ORDER
Pradeep Parikh, A.M.:
The assessee is in appeal before us against the order of the learned Commissioner of Gift Tax (Appeals), dated 9-3-1993 for assessment year 1986-87. Earlier, this appeal was dismissed by the Tribunal vide its order dated 17-10-2001 for want of prosecution. Subsequently, in the interest of justice, Tribunal recalled its earlier order vide order dated 3-1-2003 in MA No. 40/Rjt/2002. The appeal is now being disposed of after hearing the parties and after considering the material on record.
2. Though only one issue is involved in the appeal, as many as twelve grounds are raised. in the appeal, most of which are argumentative and narrative in nature. This is contrary to rule 8 of the ITAT Rules, 1963. The appeal is liable to be dismissed on this ground itself. However, as mentioned earlier, in the interest of justice, we refrain from doing so.
3. The only grievance of the assessee is against the determination of taxable gift at Rs. 25,64,256 under section 4(1)(a) of the GT Act, 1958 (the Act).
4. During the year under consideration, assessee had transferred certain assets consisting of plant and machinery and freehold land for a consideration of Rs. 76,35,000 and Rs. 32,00,000, respectively, to M/s. Wipro Ltd. Capital gains arising from these transactions were duly offered for taxation. Under the gift-tax proceedings, the assessing officer was of the view that the assets were transferred at a low price compared to the market value and hence the matter was referred to the Departmental Valuation Officer (DVO). The DVO determined the value of plant and machinery at Rs. 86,85,480 and that of the freehold land at Rs. 47,18,776. Thus, the assessing officer was convinced that provisions of section 4(1)(a) were applicable and hence, asked the assessee to furnish its gift-tax return by issuing notice under section 16 of the Act. Assessee responded by filing the return declaring taxable gift at Rs. Nil.
5. In the assessment proceedings, it was contended by the assessee that Government of Gujarat was holding 40 per cent shares in the assessee-company and had consented to the transaction. It was also contended that the acquisition wing of the department had dropped the acquisition proceedings on being satisfied that the declared consideration was correct and reasonable. Assessee also relied on the decision of the Supreme Court in the case of K.P. Varghese v. ITO & Anr. (1981) 131 ITR 597 (SC). The assessee had objected to the valuation made by the DVO also. Assessing officer was not at all convinced by any of the explanations offered by the assessee and applied the provisions of section 4(1)(a) of the Act. Thus, taxable gift was determined at Rs. 25,64,256 after allowing basic exemption of Rs. 5,000.
6. Taking an overall view, the Commissioner of Gift Tax (Appeals) did not find any infirmity in the valuation made by the DVO. On the other hand, he found infirmity with the valuation made by the assessee’s valuer. The action of the assessing officer in applying the provisions of section 4(1)(a) was upheld by the Commissioner of Gift Tax (Appeals).
7. The learned counsel for the assessee made detailed submissions before us and relied on a number of decisions in support of the submissions. His foremost objection was against invoking the provisions of section 16 of the Act. It was contended that section 16 could be invoked only when the assessing officer had reasons to believe that taxable gift had escaped assessment. In the light of the facts of the present case, therefore, the assessing officer should have first come to the conclusion that assets were sold for inadequate consideration. Having come to this conclusion, thereafter only the matter could have been referred to the DVO to determine the quantum of deemed gift. On the other hand, the assessing officer, in the present case, first referred the matter to the DVO and based on his valuation, concluded that there was inadequate consideration and hence, deemed gift under section 4(1)(a). Thus, the very basis of assessment framed by the assessing officer under section 15(3) read with section 16 was seriously challenged by the learned counsel. The next argument of the learned counsel was that as per clause (c) of section 45, fifty per cent of the share holding was always controlled by more than five persons. In this connection, the learned counsel apprised us of the share holding pattern placed in the paper book. The third main argument was that the sale deed was executed in financial year 1986-87 and hence, if at all the question of taxable gift arose, it could have been in assessment year 1987-88 and not in assessment year 1986-87.
8. Besides the above main arguments, several other points were made by the learned counsel. The notable amongst them were that acquisition proceedings, which were initiated under Chapter XX-A of the Income Tax Act, were ultimately dropped. Next, capital gains arising from the impugned transaction were duly offered for taxation and the same were accepted by the department. The transaction was at arm’s length and its bona fide could not be doubted for the simple reason as to why the assessee would make a gift to an outsider. Thus, when the assessee-company whose major shareholder was Government of Gujarat and whose Board consisted of Government directors, the transaction approved by such a Board could not be doubted, particularly where the only ground was the DVO’s report to make such assessment.
9. The contention of the learned Departmental Representative was that as there was the concept of deemed gift, there was no concept of capital gain and hence, the fact that capital gains as computed by the assessee were accepted by the Department, was not relevant. Further, according to the learned Departmental Representative, it was not material even if the transaction was at arm’s length for the purposes of section 4(1)(a) of the Act. It was submitted that DVO’s report could be the basis for invoking section 16 of the Act. With regard to the year of taxability, the learned Departmental Representative submitted that if assessment year 1987-88 was found to be the proper year of taxability, then Tribunal may give necessary directions for the same. For his various submissions, the learned Departmental Representative relied on the decision of the Madhya Pradesh High Court in the case of Vippy Processors (P) Ltd. v. CIT & Anr. (2001) 249 ITR 7 (MP), and of the Madras High Court in the case of CGT v. Malini Krishnan (2002) 258 ITR 414 (Mad).
10. We have duly considered the rival contentions and the material on record. The decision in the case of Vippy Processors (P) Ltd. (supra), relied upon by the learned Departmental Representative, is not relevant for the present case. There the notice of reopening the assessment was challenged only on the ground that the assessing officer had not recorded his reasons for doing so. However, the Hon’ble High Court found that reasons were recorded by the assessing officer and hence, the notice was sustained. The facts in the case of Malini Krishnan (supra) are not known to us. However, perusing the decision of the Hon’ble High Court, we find the ratio to be more favourable to the assessee. It has been held that a broad view should be taken while deciding the question as to whether the gift is a deemed gift. In our opinion, circumstances in the case on hand warrant us to take a broad view. We shall now examine those circumstances.
11. Firstly, the total sales consideration shown by the assessee is Rs. 1,08,35,000 as against DVO’s valuation of Rs. 1,34,04,256. The difference between the two is certainly not so much, which may raise one’s eyebrows. The valuation made by the DVO may not be wholly incorrect. After all, he too is an expert. But then, while striking a deal like the one in the present case, there may have been many factors, which may have influenced the parties to arrive at a particular agreement. This may result into some pluses and minuses. Under such circumstances to term the consideration as inadequate is far from being reasonable. It also cannot be gainsaid (sic) that the assessee should have sold the assets at the price determined by the DVO. In a deal of over a crore of rupees, variation of a few lakhs is not unreasonable and it is here that one needs to have a broader view as was expressed by the High Court in the case of Malini Krishnan (supra).
12. Second important aspect of the matter is that the transaction was at arm’s length. Why the assessee should have transferred the assets to Wipro without adequate consideration, is neither known to anyone nor is it spelt out by the revenue authorities. They are not associate concerns. The records do not show whether any of the directors from either side were interested in the deal in any way. The parties to the transaction are not at all connected with each other in any manner and hence, there is no question of gifting away something by one to the other.
13. Thirdly, Government of Gujarat holds over 40 per cent of the shares of the company with its nominees on the Board. Thus, it can safely be presumed that even if the other shareholders had a vested interest in the agreed price, government was there in keeping a watch on the transaction. As a matter of fact, with its nominees on the Board, government granted its approval to the transaction. This lends enough credence to the entire deal and it becomes a far-fetched proposition to say that assets were transferred for inadequate consideration.
14. Fourthly, the fact that acquisition proceedings undertaken under Chapter XX-A of the Income Tax Act were dropped, go to indicate that the consideration was not inadequate.
15. The learned counsel has drawn our attention to a number of decisions in which it has been held that existence of inadequate consideration is a condition precedent for applying section 4(1)(a). If the consideration which passed between the parties can be considered to be reasonable or fair, it cannot be considered inadequate. Therefore, considering the difference between the DVO’s valuation and the actual consideration together with the circumstances described above, we are of the view that the consideration was not inadequate and hence, section 4(1)(a) was not applicable.
16. Since we are allowing the assessee’s appeal on the above grounds, we do not deem it necessary to deal with the arguments of the learned counsel regarding the applicability of section 45(c) and the argument that capital gains as offered by the assessee were accepted by the revenue. The order of the Commissioner of Gift Tax (Appeals) is reversed.
17. In the result, the appeal of the assessee is allowed.