Commissioner of Gift Tax vs Mrs. Surajben K. Mehta

K.P. Radhakrishna Menon, J.—The question referred for our opinion reads :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in directing that the value of gift forgone be taken at 10% value of three years'' purchase value ?"

That the assessee had gifted 20% of her interest in the partnership in favour of her daughters-in-law is beyond dispute.

The purchase value of the above 20%, therefore, is required to be calculated. The assessing authority determined the five-year purchase value at Rs. 2,44,602. According to it, 20% of the said purchase value which represents the value of the right forgone by the assessee comes to Rs. 48,920.

The Appellate Assistant Commissioner before whom the assessee had filed an appeal, although sustained the computation of the purchase value, reduced the value of the taxable gift from 20% to 10% of the 5-year purchase value. The assessee filed an appeal against the above order of the Appellate Assistant Commissioner. The Revenue filed a cross-objection seeking restoration of the order of the Gift-tax Officer. The Appellate Tribunal after considering the rival submissions entered the finding as follows :

". . .we consider that, in the circumstances, there has been a gift, but we would direct a recomputation. In the computation as made by the Gift-tax Officer against managerial remuneration of 15% taken at Rs. 17,736, we would direct a deduction of Rs. 2,500 per month, that is Rs. 30,000. This we do because it was ascertained that the partners themselves are mainly attending to the business of canvassing orders. Other salaries paid are comparatively low. We would also direct that the value of the right forgone be taken at 10% of three years'' purchase value recomputed. On the basis of our above direction, the balance profit would come to Rs. 68,970 against Rs. 81,534 taken by the Gift-tax Officer. Three years'' purchase would give a figure of Rs. 2,07,000 against Rs. 2,44,602 taken by the Gift-tax Officer. 10% of the amount of Rs. 2,07,000 gives the value of gift of Rs. 20,700 against Rs. 48,920 adopted by the Gift-tax Officer. The Gift-tax Officer will recompute the taxable gift and gift-tax payable in accordance with the above direction. In the view that we have taken, the cross-objection of the Revenue would fall to be dismissed."

The Tribunal, learned counsel for the Revenue submits, has gone wrong in reducing the value of the taxable gift from 20% to 10%. There is considerable force in this submission, because, it is the common case of the parties that the assessee had gifted 20% of her right in the partnership in favour of her daughters-in-law.

If that be the position, there is no reason why the Tribunal reduced that to 10%. The direction to reduce the purchase value of the gift from 20% to 10%, under the circumstances, is erroneous. It is this finding that is challenged by the Department and that it is so can be seen from the question itself.

The above finding, in our view, is not sustainable. The question, therefore, is answered in the negative and in favour of the Revenue.

A copy of this judgment under the signature of the Registrar and the seal of this court will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.