Income Tax Appellate Tribunal - Mumbai
Smt. Champubai D. Khatau vs Fourth Wealth-Tax Officer on 7 January, 1987
Equivalent citations: [1987]21ITD299(MUM)
ORDER
R.L. Sangani, Judicial Member
1. This appeal by the assesses relates to the assessment year 1979-80.
2. The assesses made a gift of Rs. 1,87,000 to Khatau Holdings (P.) Ltd., on 28-11-1978. The shareholding of the said company on that date and also on the relevant valuation date (31-3-1979) was as follows :
Serial Name Number of shares
No.
1. Master Y.D. Khatau
(The assessee's son's minor son) 842
2. Miss Kalindi D. Khatau
(The assessee's son's minor daughter) 156
3. Shri D.D. Khatau
(The assessee's son-major) 1
4. Shri K.D. Khatau
(The assessee's son-major)
3. It would be thus seen that out of total share holding of 1,000 shares, 998 shares were held by the assessee's son's son (minor) and the assessee's son's daughter (minor).
4. The WTO held that gift in question to the company was an indirect gift to those two minors as a result of which provisions of Sub-clause (v) of Section 4(1)(a) of the Wealth-tax Act, 1957 were attracted and said amount was liable to be included in the net wealth of the assessee under the said provision. He, accordingly, included the same. The learned Commissioner (Appeals) confirmed the said inclusion. The assessee is now in further appeal before us.
5. We have heard the parties. The provisions of Sub-clauses (v) and (vi) of Section 4(1)(a) are as follows :
(1) In computing the net wealth of an individual, there shall be included as belonging to that individual-
(a) the value of assets which on the valuation date are held-
(i) to (iv) ** ** **
(v) by the son's wife, or the son's minor child, of such individual, to whom such assets have been transferred by the individual, directly or indirectly, on or after the 1st day of June, 1973, otherwise than for adequate consideration,
(vi) by a person or association of persons to whom such assets have been transferred by the individual, directly or indirectly, on or after the 1st day of June, 1973, otherwise than for adequate consideration for the immediate or deferred benefit of the son's wife, or the son's minor child, of such individual or both,
6. Sub-clause (vi) quoted above has been inserted with effect from 1-4-1985. That sub-clause is, therefore, not applicable to the assessment year with which we are concerned. Two conditions are necessary for attracting Sub-clause (v). The first is that there should be direct or indirect transfer of the asset in question by the assessee in favour of son's minor child. The second is that the asset in question should be held by the assessee's minor child on the relevant valuation date. The asset with which we are concerned is a sum of Rs. 1,87,000 which has been gifted by the assessee to the company. We shall assume that the transaction resulted in indirect gift to the two minor children of the assessee's son and as such condition No. 2 was satisfied. However, as far as first condition is concerned, it cannot be said to have been satisfied. That condition is that asset in question should be held by the said minor children on the relevant valuation date. It is well settled that a company is a separate legal entity from its shareholders. The property held by the company cannot be said to have been held by the shareholders. Consequently, the said amount cannot be said to have been held by the said minor children on the relevant valuation date. The said asset was held by the company on the relevant valuation date and the company was a separate legal entity. Condition No. 2 was, therefore, not satisfied and Sub-clause (v) cannot, therefore, be invoked for inclusion of said amount in the net wealth of the assessee.
7. The learned Commissioner (Appeals) has observed that as a result of the said gift to the company, the value of shareholdings of the two minors had increased. About this we are of the opinion that this would give rise to inference that there is indirect gift to minor children. However, from this it cannot be said that the asset in question, vis., amount of Rs. 1,87,000 was held by the minor children on the relevant valuation date. Further observation of the learned Commissioner (Appeals) is that the minor children would get benefit of this amount when the company goes in liquidation and that if loan is given to minor children out of said amount by the company, that would amount to deemed dividend. This also does not take the matter further for determining whether on the relevant valuation date the asset in question was held by the minor children. In fact the learned Commissioner (Appeals) while setting out the essential ingredients of Sub-clause (v) of Section 4(1)(o) did not mention the important ingredient to the effect that the asset in question should be held by the minor children on the relevant valuation date and this aspect has been completely overlooked. What he has considered is whether there was indirect transfer to minor children.
8. In this connection Sub-clause (vi) is relevant. Under that sub-clause, it is not necessary that the asset in question should be held by the minor children on the relevant valuation date. Even if the asset is held by any other person or an AOP, the asset would be liable to be included provided there was direct or indirect transfer (without consideration) for immediate or deferred benefit of minor children. If the company comes under the connotation of the terms person or an AOP, the said sub-clause would be attracted. However, that sub-clause came in force with effect from 1-4-1985 and as such would not be applicable to the assessment year with which we are concerned.
9. We, accordingly, set aside the orders of the authorities below and direct deletion of inclusion of amount of Rs. 1,87,000.
10. In the result, the appeal is allowed.