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(a) Shri P. Govindasamy : 10,000 shares valued at Rs.10 lakhs
(b) Shri P. Palanisam : 10,000 shares valued at Rs.10 lakhs
(c) Shri P. Kumarasamy : 10,000 shares valued at Rs.10 lakhs As per Rule 5 under Schedule 2 of the Gift Tax Act, the value of unquoted shares of the company as on 31.3.1997 worked out to Rs.408.71 per share. Since the assessee had allotted shares to the persons who are interested in the company for inadequate consideration, a notice under Section 16(2) was issued for the deemed gift. However, a Nil return was filed by the assessee on 7.2.2001 and it was stated that allotment of shares of the company does not involve any transfer and for a gift there should be movable or immovable property and there should be a transfer and further stated that the question of inadequate consideration would not arise and the company had issued the shares only at the face value. The submission of the Assessee has been rejected by the Gift Tax Officer by observing that the assessee is a private company in which interest of the public is not involved, that the shares were issued to the persons who were interested in the affairs of the company and that the amount outstanding to the credit of their account in the Company's Books were adjusted against the face value of the share allotted to him. By observing as stated above, the Gift Tax Officer came to the conclusion that, as per Section 4(1) of the Gift Tax Act, when a property is transferred otherwise than for adequate consideration, the amount by which the value of the property as on the date of transfer and the value determined in the manner laid down in Schedule II exceeds the value of the consideration, shall be deemed to be a gift made by Transfer. Accordingly, the Gift Tax Officer worked out the total value of the shares at the rate of Rs.408.71 amounting to Rs.1,22,61,3000/- against the consideration of Rs.30 lakhs offered by the assessee. Thus, the deemed gift was determined on Rs.92,61,300/- for which tax was sought. Aggrieved by the order passed by the Gift Tax Officer, the assessee preferred G.T. Appeal No.:I-C/03-04 before the Commissioner of Gift-Tax (Appeals) Coimbatore, who, by order dated 7.6.2004, reversed the finding of the Gift Tax Officer by relying on an earlier decision of the Bangalore Tribunal in Khoday Distilleries Ltd., v. DCIT reported in 81 ITD 438 and also by observing that the two essential conditions of Clause (a) of Section 4(1) of the Gift Tax are not satisfied. Aggrieved by the aforesaid decision of the Appellate Authority, the Revenue took the matter in appeal before the Income Tax Appellate Tribunal in G.T.A.No.10 (Mds)/2004, which, by order dated 16.2.2007, confirmed the finding of the appellate authority. The aforesaid decision is in challenge before this Court at the instance of the Revenue.