Income Tax Appellate Tribunal - Pune
S.N. Gadekar vs Gift-Tax Officer on 29 October, 1992
Equivalent citations: [1993]44ITD186(PUNE)
ORDER
T.V.K. Natarajachandran, Accountant Member
1. This is an appeal by the assessee which is directed against the revisional order of the CGT, Pune under Section 24(2) of the Gift Tax Act, 1958 dated 25-11-1988. The CGT held that the gift-tax assessment made by the GTO under Section 15(3) of the Gift-tax Act for the assessment year 1982-83 on 24-12-1986 was erroneous insofar as it was prejudicial to the interest of revenue, inasmuch as instead of taking the market value of the property as such, he has adopted the net value of the property after deducting 50 per cent of the unearned increase in market value which was not justified. Therefore, he issued show-cause notice dated 20-9-1988 to the assessee to which the assessee has furnished reply by letter dated 6-10-1988 wherein he justified value of gift returned at Rs. 50,000 by deducting 50 per cent of the unearned increase in market value of the property.
2. The CGT considered the objection and also the valuer's report furnished by the assessee. The valuer has taken value of free-hold property at Rs. 20 per sq. ft. but the value of the impugned property which is subject to restrictions at Rs. 16 per sq. ft. and deducting 50 per cent of unearned increase in the value of the property Rs. 39,081, net value was determined at Rs. 50,000 by the valuer. Though the market value of the impugned property at Rs. 16 per sq. ft. adopted by the approved valuer was not objected to by the CGT, he emphatically pointed out that no amount was required to be paid to the Society as per the bye-laws of the Society where the transfer takes place between the lessee and the legal heir. Therefore, he concluded that deduction of 50 per cent unearned increase in market value was not justified while determining the market value of the gift. Therefore, he held, that such valuation accepted by the GTO rendered the assessment erroneous and prejudicial to the interest of revenue. Accordingly, he set aside the order passed by the GTO with direction to redo the same by adopting the value of the gifted property at its market value taking into account the pertinent observation regarding the transaction between the lessee and the legal heir. Hence the appeal by the assessee to the Tribunal.
3. At the time of hearing, the learned counsel for the assessee filed a small paper compilation containing resolution No. (viii) passed by the General Body on 17-9-1978 which contains the unamended para 16 of the Indenture and the proposed amended para 16 of the Indenture which contains the relevant bye-law of the Society which have a bearing on the issue involved in this appeal. A copy of the valuer's report of Shri Y.S. Sane has also been filed with a lay-out plan of the plot No. 23. The learned counsel for the assessee made a pertinent observation that under Section 6 of the Gift-tax Act as well as under Section 7 of the Wealth-tax Act, the value of an asset other than cash shall be estimated to be the price which, in the opinion of the Assessing Officer, it would fetch if sold in the open market on the valuation date or on the date of the gift. Where the property sold is subject to restriction or payment of 50 per cent unearned increase in market value the market price receivable by the assessee would be the net price after taking into account 50 per cent of the unearned increase in market value payable to the Society. Therefore, he vehemently urged that the market value of the impugned property is net value as adjusted and not gross value as adopted by the CGT. Several authorities were cited in support of this proposition, namely, CWT v. P.N. Sikand [1977] 107 ITR 922 (SC), Prem Chand Goel v. GTO [1989] 29 ITD 145 (Delhi), Gobind Ram Sethi v. GTO [1988] 26 ITD 143 (Delhi) (TM). In view of the aforesaid authorities, he urged that the market value was to be adjusted by the contribution to be made to the Society and therefore, justified the value of gift returned by the assessee and accepted by the GTO.
4. The learned departmental representative, on the other hand, justified the revisional order of the CGT. According to him, in the event of transfer of property only the market value of the property is to be taken into account. In the present case of the assessee, the bye-laws of the Society apply to transferor and transferee only and therefore, the burden is on the transferee and transferor, namely, the legal heir and the assessee. According to him, the valuation for the purpose of Wealth-tax is repetitive annual feature whereas in the case of Gift-tax, it is one time levy. Since Gift-tax is a self-contained code the market value as per Wealth-tax could not be called in support. Reliance was placed on the judgment of the Supreme Court in the case of CGT v. Chhotalal Mohanlal [1987] 166 ITR 124. Coming to the question of onerous gift, the learned departmental representative pointed out the burden on the transferor in this case was only Re. 1 as per the bye-laws. He also referred to the decision in the case of CGT v. Biswanath Paul [1970] 76 ITR 39 (Cal.) and CGT v. K.A. Sheik Dawood [1983] 139 ITR 261 (Mad.) and submitted that the judgment in the case of P.N. Sikand (supra) cited, was not applicable as the object of gift-tax was different.
5. The learned counsel for the assessee relied on the judgment of the Bombay High Court in the case of Jehangir Mahomedali Chagla v. M.V. Subrahrnanian, Addl. First ACED [1985] 155 ITR 637 and urged that the market value of the property has been rightly determined by the valuer and therefore, the directions given by the CGT were wrong.
6. We have duly considered the submission of the parties, relevant case law and the paper compilation filed. It is axiomatic that decision in each case turns on its own facts. There is no dispute about the ratio of the Supreme Court in the case of P.N. Sikand (supra) because the respondent in that case had acquired lease-hold interest in the plot of land in Delhi and Clause 13 of original agreement of lease provided for that the lessor be entitled to claim and recover a portion of 50% of unearned increase in the value of the land at the time of transfer and the lessor had a preemptive right to the property after deducting 50% of the unearned increase. The High Court held that 50% of the unearned increase in value of the land payable to the lessor at the time of transfer had to be ascertained while determining the value of the property and the Supreme Court has affirmed the judgment of the High Court. The doctrine of diversion by overriding title has been imported in that case because the restriction contained in Clause 13 of the lease deed was a covenant running in the land and it would bind whosoever was the holder of the leasehold interest for the time being. It was held to be a constituent part of the rights and liabilities and advantages and disadvantages which went to make up the leasehold interest and it was an incident which was in the nature of a burden on the leasehold interest. Similarly the decision of the Tribunal in the case of Prem Chand Goel (supra) turned on the fact that the gifted house in that case was built upon a lease-hold land from Delhi Development Authority and according to the terms of the lease, 50% of the unearned increase in price of the land had to be paid to the DDA before the DDA permitted the transfer of the lease-hold land. Similarly, the decision in the case of Gobind Ram Sethi (supra) by the Third Member turned on the vital fact that as per the terms of the sub-lease deed, the assessee's rights in the plot of land bearing No. 380 in Block B, New Friends Co-op. House Building Society, New Delhi were absolutely restrictive and there was total ban on transfer to a non-member of the Society and therefore, the value of gift was taken at the face value, i.e., actual investment made in the said plot with the co-operative society at Rs. 22,624. Thus, all the aforesaid cases turned on the peculiar facts applicable to them.
7. In the case of the assessee, the relevant facts as seen from the assessee's letter dated 6-10-1988 to the show-cause notice issued by the CGT are as under :
I was a member of Laxmi Co-op. Housing Society. As a member a plot was allotted to me. Due to old age I had decided to make gift of the said plot in favour of my only son. For want of funds I could not construct my property at the said plot and hence it is gifted to my son.
As per resolution of our Laxmi Co-op. Housing Society if the transfer is made to immediate family member, the transferor is not required to pay transfer fee to the society. Otherwise the transfer fee is equal to half of the difference between the market price and the original price.
Para 16 of the indenture before amendment shows any transfer of the plot allotted to the members of the society should be allowed to be transferred on the following principles which are fixed on the basis of cost of development and appreciation in the value of the plot, namely:
(i) The proposed member should first be admitted as Member of the Society by the Managing Committee.
(ii) The proposed member should pay to the society half of the difference between the market price acceptable to the Managing Committee and the original price paid to the society by the member selling the plot.
(iii) However, the transfer of plots in the name of immediate family member/legal heir will not be subject to any such payment.
(iv) Transfer fee Re. 1 should be recovered from the incoming member.
The corresponding amended provision reads as under :
When a member intends to transfer the sub-plot allotted to him by sale, gift, lease, mortgage or in any manners whatsoever or intends to create any charge, interest etc. on the said sub-plot, he shall submit an application to the society expressing his intention to transfer the said subplot in any manner mentioned above and he shall give full details of the person in whose favour he intends to transfer the said sub-plot. He shall also mention in the said application the amount of consideration which the proposed transferee is going to pay him for the said transfer. The Managing Committee will have full discretion whether to admit or not the person as a member of the society proposed by the existing applicant member. After the Managing Committee admits the proposed person as a member of the society, he shall pay to the society an amount equal to half of the difference between the prevailing market price acceptable to the Managing Committee and the original price paid by the member of the society. However, the transfer of the sub-plot in the name of legal heir will not be subject to such payment but he shall pay an amount of Re. 1 (One only) to the society for such transfer. Any transfer made in contravention of the above rule shall be void and illegal and not binding on the society and the said transferee shall not be admitted as a member of the society.
8. The asteric mark at the foot of the Appendix shows amended para 16 of the Indenture shall be deemed to have come into operation with effect from 17-9-1978 when it was last amended by the General Body of the Society. Thus the pre-amended conditions as well as the amended conditions both provide an exception for paying 50% of the difference between the market price acceptable by the managing committee and the original price paid to the society by the member selling the plot. The exception is that when the transfer takes place to immediate family member/legal heir, the obligation for payment of 50% of the unearned increase in value does not arise but a transfer fee of Re. 1 only should be recovered from the incoming member. Thus the transferee becomes liable to pay transfer fee of only Re. 1 and not the assessee transferor in the event of transfer in the name of family member or legal heir. In our opinion, the exception provided in this case distinguishes the case from the cases relied upon by the learned counsel of the assessee. Therefore, those case laws and decisions are not applicable, though there could be no dispute about the ratios laid down therein. Admittedly, the transfer has taken place to the only son and legal heir of the assessee on account of old age of the assessee and therefore, only the legal heir is called upon to pay transfer fee of only Re. 1 and not the assessee transferor as in the cases relied upon by the learned counsel of the assessee. As laid down by the Calcutta High Court in Biswanath Paul's case (supra) wherein properties were gifted by father to 3 sons subject to payment of Rs. 20,000 each within a period of 2 years, the market value of gift of the properties was to be reduced by Rs. 60,000 for Gift Tax purposes. Similarly, the judgment of the Madras High Court in the case of K.A. Sheik Dawood (supra) shows that the donee accepted gift subject to discharge of debts and those being onerous gifts those amounts had to be deducted from the value of the land gifted. In the case of the assessee, as pointed out earlier, the assessee transferor was not required to pay transfere fee of Re. 1 which is recoverable from the transferee. Hence from the market value of the property no amount is required to be deducted or adjusted, inasmuch as the transfer has taken place between the transferor and his only legal heir which is the exception to the bye-law of the Society vide Clauses (iii) and (iv) of para 16 of the Indenture extracted above. Therefore, in these circumstances, it cannot be said that the restriction runs with the land irrespective of the lessee to whom it is transferred because the transfer was made to only son and legal heir. Viewed from this angle, the impugned revisional order of the CGT does not call for any interference. Taking into account all the facts and circumstances of the case, we hold that the CGT was justified in invoking the jurisdiction under Section 24 of the Gift Tax Act, 1958 and also in giving direction to the GTO to adopt the market value of the property without the adjustment of 50% of the unearned increase in the value of the land.
9. In the result, the appeal is dismissed.