided however that in the event of death of both Ratanji and his wife before the trust for family residence as aforesaid comes to an end, the portions allotted to them shall be given for use to Behram and/or Bomanji with their respective families as the trustees may in their absolute discretion think fit subject to their making contribution. The rent so realised or contributions so made shall not be claimed by any of the said parties as compensation in lieu of their rights of residence but shall form part and shall be utilised by the trustees as the income of the trust premises. Such of the garages as may not be required for family use may be let out by the trustees at their discretion.
(ix) Up to the death of the last survivor of the said Kaikhushru, Ratanji and Bomanji the room and kitchen and the other adjoining room on the ground floor heretofore used for religious and Baj Rajgar purposes shall be exclusively used for such purposes as heretofore.
(x) From and after the death of the last survivor of the said Kaikhushru, Ratanji and Bomanji all the rights of residence created in favour of any persons whatever as aforesaid shall come to an end to all intents and purposes and the trustees shall hold the Mount Nepean free from such rights of residence upon the trusts and with the subject to the powers and provisions contained in that behalf in Clause 4 hereof.
(xi) The said Ratanji Ardeshir Dubash shall be at liberty to construct at his cost a room on the open terrace on the first floor of the said Mount Nepean now occupied by him and cover up the said terrace but so that the height of the new structure so to be constructed shall not be raised beyond the level of the floor of the second floor and in due conformity with municipal bye-laws such structure or structures should not in any way nor the present structural beauty and alignment of the Mount Nepean but should be in consonance with the present architectural constructions of the said Mount Nepean provided however that the said Ratanji Ardeshir Dubash shall not make any claim or ask for any compensation for any such structure or structures so erected by him but the same shall be considered as part and parcel of the said Mount Nepean and shall be subject to the same trust's, powers and provisions as are declared and contained in this trust deed.
(xii) The said Bomanji Ardeshir Dubash shall be at liberty to construct at his own cost a room or rooms on portions of the third floor of the said Mount Nepean now occupied by him in conformity with municipal bye-laws such structure or structures should not in any way mar the present structure beauty and alignment of the Mount Nepean but should be in consonance with the present architectural constructions of the said Mount Nepean provided however that the said Bomanji Ardeshir Dubash shall not make any claim or ask for any compensation for any such structure or structures so erected by him but the same shall be considered as part and parcel of the said Mount Nepean and shall be subject to the same trusts, powers and provisions as are declared and contained in this deed trust deed.
By Clause 4, the trustees were to hold the property from and after the death of the last survivor of Kaikhushru, Ratanji and Bomanji upon the following trust :
(a) The trustees shall offer for outright sale for 8 lakhs the same to Behram Kaikhushru Dubash if he be alive and if Behram be not alive, to his son Ardeshir and if Ardeshir be also not alive then to the eldest male child of the said Bomanji Ardeshir Dubash as may then be alive on the following terms :
(i) The purchaser to pay the trustees the sum of Rs. 8 lakhs within one year from the date of the death of the last survivor of the said Kaikhushru, Ratanji and Bomanji.
(ii) The purchaser to bear and pay all costs, charges and expenses of and incidental to the sale including stamp registration battaki advertisement, search and solicitors costs for the purchasers as well as the vendors.
(iii) The purchaser to pay interest on the purchase price from and after six months of the death of the last survivor of the said Kaikhushru, Ratanji and Bomanji at 5 per cent per annum.
(iv) The purchaser to be given possession on payment of the consideration money and conveyance to be given by the trustees in favour of the purchaser and not any nominee. The trustees will have the power to vary the terms of the offer except as to price.
(v) Offer to be accepted within two months from the date of which it is made by the trustees.
(vi) The sale shall be with the benefit of the rights of a way and other easements and covenants restricting the height of the buildings on plot Nos. 1, 2 and 4 for the benefit or Mount Nepean and also shall be subject to the right of way and other easement in favour of the owners or trustees of plot Nos. 1, 2 and 4 and the purchaser of the one part and the owners and trustees of plots 1, 2 and 4 of the other part shall enter into necessary documents for that purposes and also for the preservation and production of such deeds as may be common.
(b) In the event of the offer being accepted by any of the parties mentioned above it shall be open to the trustees to receive the whole consideration money at one time or to receive it by reasonable instalments within one year the unpaid amount being covered by proper security.
(c) If the offer for sale made by the trustees shall not be accepted by any of the persons named above or for and on their own behalf within the time prescribed, i.e., two months from the date on which it is made (time being of the essence) the trustees shall at their discretion be at liberty to sell same to whosoever they may think either by private treaty or public auction and on such terms and conditions as they may think fit.
(d) After paying all costs, charges and expenses of such sale the trust as shall divide the net sale proceeds into two equal shares and hold one such equal share upon trust to divide and distribute the same between all the children of Kaikhushru Ardeshir Dubash in equal shares and the trustees shall hold the other such equal share upon trust to divide distribute the same between all the children of the said Bomanji Ardeshir Dubash in equal shares.
4. The settlor is Shri Ardeshir Bomanji Dubash, who died on or about 2-12-1950, Shri Ardeshir Framji Sonawals also died on 16-2-1951 without appointing any new trustee. By order dated 28-8-1952 the Bombay High Court appointed Shri Kaikhushru Ardeshir Dubash, Ratanji Ardeshir Dubash, Bomanji Ardeshir Dubash and Behram (Byramji) Kaikhushru Dubash as trustees of the trust.
5. By a deed of release dated 14-7-1955, in consideration of the natural love and affection which Shri Kaikhushru Adreshir Dubash and his wife Smt. Dinbai Kaikhushru Dubash bore towards their son Behram (Byramji) Kaikhushru Dubash gave up, quitted claim to, renounced and released all their respective rights and interest present and contingent in the said Mount Nepean property to the intent that the right of residence given to the said son of the said Behram (Byramji) Kaikhushru Dubash may be accelerated and he shall forthwith become entitled to the right of residence in the Mount Nepean in the manner therein provided from the date of the release deed, i.e., 14-7-1955.
6. Shri Kaikhushru Ardeshir Dubash died on 22-6-1965, Shri Ratanji Ardeshir Dubash died on 29-6-1966 and Smt. Maneckbai Ratanji Dubash died on 15-11-1967.
7. By another deed of release dated 5-2-1973 made by Shri Bomanji Ardeshir Dubash and Jean Bomanji Dubash released, renounced, relinquished and disclaimed all their respective rights, interests, claims and powers including the right to reside in the said Mount Nepean as the beneficiaries given to and vested in them by the principal deed of trust as varied as stated earlier in all the trust properties to the intent and that all such rights, interests, claims and powers so renounced, released and disclaimed be henceforth extinguished for ever as if they were not in existence and as a result thereof the trust uses powers, provisions and declarations contained in the deed of revocation and new appointment dated 2-8-1945 were accelerated and became effective.
8. The property was thereupon offered for sale to Shri B.K. Dubash in pursuance of Clause 4 of the deed dated 2-8-1945 for the stated consideration of Rs. 8 lakhs. Accepting the offer Shri B.K. Dubash purchased the property for that price. The market value of the property according to the GTO at that time was Rs. 76,18,143.
9. The transaction was not disclosed by the assessee to the GTO. He, therefore, initiated proceedings under Section 16(1)(a) and brought the difference of Rs. 68,18,143 to tax by treating the same as deemed gift under Section 4(1)(a) and 4(1)(b) of the Gift-tax Act, 1958 ('the Act').
10. Before the Commissioner (Appeals) the assessee challenged the initiation of the proceedings under Section 16(1)(c) and also contended that the transfer of the property Mount Nepean by the trustees was not voluntary. It was contended by the assessee that in order to constitute a gift the transfer should be voluntary. It was further submitted that the GTO was wrong in bringing to tax the difference. The Commissioner (Appeals) did not agree with the contention of the assessee. He held that in the case of the trust, the trustees have to carry out the performances of the trust. If they merely act in accordance with the terms of the trust it must be said that their action was not voluntary. According to him, if the transfer was without adequate consideration, it would certainly be liable to gift-tax. It was also urged before the Commissioner (Appeals) that Section 4(1)(a) and (b) would not be attracted as the transfer was in accordance with a duty cast on the trustees by Clause 4 of the amended trust deed. The Commissioner (Appeals) did not agree with this argument also. He held that for the purpose of gift-tax adequacy of the consideration has to be adjudicated upon with reference to the market value of the property and not with reference to any other consideration. Section 6 of the Act, according to him, specifically lays down that the value of the property shall be estimated to be the price which it would fetch if sold in the open market. The GTO has valued the property on that basis. He, therefore, held that the gift-tax assessment was rightly made and dismissed the assessee's appeal. Aggrieved by the order of the Commissioner (Appeals), the assessee has filed the present appeal before us.
11. Shri Dastur, the learned Counsel for the assessee, contended that what the trustees had done was to carry out the obligations cast upon them by the trust deed dated 2-8-1945, whereby they were obliged to sell the property at Rs. 8 lakhs to Shri B.K. Dubash. The trustees, according to him, had purely carried out their contractual obligation. The trustees had no power to refuse the acceptance of the claim of the purchaser, Shri B.K. Dubash to buy the property at Rs. 8 lakhs and, therefore, they have not done any favour to the purchaser on transfer of the property. He, therefore, submitted that no element of gift at all is involved in the present proceedings. In this connection, he has invited our attention to the provisions of Section 2(xii) of the Act, which read as under :
(xii) 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer or conversion of any property referred to in Section 4, deemed to be a gift under that section ;
Taking the aid of this definition, Shri Dastur contended that to treat the transfer as a gift, the transfer should be voluntary. He has also invited our attention to the commentary of Sampath Iyengar's Law of Income-tax wherein it has been stated that the word 'voluntarily' means 'willingly and without compulsion' unfettered by influence or intercession, misrepresentation or coercion, force or fraud. One of the chief ingredients of a gift is that the donor must be a free agent, acting out of his own volition. An executor or administrator making gift or property or distributing assets of the deceased does so under a legal obligation and cannot be said to be transferring voluntarily. Consequently, no gift-tax attaches to a transfer made by an executor or administrator. It was further submitted by him that Shri B.K. Dubash, the purchaser, had a pre-existing right and the receipt of the property in pursuance of such a right would not amount to a transfer, much less a gift. In this connection, he has relied upon the decision in the case of CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 (SC). This was a case of distribution of capital assets to the shareholders on the voluntary liquidation of a. company, wherein the Supreme Court has held that when a shareholder receives money representing his share on distribution of the net assets of the company in liquidation, he receives that money in satisfaction of the right which belonged to him by virtue of his holding the shares and not by operation of any transactions which amounts to sale, exchange, relinquishment or transfer. He has also relied upon the Bombay High Court decision in the case of CGT v. Cawasji Jehangir Co. (P.) Ltd. [1977] 106 ITR 390. It may be pointed out here that Shri B.K. Dubash to whom the property has been sold by the trust was not a beneficiary under the trust otherwise, namely, except the option to acquire the property at a stated consideration in terms of Clause 4 of the trust deed dated 2-8-1945.
12. As regards the applicability of Section 4(1)(a), he submitted that the provisions contained therein should not be read in isolation to Section 2(xii). Since the very concept of 'gift' requires the transfer to be voluntary, the same concept should be borne in mind while construing the provisions of Section 4(1)(a), which were deeming provisions. Section 4(1)(a), according to him, was introduced only with a view to bring in those types of transfers which were made voluntarily, but for inadequate consideration. This object, he stressed, should be kept in mind while examining a transaction with reference to Section 4(1 )(a). The intention and object of a particular provision has been so looked into by their Lordships of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 at p. 604 and CIT v. J.H. Gotla [1985] 156 ITR 323 at p. 339.
13. The learned departmental representative, on the other hand, contended that the fact that there was a sale is not in dispute. It was sold for a sum of Rs. 8 lakhs is also not in dispute. The market price of the property at the time of sale was such higher than the said price is also not in dispute, though as per the GTO it was Rs. 76,18,143, whereas as per the assessee it should have been a lower figure. He, therefore, submitted that Section 4(1)(a) is clearly applicable in this case. To invoke the provisions of Section 4(1)(a), there must be a transfer, such transfer must be otherwise than for adequate consideration (the inadequacy is the amount by which the market value of the property at the date of transfer exceeds the value of the consideration). If these things are in existence, Section 4(1)(a) comes into play, unless it comes within the proviso, namely, a transfer to the Government or where the value of the consideration for the transfer is determined by the approval of the Central Government or by the Reserve Bank of India is involved. Coming to the definition of the gift as contained in Section 2(xii) it was submitted by the learned departmental representative that this definition is in two parts. The first part embraces only those transfers which are made voluntarily and without any consideration. The second part which starts with 'and includes the transfer or conversion of any properties referred to in Section 4 deemed to be a gift in that section', is an inclusive definition which is generally used notwithstanding the general scope of a particular meaning. Though it may not be a gift under the general law or under the first definition under Section 2(xii), it would be a gift by virtue of the latter part of the definition contained in Section 2(xii) and for construing the latter part we cannot go beyond the meanings of the statute as contained in Section 4. Since Section 4 does not require that a transfer must be voluntary, the same should not be assumed.
14. We have heard the parties and considered their rival submissions very carefully. We are concerned in this case with the interpretation of the term 'gift' as contained in Section 2(xii) and the scope of Section 4(1)(a) as well as Section 4(1)(b). We have already extracted the definition of gift under Section 2(xii), The provisions of Section 4(1)(a) and Section 4(1)(b) are as under :
(1) For the purposes of this Act,--
(a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor :
Provided that nothing contained in this clause shall apply in any case where the property is transferred to the Government or where the value of the consideration for the transfer is determined or approved by the Central Government or the Reserve Bank of India ;
(b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transferor ;
15. The GTO had applied both Section 4(1)(a) as well as Section 4(1)(b). However, we fail to understand as to how Section 4(1)(b) is applicable in this case. This section applies only in a case where the stipulated consideration for a transfer does not pass or was not intended to pass either in full or in part from the transferee to the transferor. No case has been made out by the GTO of such nature. In this case, the consideration intended was Rs. 8 lakhs and it passed from the transferee to the transferor. Therefore, we have to confine our discussion in this case only with reference to the provisions of Section 4(1)(a) read with Section 2(xii).
16. Section 2(xii) defines 'gift' as the transfer of any existing property, movable or immovable, made voluntarily by one person to another without consideration in money or money's worth. The definition to this extent is more or less in pari materia to the definition given under the Transfer of Property Act, 1882. We agree with Mr. Dastur that to treat a transfer as a gift, the transaction must be voluntary. But this would be relevant only so far as the first part of the definition is concerned. As has rightly been contended by the learned departmental representative that that is not the end of the matter. One should read the definition as a whole without ignoring the second part of the definition contained in Section 2(xii), which includes a deemed gift covering a transfer or conversion of any property referred to in Section 4, viz., transfers which are for nominal or for inadequate considerations, etc. The word 'includes' in our opinion, shuts one out for looking into various ingredients contained in the first part of the definition. The word 'voluntary', therefore, cannot be read into while construing the provisions of section, unless it is specifically mentioned therein. We have already extracted the provisions of Section 4(1)(a) and the word 'voluntarily' does not find any place therein. To bring the provisions of Section 4(1)(a) into play, two things are necessary, i.e., (i) there must be a transfer, in this case it is not disputed that there was a transfer, and (ii) such transfer must be for inadequate consideration. If these two things are found in a transaction, the application of Section 4(1)(a) cannot be avoided. We agree that on a plain interpretation of this clause, which is very sweeping and unrestricted, it may embrace the transactions between strangers dealing at arm's length and not mainly between relations and friends, whether made in the normal course of the business or incidental thereto, or made deliberately to a particular individual, notwithstanding the fact whether the deficiency in consideration is purposeful or comes to the knowledge of the parties on an investigation and whether the quantum of the deficiency is small or great. Section 4(1)(a) deals with the gift which primarily is not a gift made by the assessee, but which is to be included in the gift made by the assessee, if the conditions laid down in that section are satisfied. In other words, this is a deemed gift of the assessee and not his actual gift.
17. Since we are of the opinion that the concept of 'voluntarily' cannot be imported into while interpreting Section 4(1)(a), we do not see any substance in the argument of Shri Dastur that the trustees were bound under the terms of the trust deed to transfer the property at a stated consideration or that it was their contractual obligation. It would be relevant to extract the observations of the Supreme Court in the case of K.P. Varghese (supra).
This construction which we are placing on Sub-section (2) also marches in step with the Gift-tax Act, 1958. If a capital asset is transferred for a consideration below its market value, the difference between the market value and the full value of the consideration received in respect of the transfer would amount to a gift liable to tax under the Gift-tax Act, 1958, but if the construction of Sub-section (2) contended for on behalf of the revenue were accepted, such difference would also be liable to be added as part of capital gains taxable under the provisions of the Income-tax Act, 1961. This would be an anomalous result which could never have been contemplated by the Legislature, since the Income-tax Act, 1961 and the Gift-tax Act, 1958 are parts of an integrated scheme of taxation and the same amount which is chargeable as gift could not be intended to be charged also as capital gains.
18. We, however, feel that the considerations of the contractual obligation of the trustees to transfer the property at a particular price could be a relevant factor in determining the adequacy of the consideration. The adequacy, as we have stated above, is the second important characteristic which must be fulfilled for invoking the provisions of Section 4(1)(a). The concept of inadequate consideration has to be construed in a broad common sense. Consideration has to be for money or money's worth. If it is money, the inadequacy is easy to determine. If the consideration is not in money but in other forms, the determination of its monetary value and inadequacy is, as per judicial decisions, estimated with reference to fair equivalent test, i.e., whether what is given is fair equivalent of what is received. Adequate consideration is not necessarily what is ultimately determined by someone as its market value. We do not agree with the learned departmental representative that the measure of inadequacy is the difference between the market value of the property and the value of consideration. The first thing which one has to see before applying Section 4(1)(a) and treating the difference between the market value and the consideration is as to whether the transfer was for inadequate consideration. If the stated consideration is not capable of being termed 'inadequate' the matter ends there, how so high the market value it may have in comparison to the stated consideration. In the case of I.C.I. (India) (P.) Ltd. v. GTO [1977] 110 ITR 88, the Calcutta High Court has taken a view that in the transfer of share pursuant to the arrangement, there would be no question of the same being without adequate consideration under Section 4(a) [now Section 4(1)(a)]. In that case, the market value of the shares transferred by the assessee was Rs. 19,55,93,621, whereas they were transferred at a price of Rs. 5,25,30,720 and the deemed gift was valued by the GTO at Rs. 14,04,62,901. The scheme of arrangement in this case was that the assessee had obtained loan from ICI on condition that the assessee would invest the said loan for purchasing or acquiring the shares of the three companies referred to in the scheme. Subject to certain terms the assessee would enjoy dividends so long as he retained the shares and he would also hold the shares beneficially. But as and when called upon the assessee would transfer the said shares to ICI at par. The transfer in that case by the assessee of the shares of ICI which was the subject matter of consideration took place by virtue of the above arrangement. Similarly, in the case before us, there was a term in the trust deed under which the property was transferred by the assessee-trust to the purchaser, Shri R.K. Dubash, for stated consideration of Rs. 8 lakhs. When the property is transferred as per the binding term of the deed, it may not be possible to hold that the transfer was for inadequate consideration.
19. In the case of Cawasji Jehangir Co. (P.) Ltd. (supra) the Bombay High Court has held that the resolution to reduce its share capital by returning to its shareholders' shares of other companies, whose market value on the date of resolution was Rs. 97,75,539 and on the date of actual delivery to the shareholders Rs. 1,04,64,157 did not lead to a conclusion that the transfer was for inadequate consideration, even though the difference was of Rs. 6,87,618. Therefore, even though we do not agree with Shri Dastur on the point that the concept of voluntary transfer has also to be borne in mind while construing Section 4(1)(a), we allow the appeal on the ground stated by us above, namely, that there was no inadequate consideration.
20. Our above conclusion would also be in consonance with the ratio laid down by the Supreme Court in the case of Madurai Mills Co. Ltd. (supra) wherein their Lordships have held that the receipt of the money by a shareholder on liquidation of the company is in satisfaction of the right which belonged to him by virtue of the holding the shares and not by operation of re-transaction which amounts to sales, exchange, relinquishment or transfer. The purchaser, Shri B.K. Dubash, had been conferred the right to purchase the said property by virtue of Clause 4 of the trust deed dated 2-8-1945. Therefore, the market value even if it was higher than the stated consideration of Rs. 8 lakhs would be in satisfaction of his right as per the terms of the trust deed and not by operation of a transaction amounting to sale or gift. The consideration of Rs. 8 lakhs for the sale could not in that situation be called inadequate.
21. It may also be stated that in this case no allegation has been made out by the revenue that the transaction was with a view to avoid tax nor could any such allegation be raised in respect of the transaction as at the time when Shri B.K. Dubash was given the right to purchase this property at Rs. 8 lakhs, the Act was not in the book. The Act came into force in 1958, while the transaction was much before in the year 1945. Furthermore, in 1945, it could not have been anticipated that the property would fetch a market value as high as Rs. 76 lakhs and odd as estimated by the GTO. This line of reasoning we have given in our order to show that the object of Section 4(1)(a) was to enrope those transactions which were deliberately or consciously made at a price lower than the market value if at all the object of the section is to be taken into consideration while construing that section.
22. In the result, the appeal is allowed.
B.S. Ahuja, Judicial Member
1. I concur with the order proposed by my learned brother that there is no gift involved in this case. In my opinion, however, reading the plain words of Section 2(xii) the requirement that transfer should be voluntary would apply even to a deemed gift, because it would be illogical to hold that a transfer without consideration must be voluntary to be a gift but for inadequate consideration need not be so.