L. K. Kasliwal v Gift Tax Officer

Income Tax Appellate Tribunal

JAIPUR BENCH

31 May 1991

The Judgment was delivered by SHRI J.K. VERMA, ACCOUNTANT MEMBER

Per Shri J.K. Verma, Accountant Member The assessee is claimed to have contributed two plots of land, namely, Nos. 11 & 12 situated at Bhawanisingh Marg, Jaipur as his capital contribution to a partnership firm M/s. Adinath Enterprises, which came into existence on 9-2-1976. The other two partners were assessee’s sons who had 40% each share whereas assessee’s share was 20%. The business of the firm was to deal in real estate. As per the partnership deed the assessee had entered in partnership on account of his ill-health and with the aim to continue the business of colonisation as estate agents. The value of these plots was shown at Rs. 82, 000 with which amount assessee’s account was credited and the trading account was debited. The Gift-tax Officer found that in the wealth-tax case of the assessee the matter had been referred to the Valuation Officer for the same assessment year and value of these plots was estimated at Rs. 1, 56, 000. The GTO, for reasons discussed in detail in his order, took the view that this amounted to a gift by the assessee, as the value of the assets was under-stated by Rs. 1, 56, 000 minus Rs. 82, 000 = Rs. 74, 000. He, therefore, charged the amount of Rs. 69, 000, after giving the basic allowance of Rs. 5, 000 to gift-tax

2. When the matter went in appeal to the DCGT(A), he confirmed the view taken by the GTO after discussing and taking into account the arguments which were advanced before him. Hence the present appeal before us

3. Although Shri Ranka conceded that in view of the decision of thehon’ble Supreme Court in the case of Sunil Siddharthbhai v. CIT 1985 Indlaw SC 335 this amounted to a transfer, yet it was not without consideration and hence could not be treated as gift. He submitted that the view taken by the different Benches of the Tribunal was that the provisions of section 4(1)(a)(ii) of the GT Act could be invoked only when there was inadequate consideration and that too if it was so inadequate as to shock the conscience of the Court. He submitted that in the case of GTO v. Shri H.H. Gaj Singh [1986] 26 17J (Jp.) 503 Tribunal in similar circumstances the capital contribution was not held to be a gift. He also referred to the decisions reported in Bashiruddin Bapukhan v. GTO 1989 (33) TTJ(Hyd) 294 and Jacobs (P.) Ltd. v. GTO 1991 (39) TTJ(Coch) 99 where there was difference between the value as computed by the Valuation Officer and credited in the books of account in similar circumstances and which was sought to be taxed by the department but it was held that they were not taxable. The ld. counsel further argued that assessee’s valuation of Rs. 82, 000 was on the basis of the valuation certificate of a Registered Valuer. He pointed out that the plots were rented out @ Rs. 150 per month and in this view of the matter the valuation should have been done by rent capitalisation method which would mean that the valuation of these plots should have been much lower. He further submitted that with effect from 9-3-1976 the Urban Ceilings Act was coming into operation and hence the value shown at Rs. 82, 000 was very reasonable because lands were under threat of being acquired by the Government. He further pointed out that the reference for the valuation of these plots was under the Wealth-tax Act for the assessment year 1976-77 and not under the Gift-tax Act. He pointed out that whereas the gift-tax proceedings were initiated in January 1984, the reference to the Valuation Officer had been made in 1976. He argued that the requirements of section 15(6) of the Gift-tax Act which provide for reference to the Valuation Officer were lacking in this case, inasmuch as, there is nothing to indicate that GTO had satisfaction that the value of plots shown at Rs. 82, 000 was less than the fair market value. It was further pointed out that no opportunity was given to the assessee to raise objections in this regard. The ld. counsel referred to the decision of the Hon’ble Rajasthan High Court in this regard in the case of Brig. B. Lail v. WTO 1980 Indlaw RAJ 37, according to which reference earlier or later is of no use. He further pointed out that no reasons have been given in the assessment order as to why the valuation given by Regd. Valuer had not been accepted and that of the Valuation Officer had been adopted. The ld. counsel further argued that in the instant case the valuation at Rs. 1, 56, 000 was as on Dewali 1976 whereas the GTO has taken the gift as on 9-2-1976 and in the wealth-tax assessment for the assessment year 1976-77 for which the valuation date was Dewali 1975, i.e. 3-11-1975 the WTO himself had taken the value of these plots at Rs. 1, 26, 000. Hence, if at all this transaction has to be subjected to gift-tax, the value of the plots should be taken at Rs. 1, 26, 000 which is nearer the date of transfer, i.e., 9-2-1976

4. The ld. counsel further argued that the provisions of section 4 of the Gift-tax Act were not applicable in this case because it was a bona fide act. He submitted that there was no finding in the assessment order that the contribution was with mala fide intention. On the other hand, the assessee had given reasons in partnership deed why he was making this contribution and they were his ill-health and impending Land Ceiling Laws etc. He further submitted that in the case of the firm the first appellate authority had upheld the view that a genuine firm had come into existence and hence it indicated that it was a bona fide transaction. He argued that as per the decisions of the Hon’ble Rajasthan High Court in the case of Smt. Vidyavati DeviRathi 1987 Indlaw RAJ 113 and CGT v. Sah Roop Narain 1987 Indlaw RAJ 90 the burden was on the revenue to prove that it was not a bona fide transfer

5. The ld. counsel then argued the 5th Ground of Appeal which is taken in the alternative that in case assessee’s plea regarding the transaction not being treated as gift is not accepted, in view of the fact that assessee has 20% share in that firm, at least to the extent of 20% the amount should not be treated as gift because no one can make a gift to himself. For the proposition, the learned counsel referred to the Tribunal decision in Smt. Gyan Devi Narnoli v. GTO 1983 (17) TTJ(Jp) 89

6. The learned Departmental Representative, on the other hand, vehemently argued that the case was covered by the decision of the Hon’ble Supreme Court in the case of Sunil Sidharthbhai to the extent that it was a transfer of assets. He submitted that the plots contributed were part of the stock-in-trade and not as capital assets as argued by the learned counsel for the assessee. He argued that in any case the plots had to be sold by the Assessee and it was not a case that the sale proceeds would be shared when the capital assets were being disposed of, may be at the time of dissolution of the firm. He further explained that in this case the day the assessee wanted to do it, even on the next day he could withdraw Rs. 82, 000 from the firm and go out and leave the plots of land worth Rs. 1, 56, 000 to his sons and thus, in effect transfer the assets worth Rs. 1, 56, 000 to his sons for only Rs. 82, 000 which was a situation fully covered by the provisions of section 4(1)(a) as well as 4(1)(c). Regarding the question whether the transfer was for adequate consideration, the learned Departmental Representative submitted that the assessee had admitted that the value of those plots as on Dewali 1975 was Rs. 1, 26, 000 and that as on Dewali 1976 it was Rs. 1, 56, 000 and hence it could not be said that the amount of Rs. 82, 000 was an adequate consideration for these plots. Regarding the question that reference was not made to the Valuation Officer, the ld. Sr. Departmental Representative submitted that it was a case where the opinion of the Valuation Officer was already available in the wealth-tax cases and the Gift-tax Officer had relied on those wealthtax assessments as evidence. He submitted that evidentiary value of Valuation Officer’s report was already there and it cannot be said that the assessee had disclosed its correct value at Rs. 82, 000 on 9-2-1976 when on Dewali 1975 its value was Rs. 1, 26, 000 and hence, according to the ld. Sr. Departmental Representative, the provisions of section 15(6) of the Gift-tax Act do not come in the way

7. Regarding the claim that the transaction was bona fide, he argued that Their Lordships of the Hon’ble Supreme Court had held in Sunil Sidharthbhai’s case that the GTO could go behind the face of a transaction and in any case for purposes of section 4(1)(a) of the GT Act the GTO was not required to establish lack of bona fides of the assessee. It is only under section 4(1)(c) that it is required and as already argued, when assessee admitted the value of these plots at Rs. 1, 26, 000 on Dewali 1975, it could not be said that the assessee had a bona fide belief that as late as on 9-2-1976 its value would be only Rs. 82, 000

8. The ld. counsel for the assessee replied that in the first instance it was not correct that these plots of land were stock-in-trade because, according to him, when a new firm is constituted, whatever contribution is made, is capital contribution and this may be read from the partnership dead

9. He further submitted that the use of the word “may” in section 15(6) of the GT Act was in such a way that it had to be interpreted by judicial authorities as “shall” and hence it was obligatory on the part of the GTO to have referred the matter to the Valuation Officer if he was not satisfied with the value of the plots disclosed by the assessee. He further argued that the report of the Registered Valuer showing its valuation at Rs. 82, 000 was for the day of transfer, i.e., for 9-2-1976 whereas the valuation reports of the Valuation Officer were for Dewali 1975 and Dewali 1976. He further submitted that in view of the provisions of section 15(6) of the GT Act the GTO could not rely on the reports in the wealth-tax cases. He argued that even the Tribunal cannot refer it to the valuation officer now in view of the decisions of the Hon’ble Madhya Pradesh High-Court reported in M. V. Kibe v. CWT 1987 Indlaw MP 173, M. V. Kibe v. CWT 1987 Indlaw MP 164 and CWT v. AA. Patel 1990 (81) ITR 543 and the Tribunai decision in 1988 Indlaw ITAT 234. He further submitted that there were Board’s instructions to the effect that when a Registered Valuer’s valuation report was the basis of valuation of the property under consideration, it was binding on the GTO to refer the matter to the Valuation Officer, if the GTO was not satisfied with the value so shown and not following the Board’s circular was not merely an irregularity but went to the root of the case and in the instant case made the report of the Registered Valuer binding on the Gift-tax Officer

10. We have carefully considered the learned and detailed arguments advanced from both the sides. However, in our opinion, the decision in the appeal can be given on the short question as to whether the valuation of the plots was correctly shown at Rs. 82, 000 or whether its valuation was Rs. 1, 56, 000 as taken by the GTO because in case the correct valuation of the plots of land is taken to be Rs. 82, 000, neither the provisions of section 4(1)(a) nor 4(1)(c) of the GT Act would be applicable. After considering all the facts and circumstances of the case, we are of the opinion that the revenue’s case fails. The provisions of section 15(6) which were inserted by Taxation Laws Amendment Act, 1972with effect from 1-1-1973 are very clear and read as under

“15(6) Notwithstanding anything contained in section 6, for the purpose of making an assessment under this Act, the Gift-tax Officer may refer to a Valuation Officer, the valuation of any property transferred by way of gift-tax

(a) in a case where the value of the property as returned is in accordance with the estimate made by a registered valuer, if the Gift-tax Officer is of opinion that the value so returned is less than its fair market value ;

(b) in any other case, if the Gift-tax Officer is of opinion—-

(i) that the fair market value of the property exceeds the value of the property as returned by more than such percentage of the value of the property as returned or by more than such amount as may be prescribed in this behalf ; or

(ii) that having regard to the nature of the property, and other relevant circumstances, it is necessary so to do ;

and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34-AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Wealth-tax Officer under sub-section (1) of section 16-A of that ActExplanation : In this sub-section, ‘ Valuation Officer ‘ has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).”

These provisions indicate that the jurisdiction and powers of the GTO have been curtailed and have been assumed either by the Registered Valuer or by the Valuation Officer because in a case falling under clause (a) if the GTO does not make a reference to the Valuation Officer he should be presumed to have accepted the position that the returned value of the asset is not less than its fair market value. In other words, he has to accept the returned value for assessment purposes.On the other hand, if he chooses to make a reference to the Valuation Officer, he is bound to adopt the value as reported by the Valuation Officer. We may, in this context, also refer to Brig. B. Lall’s case referred to by the ld. counsel for the assessee according to which the Hon’ble Court has held that a reference made to the Valuation Officer either prior to the commencement of the assessment proceedings or after the completion of assessment proceedings is not relevant for the purposes of the assessment under consideration. In the instant case, it is admitted and mentioned in the order of the GTO that the reference regarding the valuation of these plots was made somewhere in 1975-76 and the report of the Valuation Officer is dated 31-10-1976 whereas the gift-tax proceedings in this case were initiated somewhere in 1984. Moreover, where a reference is made to a Valuation Officer certain procedure is prescribed under the Wealth-tax Act, which is also applicable to the Gift-tax Act and that includes giving an opportunity to explain its case, raise objections before the Valuation Officer and makes it obligatory on the Valuation Officer to give his report after following that procedure. Further, we may refer to the Board’s instruction in this regard which are reported in 1973 (91) ITR(page) 1 (St.) in the form of Explanatory Notes on the provisions of Taxation Laws (Amendment) Act, 1972. At page 29 of that report, in the second part of para 49, the Board has directed as under

“In cases covered by the provisions of clauses (a) and (b)(i) of sub-section (6) of section 15 of the Gift-tax Act, it will be incumbent on the Gift-tax Officer to refer. the valuation of the property in question to the Valuation Officer and it will not be open to him to decide the question of valuation on his own.”

It is obvious that the Gift-tax Officer has not followed these instructions and hence, as stated by us earlier, the legal presumption would be that the report of the Valuation Officer giving the value of the plots, at Rs. 82, 000 became binding on him. So far as the question of assessee having accepted the valuation of those plots at Rs. 1, 26, 000 as on Dewali 1975 and Rs. 1, 56, 000 as on Dewali 1976 is concerned, in our opinion, there can be many reasons or considerations with the assessee for not having agitated this issue in the wealth-tax assessments. However, in any case, in view of the clear instructions from the Board and clear provisions of section 15(6) of the Gif-Tax Act, that part of the conduct of the assessee cannot nullify the requirements of law nor can it empower the GTO to ignore the provisions of law and the instructions of the Board thereon. From all these discussions it is clear that in the first instance the valuation reports given in the wealth-tax assessments as far back as on 31-10-1976 cannot authorise the GTO to ignore the specific provisions of section 15(6) of the GT Act and the instructions of the Board thereon and cannot authorise the GTO to take the value of the plots on the basis of those reports while framing the assessment under the Gift-tax Act on 27-2-1986. Moreover, in view of the decision of the Hon’ble Rajasthan High Court in the case of Brig. B. Lall those reports of the Valuation Officer cannot be relied upon in the gift-tax proceedings initiated in 1984 and completed in 1986 particularly when not even an opportunity had been given to the assessee to raise his objections before the Valuation Officer in the proceedings under the Gift-tax Act. In these circumstances, the valuation of the plots has to be taken at Rs. 82, 000 which was the valuation given by a Registered Valuer along with reasons and justification for taking that value. Since the value of the plots has to be taken at Rs. 82, 000, the provisions of section 4(1)(a) and section 4(1)(c) of the GT Act are not attracted. Accordingly, we hold that no gift chargeable to gift-tax arises from the impugned transaction and hence gift-tax assessment order framed by the GTO is cancelled and the appeal filed by the assessee is allowed