Punjab-Haryana High Court
M/S Hero Investment Pvt. Ltd vs Commissioner Of Gift Tax (Central) on 18 August, 2008
Author: Rajesh Bindal
Bench: Hemant Gupta, Rajesh Bindal
G.T.A. No. 3 of 2004 [1]
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
(1) Gift Tax Appeal No. 3 of 2004
Date of decision: 18.8.2008
M/s Hero Investment Pvt. Ltd.,
Hero Nagar, Ludhiana. ... Appellant
v.
Commissioner of Gift Tax (Central),
Ludhiana and another. ... Respondents
(2) Gift Tax Appeal No. 2 of 2004
Shri Sudhir Munjal, C/o Hero Cycles Ltd.,
Hero Nagar, Ludhiana. ... Appellant
v.
Commissioner of Gift Tax (Central),
Ludhiana and another. ... Respondents
(3) Gift Tax Appeal No. 4 of 2004
M/s Dayanand Investment Pvt. Ltd.,
Hero Nagar, Ludhiana. ... Appellant
v.
Commissioner of Gift Tax (Central),
Ludhiana and another. ... Respondents
(4) Gift Tax Appeal No. 5 of 2004
M/s Bahadur Chand Investment Pvt. Ltd.,
Hero Nagar, Ludhiana. ... Appellant
v.
Commissioner of Gift Tax (Central),
Ludhiana and another. ... Respondents
(5) Gift Tax Appeal No. 6 of 2004
M/s Bhagyoday Investment Pvt. Ltd.,
Hero Nagar, Ludhiana. ... Appellant
v.
Commissioner of Gift Tax (Central),
Ludhiana and another. ... Respondents
G.T.A. No. 3 of 2004 [2]
(6) Gift Tax Appeal No. 7 of 2004
M/s Munjal Investments Pvt. Ltd.,
Hero Nagar, Ludhiana. ... Appellant
v.
Commissioner of Gift Tax (Central),
Ludhiana and another. ... Respondents
(7) Gift Tax Appeal No. 8 of 2004
M/s Thakur Devi Investment Pvt. Ltd.,
Hero Nagar, Ludhiana. ... Appellant
v.
Commissioner of Gift Tax (Central),
Ludhiana and another. ... Respondents
(8) Gift Tax Appeal No. 9 of 2004
M/s Om Parkash & Sons (HUF),
Hero Nagar, Ludhiana. ... Appellant
v.
Commissioner of Gift Tax (Central),
Ludhiana and another. ... Respondents
CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA
HON'BLE MR. JUSTICE RAJESH BINDAL
Present: Mr. Akshay Bhan, Advocate for the appellants.
Mr. K. K. Mehta, Advocate for the respondents.
..
Rajesh Bindal J.
1. This order will dispose of eight Gift Tax Appeals bearing Nos. 2, 3, 4, 5, 6, 7, 8 and 9 of 2004, as common questions of law and fact are involved. Even before the Income Tax Appellate Tribunal, Chandigarh Bench `A' (for short, `the Tribunal') also the same were heard and decided by a common order.
2. The facts have been noticed from G.T.A. No. 3 of 2004.
3. The appellant (hereinafter referred to as `the assessee') is in appeal before this Court against order dated 7.8.2003 passed by the Tribunal in G.T.A. No. 8/Chandi/97 for the assessment year 1993-94 raising the following substantial questions of law:
"(i) Whether in the facts and circumstances of the present case, the assessing authority is justified in levying the Gift Tax at Rs. 6,68,531/- ?
(ii) Whether in the facts and circumstances of the present case, G.T.A. No. 3 of 2004 [3] the Gift Tax Officer as well as Tribunal has committed a gross error by ignoring the fact that the new partners had contributed huge capital and labour which amounts to adequate consideration and thus it cannot be held as a Gift within the meaning of Section 4 of the Gift Tax Act, 1958 and further more the decision given by the lower authority is against the decision rendered by the Madras High Court in the case reported in volume 264 ITR, 2003 ?
(iii) Whether in the facts and circumstances of the present case, the assessing authority has committed an error in taking both goodwill and market value of assets into consideration while calculating the value of taxable gifts ?
(iv) Whether in the facts and circumstances of the present case, the assessing authority has wrongly held that the reduction of the assessee's share of profit constitute a gift under the Gift Tax Act, 1958 ?
(v) Whether in the facts and circumstances of the present case, Annexure P.1, P.2 and P.3 are legally unsustainable?"
4. Briefly, the facts as noticed in the orders passed against the assessee are that for the year in question, the assessee had filed his gift tax return on 29.6.1993 declaring the value of taxable gifts at `nil'. Dissatisfied with the return filed by the assessee in terms of the information furnished therein, a notice under Section 17(2) of the Gift Tax Act, 1958 (for short, `the Act') was issued to the assessee. It was noticed that the assessee was a partner in M/s Munjal Gases to the extent of 20% and in M/s Munjal Steels to the extent of 20%. However, in the assessment year in question, the same was reduced from 20% to 10% in both the firms and shares of other partners were also altered.
5. On a show cause notice issued proposing to levy gift tax on the reduction of profit sharing percentage of the assessee as far as share of profits in M/s Munjal Gases is concerned, initially the stand of the assessee was that on account of dispute amongst the partners on account of sharing of profits, the same was re-worked out. However, later on when asked to furnish the details about the dispute, the stand was that neither any new partner was admitted nor any one retired. The reduction of share in the profit of the assessee was for the reason that because of old age of the Managing Director of the assessee, he was not able to devote time in the business and other partners were devoting more time to the business and for that reason, as mutually decided amongst the partners, the ratio of G.T.A. No. 3 of 2004 [4] profits in the share of the partners was changed and there was no gift involved in the process. The assessee, in fact, is a sleeping partner in the firm being an investment company. Nothing on record could be referred to show that there was any dispute as the firm is a family concern and part of a large group known as Hero Group.
6. As far as M/s Munjal Steels is concerned, three new partners were added including one minor, who was admitted to the benefits of the partnership. The main contention was that the incoming partners had brought new capital. One of the notes mentioned with the return disclosed that the new partners were added in the firm M/s Munjal Steels as a sum of Rs. 24,65,000/- were required to be paid to Hero Cycles Limited. However, a perusal of the copies of accounts of the incoming partners did not support the contention as on 1.4.1992 neither Naveen Munjal nor Satayanand Munjal introduced any capital in the firm. The same was the position with regard to Master Abhishek (minor). Later on, certain amounts were credited in the account of the newly added partners but that too was quite meager as far as the requirement of the firm was concerned. Some of the amount so brought as capital was withdrawn also lateron.
7. Considering the entire issue in detail and discussing the case law, as referred to by the assessee, learned Assessing Officer vide order dated 29.3.1996 opined that the assessee made a gift of Rs. 6,68,531/- by surrendering his share and accordingly tax under the Act was levied.
8. In appeal, as far as the issue on merits is concerned, the assessee failed. However, on the quantification of the amount of gift and the tax leviable thereon, the matter was remitted back to the Assessing Officer with certain observations by the Commissioner of Gift Tax (Appeals) Central, Ludhiana [for short, `the CGT(A)'] vide order dated 24.1.1997.
9. Aggrieved against the order passed by the CGT(A), the assessee preferred an appeal before the Tribunal which was dismissed vide order dated 7.8.2003.
10. Learned counsel for the assessee submitted that in a case where there is reduction in the profit sharing ratio in a partnership on account of new incoming partner who contributed to the capital or because of more devotion of time by the existing partners, the same cannot be held to be gift taxable under the Act. Accordingly, the order passed by the Tribunal holding the amount to the extent of reduction in the share of profits of the assessee in the firm amounted to gift is contrary to law and is liable to be set aside.
G.T.A. No. 3 of 2004 [5]11. Learned counsel for the Revenue submitted that in fact a perusal of the impugned order passed by the Tribunal shows that the findings recorded by the Tribunal are plain and simple findings of fact giving rise to no question of law . On appreciation of the facts on record and considering various judgments cited before it, the Tribunal came to a definite finding that the amount to the extent of reduction in the profit sharing ratio in the firm amounted to gift leviable to tax.
12. We have heard learned counsel for the parties and perused the impugned order.
13. The following provisions of the Act are relevant for appreciation of the issues raised in the present appeal:
" Section 2 (xii) of the Act `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.
Section 2 (xxii) of the Act `property' includes any interest in property, movable or immovable. Section 2 (xxiv) of the Act `transfer of property' means any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes-,
(a) the creation of a trust in property;
(b) the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property;
(c) the exercise of a power of appointment whether general, special or subject to any restrictions as to the persons in whose favour the appointment may be made of property vested in any person, not the owner of the property, to determine its disposition in favour of any person other than the donee of the power; and
(d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person.G.T.A. No. 3 of 2004 [6]
Section 4(1)(a) and 4(1)(c) of the 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;
xx xx xx
(c) where there is a release, discharge, surrender, forfeiture or
abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment to the extent to which it has not been found to the satisfaction of the Assessing Officer to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment."
14. The Tribunal while dismissing the appeal filed by the assessee noticed that the firm in which the assessee was a partner was making huge profits. It was carrying substantial amount of goodwill based on the average profits of previous five years. The firm also owned movable and immovable property including shares and investment allowance reserve. The market value of the assets owned by the firm exceeded their book value. In case where new partners were added to the partnership firm were minor children, the transfer of share to them amounted to gift. The introduction of capital by the new partners was quite nominal as compared to the profits being earned by the firms. Even those partners who brought in new capital were free to withdraw the same and in fact later on withdrew substantially. The investment allowance reserve standing in the books of account in the preceding year was distributed and credited in the capital accounts of all the partners including the new partners and the minor children. No justification could be made out for introduction of new partners with the object of getting more capital. The plea raised by the assessee that some special labour was to be put in by certain partners was found to be misconceived. The minors admitted to the partnership could not possibly contribute any labour. Similar was the G.T.A. No. 3 of 2004 [7] position with regard to the lady partners. The profit sharing ratio amongst the partners was not linked with their contribution which is totally disproportionate as in some cases, it is much more than the percentage of capital introduced in the firm, whereas in some cases it is far less if compared.
13. Keeping all these factors in view, the Tribunal opined that it was a clear case of gift by the assessee in agreeing to reduction in its profit sharing ratio in the firms. The issue has been considered in detail by the Tribunal by referring to judgment of this Court in Commissioner of Wealth-Tax v. Vipin Kumar, (1993) 203 ITR 941 where it was opined that any property owned by the firm is in fact owned by the partner thereof. The firm, in fact, is nothing else but a compendium of partners.
14. Keeping these facts in view, we do not find that any substantial question of law arises in the present appeals and accordingly the same are dismissed.
(Rajesh Bindal) Judge (Hemant Gupta) Judge 18.8.2008 mk