Commissioner of Gift Tax vs M/s. New Ambadi Estates Pvt. Ltd.

Chitra Venkataraman, J.—Both the above Tax Case (Appeals) relate to the assessment year 1994-95. It is seen from the facts stated herein

that during the financial year 1993-94, the assessee in T.C.(A) No. 1033 of 2008 relinquished 3,75,815 right Partially Convertible Debenture, in

short, PCD of EID Parry India Limited at Rs. 5/- for a consideration of Rs. 18,79,475/-, where the market value at the time of relinquishment was

Rs. 21.50 per share. The Assessing Authority treated the difference at Rs. 16.50 per share as deemed gift, since transfer also included

relinquishment. Thus a sum of Rs. 62,02,268/- was sought to be assessed under the head ''deemed gift''. Notice u/s 16 of the Gift Tax Act, 1958

was accordingly issued to the assessee. Since the assessee did not file the return within the due date, notice u/s 15(4) was issued. The assessee

filed its reply countering the stand of the Revenue. The said contention was, however, rejected by the Assessing Officer that in the absence of any

evidence for arriving at the value, the difference between the market value and the actual consideration was to be treated as deemed gift.

Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeal), who upheld the Assessing Officer''s action. He,

however, directed the Officer to work out the inadequate consideration as per the provisions laid down in Section 4(1) read with Schedule II of

the Gift Tax Act and pass order. Aggrieved by this, the assessee went on further appeal before the Income Tax Appellate Tribunal. The assessee

submitted that in respect of 3,85,895 rights offered by EID Parry India Ltd., the assessee was given 30 days period either to accept the offer or

sell the rights. In view of the financial difficulty faced by the assessee, it proposed to sell these rights in the open market to third parties. To that

end, it approached its stock broker R.M. Ramanathan & Co., who expressed difficulty in selling such huge volume of rights in the open market. A

letter to that end was written by the share broker to the assessee on 07.08.1993, a copy of which was produced before the Tribunal. The said

letter reads as under:

Dear Sir,

We think for you for your letter of 6th Aug. 1993 with the sale order of 373895 Rights of EID Parry India Ltd.''s partly Convertible Debentures.

We will try to sell these Rights in the open market at the best possible price.

We would however, like to inform you, from the present trends in the market it will be extremely difficult to locate buyers for the rights, particularly

so for such a big lot. Many shareholders have been opting for sale of the rights in view of sagging investment climate at the moment and

disinclination to put more money in the same company. Nevertheless, we will try our best and keep you advised by the 19th instant.

As long as the traded volumes are low, say 1000 to 2000 Rights, we can get a reasonable price. If the volume of sale is high this will bring down

the price substantially. Therefore, we prefer to sell it cautiously and would let you know the position before 18th Aug. 1993

The Tribunal pointed out that except this letter, there was no material available that it could not sell the rights in the open market at the prevailing

market price. The Tribunal held that the assessee had taken reasonable care to get good price for the rights issued. Considering the fact that the

Revenue itself was aware of the limited period of 30 days for selling the rights and even though the market value was Rs. 21.50 each at the relevant

point of time, considering the large scale allotment of rights and the limited period available, the assessee could not get the market price for the sale

of large volume of the rights as disclosed by the stockbroker. Thus, the Tribunal accepted the letter of the stock broker, particularly considering

the large volume of shares to be sold within the limited period of 30 days available. In the circumstances, the assessment on deemed gift was set

aside by the Tribunal. Aggrieved by this, the Revenue has preferred the present appeals.

Learned Standing counsel appearing for the Revenue submitted that even going by the observation of the Tribunal that the assessee had not let in

any evidence other than stock broker''s letter, in the absence of any material shown by the assessee as to the efforts taken to sell the rights in the

market and thereby the circumstances under which the assessee was under compulsion to charge the price, the Tribunal ought not to have

accepted the case of the assessee as a matter of course to grant the relief. He further pointed out that Schedule II of the Act prescribes the method

for determining the value of share transfer. When the assessee had failed to discharge the burden as to the charging of the price at Rs. 5/-, the only

other option open herein was to adopt the procedure under Second Schedule; consequently, the order of the Tribunal is liable to be set aside.

Per contra, learned counsel appearing for the assessee placed heavy reliance on the letter written by stock broker dated 07.08.1993 that

considering the volume of the rights to be disposed of within the limited period of 30 days, rightly the Tribunal had arrived at the conclusion to

allow the appeal.

We do not agree with the submission made by the learned counsel appearing for the assessee. As already seen in the preceding paragraph, the

assessee was given 3,75,815 rights in PCD of EID Parry India Limited. It is no doubt true that the assessee had only 30 days time to sell all these

rights. It is equally true that the stockbroker, in his letter dated 07.8.1993, had expressed his doubt about selling the rights in the open market at

the best possible price, but the apprehension expressed by the stockbroker, by itself cannot be taken as a piece of evidence to accept the case of

the assessee that the price charged by the assessee can be taken as the best price. In the circumstances, the volume of rights and the time factor,

by itself, cannot be presumed as providing good reasons to accept the plea of the assessee that these constraints was in the way of selling these

rights at the best possible price in the open market.

As is evident from the order of the Tribunal, the assessee itself had admitted that except this letter, it had no other material to substantiate its

claim and the best price that it could get on the sale of these rights was only Rs. 5/-. The apprehension of the stockbroker, hence, cannot be

accepted as supplying a good legal base for accepting the case of the assessee to set aside the assessment. The Tribunal pointed out that the

Revenue had not disputed that the assessee was given the limited period of 30 days for selling the rights, yet, this apart, the assessee had not

placed any material before the Court or before any of the Authorities below as regards the steps taken with due diligence to sell these rights in the

open market; that ultimately faced with time constraint and the volume of rights to be disposed of, it had to sell the rights at Rs. 5/- as against the

prevailing market price of Rs. 21.50/- each. In the circumstances, we hold that the view of the Tribunal is wholly without any material and the letter

of the stockbroker cannot be taken as a good evidence for the purpose of accepting the value given by the assessee. Accordingly, the order of the

Tribunal stands set aside and the Tax Case (Appeal) No. 1033 of 2008 is allowed.

As far as T.C.(A) No. 133 of 2008 is concerned, the assessee herein sold 43,535 Right PCD of EID Parry India Ltd. to his sister concern

Tichain Invts. Pvt. Ltd. at Rs. 5/-, which was far below the prevailing market price. The Tribunal allowed the assessee''s appeal based on the order

passed by it, which is a subject matter of appeal in T.C.(A) No. 1033 of 2004.

The Tribunal referred to the order passed by it in the case of the assessee in T.C.(A) No. 1033 of 2008 to allow the assessee''s case, wherein

the assessee sold the rights at Rs. 5/-, which was far below the prevailing market price. For the reasons stated in T.C.(A) No. 1033 of 2004, we

have no hesitation in allowing the Revenue''s appeal, thereby setting aside the order of the Tribunal. In the circumstances, T.C.(A) No. 133 of

2008 filed by the Revenue stands allowed and the order of the Tribunal stands set aside. No costs. The assessee in T.C.(A) No. 133 of 2008 has

filed a petition to amend the name of the assessee in the cause title as New Ambadi Estates Pvt. Ltd. from New Ambadi Investments Pvt. Ltd., in

view of the merger as ordered by this Court dated 29.8.2007 in C.P. Nos. 75 and 76 of 2007. The amendment petition stands ordered.