Indian Kanoon - Search engine for Indian Law

3. The Gift-tax Officer accepted this valuation and found that the value of the gift made to Satyanand Munjal Trust No. 1 was Rs. 12,36,000. So far as the transfer of 6,000 equity shares to Yogesh Chander and Brothers is concerned, he came to the conclusion that the "gift is wholly void". He further came to the conclusion that "the shares being transferred are of Hero Cycles (P.) Ltd. in whose control and management the assessee is directly interested. These shares have a very high assessable value under the Wealth-tax Act... By keeping the option of (sic) (to) revoke the transfer after six years the assessee will not pay wealth-tax on the assets so transferred. Moreover during the period of six years the bonus shares issued by Hero Cycles (P.) Ltd., Ludhiana, will become the property of the transferee without any gift-tax being levied. Following the decision of their Lordships of the Supreme Court in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, he held that "the gift is void". He made protective assessment in the hands of the assessee. Thus, the value of taxable gift was fixed at Rs. 13,14,280.

5. In so far as the issue of revocable gift of 6,000 shares is concerned, the view taken by the Assessing Officer was affirmed. The gift was held to be void. It was further held that the gift being void, the levy of tax on protective basis could not be sustained.

6. The assessee approached the Tribunal. On consideration of the matter, the Tribunal took the view that the "valuation of unquoted equity shares has to be on the ba§is of the yield method ..." So far as the revocable gift is concerned, the Tribunal held that the valuation has to be under "Rule 11 of the Gift-tax Rules". In case, the donor did not exercise any option to revoke the gift within a period of 82 months, a further valuation of the residuary interest shall be made. Thus, the assessee's appeal was allowed.

Regarding 2 :

30. Mr. Sawhney contended that the assessee had adopted a device to escape the levy of tax. The revocable gift was wholly repugnant to the provisions of Section 126 of the Transfer of Property Act, 1882. Thus, the Tribunal had erred in upholding the same. The claim made by counsel for the Revenue was controverted by Mr. Mittal, who appeared for the assessee.

31. It is undoubtedly correct that under the general law, a gift which is "revocable wholly or in part at the whims of the donor is void". However, the Gift-tax Act embodies a special law. Section 6(2) (as it existed at the relevant time) specifically provided for valuation of "a gift which is not revocable for a specified period". This special provision would override the general law and a gift which is revocable after a specified period cannot be held to be void. Still further, according to the provision, the value has to be fixed by the method of capitalisation. A detailed provision in this behalf has been made in Rule 11 of the Gift-tax Rules, 1958. In this situation it cannot be said that the gift made by the assessee which was revocable after 74 months but before the expiry of 82 months was void.