Ziauddin Ahmed vs Commissioner Of Gift-Tax

Gauhati High Court

Ziauddin Ahmed vs Commissioner Of Gift-Tax on 5 August, 1975

Equivalent citations: 1976 102 ITR 253 Gauhati

Author: Pathak

Bench: M Pathak, D Sen

JUDGMENT Pathak, C.J

1. The following two questions cf law have been referred by the Income-tax Appellate Tribunal as arising out of the Tribunal's order in G.T.A. No. 7 (Gauhati) of 1968-69, dated April 24, 1972, under Section 26 of the Gift-tax Act:

"(1) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the provisions of Section 4(1)(a) of the Gift-tax Act, 1958, were attracted and that there was a deemed gift taxable in the hands of the assessee ?

(2) Whether, on the facts, the Tribunal was correct in law in holding that in considering the quantum of taxable gift under Section 4(a) of the Gift-tax Act, 1958, the transfer of shares standing in the name of his minor son was not to be considered ?."

2. The following facts appear from the statement of the case.

3. The assessment year involved is 1960-61. The deceased-assessee, late A1-Haj J. Ahmed, owned 425 shares of Khanikar Tea Estate (P.) Ltd. in his own name. Hundred shares of the said company stood in the name of his minor son, Samiruddin Ahmed. Besides these, there were other shares owned by his wife and the other sons and daughters from different wives. The deceased assessee and his children and wife also owned certain shares of Ahmed Tea Company (P.) Ltd. The children of different wives were not having good relations and there were family quarrels. When the matter took a serious turn in 1959, certain family arrangements were devised as a result of which certain shares were transferred by the assessee and his children to other children. The first group of children led by M. A. Rahman got all the shares of Khanikar Tea Estates (P.) Ltd. Another group got the shares in Ahmed Tea Company (P.) Ltd. As a result of certain arbitration the shares were transferred at an agreed consideration.

4. 425 shares belonging to the deceased assessee were transferred for consideration of Rs. 3,00,050. The consideration for a set of 100 shares owned by the other children was fixed at Rs, 2,00,000. The Gift-tax Officer found that the consideration for which 425 shares had been transferred by the assessee was much smaller than the market value of those shares on the date of the transfer. The Gift-tax Officer further found that the consideration was lower than even the face value of those shares. He further took note of the fact that the consideration for the other shares of the same company belonging to the minor son and other children of the assessee was much more than the market value of those shares.

5. On the above facts, in the income-tax assessments, the provisions of the proviso to Section 12B(2) were applied and some capital gains were worked out in the hands of the assessee. At the same time, in the gift-tax proceedings the Gift-tax Officer held that the difference between the market value of the shares and the value at which the actual transfer was made represented deemed gifts in the hands of the assessee. This order was confirmed by the Appellate Assistant Commissioner though he reduced the quantum of gift by taking a smaller market value of the shares.

6. In appeal against the income-tax assessment the Tribunal held that the proviso to Section 12B(2) was not applicable as the object of the transfer was not to avoid capital gains tax. However, in appeal against the gift-tax assessment, it was argued before the Tribunal that there was no element of gift in the transfers which had to be made under force of circumstances by the assessee. Alternatively, it was argued that the sale of 100 shares belonging to the minor son which were transferred at a price much more than the market price should have been taken into consideration while computing the quantum of the taxable gift. The Tribunal rejected the contention of the assessee and held that the assessee was chargeable to deemed gift under Section 4(1)(a) of the Gift-tax Act, 1958.

7. On the above facts the above mentioned questions of law have been referred.

8. The Tribunal in its order in the gift-tax appeal has observed as follows:

" We are not impressed with the learned counsel's arguments that as the assessee had sold his shares to his son under force of circumstances it could not be deemed as a gift even if the consideration is inadequate. Section 4 of the Gift-tax Act deemed certain transactions which are normally not gift to be gift for the purpose of the Gift-tax Act. It is immaterial for the purpose of this provision that the transfer has been made willingly or one has to do it unwillingly. All that is to be seen is whether the consideration for the transfer of property is adequate or not. Adequacy has reference to the money value and not to any other type of value like sentimental consideration such as love and affection. We are also not impressed with the contention of the learned counsel for the assessee that the transactions were at arms length. The circumstances narrated above show that these shares were transferred to the sons at a consideration which was lower than the market value as the assessee wanted to have peace in his family. As the market value of the shares was definitely higher than the consideration paid for the shares the transaction has been correctly deemed to be a gift under Section 4 of the Gift-tax Act.

We also do not agree with the argument of the learned counsel for the assessee that in considering the quantum of gift the shares standing in the name of minor son and transferred should also be considered. But for the provision of Section 64 of the Income-tax Act, the assessee would have certainly claimed that the income from those shares should not be included in the hands of the assessee. Under the general law the transaction pertained to the minor son and it does not matter if the assessee has to act on his behalf or for his benefit. The transaction which is under consideration before us is the transfer of 425 sharss held by the assessee and transferred to his son for inadequate consideration. It would, therefore, not be correct to consider this transaction with any other transaction pertaining to any other person in spite of the fact that under the fiction of law the income from these shares are being included in the hands of the assessee."

9. The question that requires consideration, therefore, is whether the provisions of Section 4(1)(a) of the Gift-tax Act are attracted to the facts and circumstances of the case?

10. Section 4(1)(a) of the Gift-tax Act reads as follows :

"4. Gifts to include certain transfers.--(1) For the purposes of this Act,--

(a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor."

10. To attract the provision of Clause (a) of Sub-section (1) of Section 4, some property has to be transferred for consideration but the consideration is found to be inadequate. If that be so, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor.

11. In the instant case it is found from the statement of the case that the deceased-assessee, late A1-Haj J. Ahmed, was the owner of 425 shares of Khanikar Tea Estate (P.) Ltd. and these shares stood in his own name. Another 100 shares of Khanikar Tea Estate (P.) Ltd. stood in the name of his minor son, Samiruddin Ahmed. Besides these shares, there were some other shares of the said company which were owned by his wife and other sons and daughters from different wives.

12. The deceased-assessee and his children and wife also owned certain shares of another company, namely, Ahmed Tea Company (P.) Ltd. Thus, the members of the family of the deceased-assessee, late Al-Haj J. Ahmed, had shares both in Khanikar Tea Estate (P.) Ltd. and Ahmed Tea Company (P.) Ltd. It has been found that the children of different wives of the deceased assessee were not having good relations and there were family quarrels. When the matter took a serious turn some time in 1959, certain family arrangements were devised as a result of which certain shares were transferred by the assessee and his children to other children. The Tribunal while dealing with the gift-tax appeal observed :."The circumstances under which the sale was made are not repeated again as they have been dealt with earlier."

13. In the order of the Tribunal, while dealing with the income-tax appeal, we find the following observation :

"In order to put an end to such ugly situation it was decided that the first group led by Shri M. A. Rahman was to get complete shareholding of Khanikar Tea Estate (P.) Ltd. and the second group was given shares in the Ahmed Tea Company (P.) Ltd. There was some arbitration and the shares were transferred at an agreed consideration. Such agreed consideration for 425 shares belonging to the assessee was Rs. 3,00,050. However, in respect of 100 shares belonging to the third wife, Maini Begum, and assessee's children from her, they were to be sold at a consideration of Rs. 2,00,000 for each set of 100 shares."

14. Considering the facts found by the Tribunal it is found that these allotments of shares to the groups of the members of the family of late A1-Haj J. Ahmed were made for achieving peace and harmony amongst the members of the family. Thus, the arrangements are found to be family arrangements. The arrangements were based on recognition of existing rights of the individual members of the family

15. In Ram Charan Das v. Girja Nandini Devi, AIR 1966 SC 323 the Supreme Court has observed at page 329 as follows :

"Courts give effect to a family settlement upon the broad and general ground that its object is to settle existing or future disputes regarding property amongst members of a family. The word 'family' in the context is not to be understood in a narrow sense of being a group of persons who are recognised in law as having a right of succession or having a claim to a share in the property in dispute.

In Ramgowda Annagowda's case, AIR 1927 PC 227 of the three parties to settlement of a dispute concerning the property of a deceased person, one was his widow, other her brother and the third, her son-in-law. The latter two could not, under the Hindu law, be regarded as the heirs of the deceased. Yet, bearing in mind their near relationship to the widow, the settlement of the dispute was very properly regarded as a settlement of a family dispute. The consideration for such a settlement, if one may put it that way, is the expectation that such a settlement will result in establishing or ensuring amity and goodwill amongst persons bearing relationship with one another .....

In the first place, once it is held that the transaction being a family settlement is not an alienation, it cannot amount to the creation of an interest. For, as the Privy Council pointed out in Mst. Hiran Bibi's case, [1914] 24 IC 309; ATR 1914 PC 44 in a family settlement each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other parties. It is not necessary, as would appear from the decision in Rangasami Gounden v. Nachiappa Gounden, [1919] ILR 42 Mad. 523 ; AIR 1918 PC 196 that every party taking benefit under a family settlement must necessarily be shown to have, under the law, a claim to share in the property. All that is

necessary is that the parties must be related to one another in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say affection."

16. From the judgment of the Supreme Court in Ram Charan Das's case, the following propositions emerge ;

"The transaction of a family settlement entered into by the parties who are members of a family bona fide to put an end to the dispute among themselves, is not a transfer. It is not also the creation of an interest. For, in a family settlement each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other parties. Every party who takes benefit under it need not necessarily be shown to have, under the law, a claim to a share in the property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say, affection."

17. From the findings of the Tribunal in the instant case as quoted herein-above, it is found that the allocation of 425 shares belonging to the deceased assessee was made by way of family arrangement to settle existing and future disputes regarding the shares in the two tea estates amongst the members of the family of the deceased assessee and it has also been found by the Tribunal that there was some arbitration and the shares were transferred at an agreed consideration and such agreed consideration for 425 shares belonging to the deceased-assessee was Rs. 3,00,050. Applying the observations of the Supreme Court in Ram Char an Das's case, we find that the allocation of 425 shares in the tea estate concerned has been by way of family settlement and the transaction has been made bona fide to put an end to the dispute amongst the members of the family of the deceased-assessee and, therefore, this transaction is not a transfer. In order to bring a case within the scope of Section 4(1)(a) of the Gift-tax Act, 1958, first there must be a transfer for consideration and such consideration must be found to have been inadequate consideration. That being the case, in our opinion, the provisions of Section 4(1)(a) (Section 4(a) unamended) of the Gift-tax Act are not attracted to the facts and circumstances of the present case and there was no deemed gift taxable in the hands of the assessee.

18. In the result we answer the first question of law in the negative and in favour of the assessee.

19. The answer to the first question of law being in the negative, the second question of law does not arise and need not be answered.

20. The reference is answered accordingly. We, however, make no order as to costs.

21. I agree.