R. Gururajan, J.
1. Appellant is a company engaged in the manufacture and sale of consumer electronic products like colour television sets, VCRs, various other audio and video products, etc. Appellant had also invested its fund in various other companies manufacturing allied or similar electrical, electronic and engineering goods. On 2-3-1993, appellant sold its holdings in eight companies to one Celestial Finance Ltd. for a total consideration of Rs. 23,10,03,974 which was equal to the cost of acquisition of those shares for the appellant.
2. Appellant filed its return for the assessment year 1993-94 before the Dy. CIT, Trichur, Kerala. Though originally intimation was issued under Section 143(l)(a) of the Income Tax Act, the assessment was taken up for scrutiny subsequently. During the income-tax proceedings, internal audit was taken and there was an audit objection dated 17-8-1995 to the assessing officer and the assessing officer issued a letter to the assessee. Reply was submitted. Details were provided. There was correspondence between the department and the assessee. According to the appeal memo, appellant satisfied the department that there was no element of gift, and accordingly the then officer did not proceed with any gift-tax proceedings under the GT Act, 1958 (hereinafter referred to as 'the Act'). Thereafter, in August, 1998 a search was carried out under Section 132 of the Income Tax Act. After search, the Dy. CGT issued a notice under Section 16 of the GT Act in the matter. The said letter was replied to by the appellant. Assessments were reopened. Assessing authority declined to accept the appellant's contention and rejected the submission of the appellant and concluded that there was a deemed gift under Section 4(l)(a) and Section 4(l)(b) of the Act to the extent of Rs. 69,78,49,800 and levied gift-tax along with interest under Section 16B of the Act from July, 1993 to January, 2000 quantified at Rs. 54,01,12,525. An appeal was filed before the CGT(A). He upheld the validity of reopening. He however reduced the quantum of gift-tax. He ruled that the shares of M/s BPL Sanyo Utilities & Appliances Ltd. and M/s BPL Sanyo Technologies Ltd., the transfer of which are also the subject-matter of gift-tax proceedings, have to be treated as unquoted equity shares; and that in accordance with the same, the assessing officer was directed to compute the value of those shares also under r. 5 of the GT Rules and to substitute the same in place of valuation adopting quoted value of shares. Insofar as the deemed gift under Section 4(l)(b), he ruled that it was difficult to hold that the consideration was not intended to pass, and consequently he deleted the amount assessed under Section 4(l)(b) of the Act. The CGT(A), insofar as interest is concerned, was of the view that Section 16B of the Act provides for levy of interest on the gift-tax withheld by it on the amount of tax payable on the taxable gift determined in assessment as modified in accordance with that order. He partly allowed the appeal.
3. Aggrieved by the order of the CGT(A), a second appeal was filed by the assessee and a cross-objection was filed by the revenue. The Tribunal approved the action of the assessing officer and thereby the Tribunal modified the order of the CGT(A). Tribunal, however, accepted the finding with regard to the issue under Section 4(l)(b) of the Act. The Tribunal directed the assessing officer to levy such interest on the basis of taxable gift on the amount of tax payable determined in the assessment as may be modified while giving effect to its order. Tribunal ultimately dismissed the appeal of the assessee. Tribunal accepted the appeal of the revenue in part. Cross-objection of the assessee stood dismissed. Aggrieved by the order of the Tribunal dated 30-8-2004, assessee is before us in this appeal.
4. The following questions of law arise for our consideration
1. Whether, on the facts, the Tribunal was justified in upholding the validity of the proceedings under Section 16 of the Act ?
2. Whether, on the facts, the reopening under Section 16 of the Act on mere change of opinion was valid when the assessing authority had in the course of the income-tax proceedings collected the details of share transfers, consideration and the intrinsic value with a view to ascertain whether there was gift or deemed gift and having satisfied with the evidence and refrained from invoking the gift-tax proceedings while concluding the income-tax proceedings for the relevant year ?
3. Whether there was fresh information on account of search proceedings in 1998 to justify the invoking of the gift-tax proceedings ?
4. Whether the provisions of Section 4(1)(a) of the GT Act were applicable to the share transfers made by the appellant to justify the determination of deemed gift for tax under the Act ?
5. If the answer to question No. (d) is in the affirmative, whether the Tribunal was right in upholding the valuation of alleged quoted shares in lock-in period ?
6. Whether in the light of the judgment of the Supreme Court in CIT & Ors. v. Ranchi Club Ltd. : [2001]247ITR209(SC) , the levy of interest was justified especially when Section 16B of the Act was in pari Materia with Section 234B of the Income Tax Act prior to its amendment vide Finance Act, 2001 ?
5. Matter is heard on several dates. Sri Arvind Datar, learned senior counsel, would argue that there was no gift at all for the purpose of gift-tax in the case on hand. He would take us through the material on record and also the relevant dates to say that the order of the Tribunal requires our interference, He would refer to us the legal issues in terms of the material on record and in terms of the findings of the authorities. He would argue that the reopening under Section 16 of the GT Act is without jurisdiction since the said reopening is only on the basis of change of opinion. According to him, satisfaction in terms of Section 16(l)(b) was reached on certain imaginary facts which require our interference. Audit objection was raised. Audit objection was properly replied to by the appellant and the authorities were satisfied, and it is thereafter reopening was done on the basis of change of opinion. According to him, Section 16(l) is not available to the department in such circumstances. He would also say that the relevant section requires 'reason to believe' principle and the reason to believe forms foundation for the purpose of assessment in the case on hand. According to him, there are no grounds available for issuing reopening notice under Section 16 of the Act. Insofar as satisfaction is concerned, he would say that the said satisfaction is based on irrelevant facts, and that therefore, matter requires an interference by this Court.
6. Learned counsel would say that the BPL Ltd. has transferred certain shares to M/s Alpha Securities, which in turn has transferred to Celestial Finance Company. According to him, when transfer is made to a company in which transferor has substantial interest, question of any benefit accruing to the transferee at the cost of transferor does not arise. Sec. 4(1)(a) of the Act, according to him, is not satisfied on the facts and circumstances of this case.
7. Insofar as interest is concerned, learned Counsel would say that the same is leviable only on the income declared in the return and not on assessed gifts. He would also take us to various other relevant facts with regard to quoted shares in the case on hand. According to him, the shares of BPL Sanyo Utilities and Appliances Ltd. and M/s BPL Sanyo Technologies Ltd. were under 'lock-in' period at the relevant point of time and thus the shares were not permitted to be treated (traded) in the stock exchange and therefore those were not quoted shares as understood in law. He would rely on several case laws in support of his submission.
8. Per contra, Sri Indrakumar, learned senior counsel for the department would with equal vehemence oppose every one of the submissions of the other side. He would say that the appellant has filed return of gift declaring nil gift chargeable to tax. Appellant has enclosed a letter along with the said declaration, and in the said letter several contentions are raised. The assessing authority negatived the contentions urged by the appellant and an order was passed under Section 15(3) read with Section 16 of the Act. Assessing authority after considering the material facts ordered payment of gift-tax by holding that the shares transferred by the appellant company was for inadequate considerations, and that, therefore, Section 4(l)(a) of the Act is attracted in the case on hand. The quantum of inadequate consideration provides for a right to the department to. initiate proceedings against the appellant. He would also refer to us an order of the CGT(A) to say that the CGT(A) has negatived the contentions with regard to jurisdiction in the case on hand. However, the appellate authority has chosen to reduce the gift-tax in the case on hand. Matter reached the Tribunal and the Tribunal has partly accepted the case of the appellant. He would rely on several case laws in support of his submission. He would request us to dismiss the appeal.
9. After hearing, we have carefully seen the material on record.
Re: Questions 1 to 3
10. Matter on record would reveal that the BPL Ltd. has transferred its holding in eight companies to Celestial Finance Company on 2-3-1993. Face value of these shares was worked out to Rs. 23,10,03,974. According to the department, there is inadequate consideration warranting proceedings under the GT Act. Assessing authority levied tax at Rs. 20.94 crores in addition to interest at Rs. 33.08 crores, totalling to Rs. 54.02 crores. In appeal, the CGT(A) ordered tax at Rs. 5.06 crores plus interest at Rs. 7.99 crores, totalling to Rs. 13.05 crores. In the further appeal, the Tribunal enhanced the same to Rs. 16.76 crores in addition to tax at Rs. 26.49 crores, totalling to Rs. 43.25 crores. Appellant has made over a sum of Rs. 14.36 crores towards tax.
11. At this stage, let us see as to whether the order of the CGT(A) in terms of the questions of law raised by the parties is acceptable or not in the case on hand. These three questions are referable to the jurisdiction available to the respondent on the facts and circumstances of this case.
12. Admitted facts, as mentioned earlier, would show that the transfer of shares was effected on 2-3-1993. There was an internal audit objection and there was correspondence between the parties in the light of audit objection. Appellant, replied to the department in the light of the information sought for by the assessing authority. Thereafter, assessment proceedings were concluded by the IT authorities. Subsequently, appellant's premises were searched after five long years; and, in the light of search proceedings, Dy. CGT sought permission from the Addl. CGT for notice under Section 16(l) of the Act. Approval was granted by the Addl. CGT on 6-12-1999, and, a notice was thereafter issued by the department. Assessment order was made on 29-3-2060. Contention of the appellant is that the proceedings initiated under Section 16 is without jurisdiction. To understand this question, one has to notice various provisions of the GT Act.
13. Gift Tax Act provides for gift escaping assessment. Section 16(l) of the Act would read as under:
If the assessing officer has reasons to believe that the taxable gifts in respect of which any person is assessable under this Act (whether made by him or by any other person) have escaped assessment for any assessment year (whether by reason of underassessment or assessment at too low a rate or otherwise), he may, subject to the other provisions of this section and Section 16A, serve on such person a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner, setting forth the taxable gifts made by him or by such other person during the previous year mentioned in the notice, in respect of which he is assessable, along with such other particulars as may be required by the notice, and may proceed to assess or reassess such gifts and also any other taxable gifts in respect of which such person is assessable, which have escaped assessment and which come to his notice subsequently in the course of the proceedings under this section for the assessment year concerned (hereinafter in this section referred to as the relevant assessment year); and the provisions of this Act shall, so far as may be, apply as if the return were a return required under Section 13 ...........
14. The said section provides for notice for the purpose of assessment on the basis of escaped assessment. Opportunity is also provided under the said section. However, the said section would say that the it would render inapplicable (sic) only in the event the assessing officer has reasons to believe that the taxable gifts, in respect of which any person is assessable under this Act, have escaped assessment for any assessment year.
15. 'Reason to believe' has been considered by courts of law. In Raymond Woollen Mills Ltd. v. Income Tax Officer : [1999]236ITR34(SC) , the Apex Court ruled that in determining whether commencement of reassessment proceedings was valid, it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case, and that the sufficiency or otherwise of the material is not to be a thing to be considered at that stage.
In CIT v. Sun Engineering Works (P) Ltd. : [1992]198ITR297(SC) , the Apex Court ruled that although Section 147 is part of a taxing statute, it imposes no charge on the subject but deals with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable.
In Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT : [1999]236ITR832(Guj) , the Apex Court (sic-Gujarat High Court) ruled that the words 'reason to believe' would mean cause or justification. If the assessing officer has a cause or justification to think or support that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words 'reason to believe' cannot mean that the assessing officer should have finally ascertained the facts by legal evidence. They only mean that he forms the belief from the examination he makes and if he likes from any information that he receives. If he discovers or finds or satisfies that the taxable income has escaped assessment, it would amount to saying that he has reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final conclusion. At the stage where he finds a cause or justification to believe that such income has escaped assessment, the assessing officer is not required to base his belief on any final adjudication.
In Sarabhaj M. Lakhani v. ITO : [1998]231ITR779(Guj) , the court holds that the validity or otherwise of the reasons for initiation of reassessment proceedings should be gone into on the basis of facts mentioned and the reasons recorded prior to such initiation. Thus where the reasons recorded do 'not bring out any grounds for making out an objective satisfaction arrived at by the assessing officer, no reasons other than those recorded by the assessing officer can possibly be urged at the time of initiation. It is necessary that before any action is taken, the assessing officer should substantiate his satisfaction.
CIT v. Prithviraj Maheshwari is a Bench decision of Rajasthan High Court. The court ruled that once the assessee declares fully and truly all material facts in income-tax proceedings for assessment of that transaction, and value has been accepted by the same assessing officer, there is no justification to disturb that value in gift-tax proceedings.
In ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) , the Supreme Court has ruled reading as under:
Rational connection postulates that there must be direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening the assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.
The court ruled that the reason for the formation of belief must be held in good faith and should not be a mere pretence.
In CIT v. Bhanji Laiji : [1971]79ITR582(SC) , the Apex Court ruled that it is not for the assessee to satisfy the Income Tax Officer that there was no concealment with regard to any question; that it is for the Income Tax Officer, if that issue was raised, to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment.
In CIT v. Dinesh Chandra H Shah & Ors. : [1971]82ITR367(SC) , the Supreme Court held that mere change of opinion cannot be a valid ground for reopening an assessment under Section 34(l)(b) of the Income Tax Act, 1922.
The decision in Bharat Hari Singhania & Ors. v. CWT : [1994]207ITR1(SC) would say the same principle.
16. Courts of law have ruled in terms of case laws that the reason to believe would mean, prima facie, some material on the basis of which the department could reopen the case. The Apex Court has also ruled that the words 'reason to believe' cannot mean that the assessing officer should have finally ascertained the facts by legal evidence. 'Satisfaction' is necessary in terms of the material available on record. It is also ruled that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant formation of 'belief' relating to escapement of the income of the assessee from the assessment. Formation of belief must be in 'good faith' and it should not be a mere pretence. From the case laws, it is clear that 'satisfaction' has to be bona fide and there has to be reasonable nexus and has to be based on prima facie acceptable material. It is also ruled that it should be based on objective satisfaction arrived at reasonably and never be an outcome of change of opinion. From the case laws, what is to be noticed by us is that reopening must be on acceptable grounds and it cannot be at the whims and fancy of the authorities in terms of the provisions, There has to be a reasonable nexus in terms of the law declared by the courts of law. It should be based on objective satisfaction arrived at by the assessing officer reasonably and can never be an outcome of change of, opinion.
17. Let us see as to whether this principle is followed in the case on hand. Assessing officer has issued notice and thereafter obtained a reply from the assessee. After obtaining reply, he has passed a very detailed order rejecting the contention of the assessee on the basis of the materials placed before him. He has ruled that there exists grounds for initiation of the proceedings in the light of search conducted by him. It is on this principle, he has ruled that there is a deemed gift in terms of Section 4(1)(a) of the Act. He rejected the theory of change of opinion. When the same was challenged on the very grounds before the CGT(A), the CGT(A) has noticed various material facts to accept the jurisdiction available to the assessing officer. He has rejected the theory of change of opinion as canvassed by the assessee. He has ruled that the assessing officer Sri P.A. Mathew, who has passed the income-tax assessment order for the year 1993-94 did not have the material before him at that stage which would have shown that taxable gifts had escaped assessment. Till the income-tax assessment was over, the assessee did not produce the materials before him which were necessary to form a belief that taxable gift escaped assessment. The order sheet and the records would show that the only letter dealt with by him was the letter filed on 9-4-1996 seeking stay of collection of the demand and which was posted for hearing on 14-5-1996 as intimated by letter dated 23-4-1996. He did not even hear or pass any order on the stay application. He was transferred in 1996. It was left to his successor to re-post as intimated by another letter dated 28-6-1996. His successor did not deal with the letters and he only replied to the audit saying that his predecessor had considered all matters at the stage of income-tax assessment while the records show that the facts were otherwise. In the light of these facts, the CGT(A) ruled that it would be unrealistic to hold that all relevant aspects were considered by the predecessor assessing officer and they applied their mind on the question of assessability to gift-tax and considered all relevant materials in coming to a conclusion that no gift-tax assessment was called for. Materials which were not before the predecessor assessing officer and which were not considered by the predecessor assessing officer came up before the assessing officer who initiated action under Section 16(l) of the Act for the assessment of taxable gift in the form of appraisal reports and seized records. He has also noticed transfer of shares that was effected by the assessee. After noticing he was of the view that the materials before the present assessing officer were sufficient to form an honest view i.e. to give 'reason to believe' genuinely that taxable gift escaped assessment.
18. The Tribunal has accepted this finding in its order. The Tribunal after, noticing all relevant facts and also the case laws and the findings, has chosen to say that the question of change of opinion forming the sole basis for initiation of action under Section 16 of the, Act is totally strange to the facts of the case. The Tribunal accordingly held that the gift-tax proceedings were validly initiated in the facts and circumstances of the case. We are of the view that all the three authorities are justified in holding that the initiation of proceedings under Section 16 of the Act is for a bona fide reason and it is objective in character. There is no change of opinion resulting in assessment proceedings as argued by Sri Dattar, learned senior counsel appearing for the assessee. We are unable to accept his submission in the given circumstances.
19. From the material on record, it is seen that some correspondence was there between the parties in the matter of gift and that correspondence did not end in any finality on the issue between the parties. Objection was raised by the department and a reply was obtained. Nothing was done by the department. In the circumstances, mere seeking certain information does not by itself prevent authorities from initiating proceedings under Section 16 of the Act. From the material on record, it is clear to us that the department has got some material with regard to transfer of shares, and that it is only thereafter the proceedings were initiated. Mere correspondence may be a factor, but that mere correspondence does not by itself would result in change of opinion as sought to be made out by the appellant. Change of opinion to our mind would be a change in the findings given after considering the material on record. Mere correspondence or mere query and an answer to that does not by itself would mean that there is a change of opinion as argued by the learned Counsel. The assessing officer, in the light of search proceedings and in the light of transfer of shares, bona fide believed that there is a reason to believe for reopening the proceedings. The principle of law in terms of the judgment of the Apex Court is that belief is not to be arbitrary or irrational and it must be reasonable or in other words, it must be based on reasons which are relevant or material. Acceptable reasons are shown to us by the department.
20. In fact there was no concluded proceedings by the Income Tax Officer. After audit objection, there was some correspondence between the parties. Thereafter, there was lull on the part of the department. Lull activity or silent activity on the part of the department would not debar the revenue from initiating any further proceedings in the light of search carried out by it. Any restriction on such power, in our view, would result in loss of revenue legally available to the department in such circumstances.
21. In the circumstances, contention of 'no jurisdiction' on the principle of change of opinion' or 'satisfaction' is not acceptable to us. If this argument is accepted, then there is every chance for an official raising an issue, and after obtaining reply, no decision is taken; in which case, no subsequent initiation is possible at all if the argument is accepted. We are not prepared to accept this extreme argument on the facts of this case. There is neither change of opinion in terms of the arguments advanced in the given circumstances nor there exists any reason to believe for reopening the matter in terms of the material available on record. Both the contentions were rightly considered and rejected on facts by all the authorities. We accept this finding as recorded by all three authorities. Findings are based on facts.
22. The Rajasthan High Court judgment in CIT v. Prithviraj Maheshwari (supra) would show that in that case, the department has accepted the earlier valuation. It was in those circumstances, the Rajasthan High Court did not accept the plea of the department. Similarly, the judgment of the Supreme Court in ITO v. Lakhmani Mewal Das (supra) is not available to the proceedings. In that case the court notices the previous assessment proceedings and thereafter it has accepted.
23. The next contention is with regard to 'satisfaction' on the part of the Addl. CGT in the matter of Section 16 proceedings. What is contended before us is that there is no acceptable satisfaction available on record in the matter of sanction in terms of Section 16 of the Act. It is submitted before us that the Dy. CGT has sought for permission from the CGT(A) under Section 16 of the Act. He has referred to certain documents in his permission application. Those documents were not even put to the assessee for rebuttal in terms of the submission made before us. The department, on the other hand, has chosen to deny the same.
24. In this regard, the assessee relies on the following judgments
(1) CIT v. Man Mohandas : [1996]218ITR730(MP)
(2) Bhupindra Food & Malt Industries v. CIT
(3) Soorajmal Srigopal v. ITO : [1979]117ITR326(Cal)
(4) Suganchand Chandanmal v. ITO & Ors. : [1976]105ITR743(Cal)
(5) Dhirajlal Girdharilal v. CIT : [1954]26ITR736(SC) .
25. In the light of the arguments, we have seen the material on record.
26. Annexure G is an order dated 2-12-1999. The Dy. CGT has sought for permission for reopening of gift-tax assessment for the assessment year 1993-94. He would say in the said letter that the assessee company has sold the shares worth Rs. 23,10,03,974 to its sister-concern M/s Celestial Finance Ltd. at the face value of Rs. 10 in March, 1993. Transfer of shares found to be for adequate (inadequate) consideration. He provided details in the order. He would say that the amount by which the value of shares exceeds the value of consideration shall be deemed to be a gift made by the assessee company in terms of Section 4(l)(a) of the GT Act, 1958. He sought for approval in terms of Section 16(IB)(b) of the Act to reopen the assessment. The Addl. CGT has chosen to grant approval in terms of his order dated 6-12-1999. The assessee has contended, as mentioned earlier, that the reopening is on the basis of mere change of opinion, which we have already rejected in terms of the earlier findings. Assessee also would say that the permission is unsustainable. We have seen the findings of the assessing officer and the CGT(A) and also that of the Tribunal. The assessing officer has chosen to pass an adverse order. Same was challenged in appeal. CGT(A) after consideration has chosen to accept the order of the assessing officer. The Addl. CGT, in our view, after hearing has applied his mind in granting permission. We do not find any unreasonableness or illegality in granting permission on the facts of this case. Unless permission is tainted or opposed to any provision of law, same cannot be disturbed. We therefore, accept the permission granted by the authorities.
27. In the circumstances, we deem it proper to answer the questions of law in the matter of jurisdiction in favour of the revenue. First three questions are therefore answered against the assessee.
Re. Questions 4 and 5
28. Question No. 4 deals with share transfer being a deemed gift for the purpose of tax under Section 4(l)(a) of the Act. Question No. 5 is with regard to the valuation of shares in lock-in period. Both the questions can be considered together.
29. Before we touch upon the merits of the matter, we must say that the assessing officer in his order has considered the deemed gift for non-receipt of consideration under Section 4(l)(b) of the Act to the extent of Rs. 13,90,64,563. A detailed order was passed. CGT(A) has chosen to hold that it was difficult to hold that the consideration was not intended to pass for the purpose of Section 4(l)(b) of the Act. The CGT(A) deleted the amount assessed under Section 4(l)(b) in his order. Same is confirmed by the Tribunal. No further appeal is filed. Hence, deletion of deemed gift in terms of the order of the CGT(A) has become final.
30. What is now required to be considered by us is about the deemed gift under Section 4(l)(a) of the Act. For this purpose, we have to see the admitted facts before considering the legal issue urged by the parties. M/s BPL Ltd. transferred shares to M/s Alpha Securities (P) Ltd., which is a subsidiary company of M/s BPL Ltd. M/s Alpha Securities (P) Ltd. in turn transferred the same to M/s Celestial Finance Ltd., which is a subsidiary concern to M/s Alpha Securities (P) Ltd. In Alpha Securities (P) Ltd., Mrs. Thankam Nambiar, Mrs. Meena Nambiar and Mr. Pramod Katdhare had 100 shares each. BPL Ltd. had 360 shares. Lemas (BPL Engineering Ltd.) (91 per cent subsidiary of BPL) had 20 shares. Accordingly, M/s Alpha Securities (P) Ltd. is 99.7 per cent subsidiary of BPL Ltd. according to the appellant. In M/s Celestial Finance Ltd., Mrs. Thankam Nambiar had 200 shares, Mrs. Meena Nambiar had 100 shares and M/s Alpha Securities (P) Ltd. had 700 shares. M/s Celestial Finance Ltd. is therefore 100 per cent subsidiary of M/s Alpha Securities (P) Ltd. as contended by the appellant. When transfer is made to a company in which the transferor has substantial interest, the question of any benefit accruing to the transferee at the cost of the transferor does not arise.
31. Section 4(l)(a) of the Act reads as follows
4. (1) For the purposes of this Act,-
(a) Where property is transferred otherwise than for adequate consideration, the amount by which the value of the property as on the date of the transfer and determined in the manner laid down in Schedule II, exceeds the value of the consideration shall be deemed to be a gift made by the transferor
Provided that nothing contained in this clause shall apply in any case where the property is transferred to the Government or where the value of the consideration for the transfer is determined or approved by the Central Government or the RBI.'
32. Let, us see the law on the subject before we consider the merits for the purpose of deemed gift under Section 4(l)(a) of the Act. GTO v. Venesta Foils Ltd. : [1980]124ITR660(Cal) is a judgment of the Calcutta High Court. The High Court has ruled thus:
On the terms of agreement, the allotment of the shares as the residue of consideration was intended to cover the entire assets transferred less liabilities ,undertaken by the transferee company. The liabilities as on the date of transfer had a worth in money and was in effect quantified in terms of money. So, when the transferee, under the terms 'of the agreement, agreed to pay the liabilities attached to the business which was being transferred, it was paying as consideration money's worth of the liabilities. The balance consideration was agreed to be satisfied in shares of the face value of 1998 irrespective of the value of assets already vested in the transferee. The transferee company had shown the excess value in share premium account and accepted the liabilities in respect of such share premium in favour of VF Ltd. and its shareholders as a result of increase of assets. The amount thus stood as liability for the entire excess value of assets along with the share capital while for the transferor the excess value had been shown in investment in the subsidiary. The entire assets were fully accounted for in the accounts of both companies under the requirements of the Companies Act.
The Calcutta High Court ultimately ruled that there is no deemed gift in the light of transfer of assets by parent to subsidiary companies.
In Bireswar Sarkar v. GTO & Ors. : [1997]223ITR404(Cal) , a learned single Judge of the Calcutta High Court held that the transfer by the petitioner of the assets at book value to the company in which the petitioner was automatically interested or had controlling interest was not a deemed gift.
The Supreme Court in Reva Investment (P) Ltd. v. CGT : [2001]249ITR337(SC) , has ruled reading as under -
Section 4(1)(a) has to be construed in a broad commercial sense and not in a narrow sense. If the transaction involves transfer of certain property in lieu of certain other property received, then the process of evaluation of the two items of property should be similar and if, on such evaluation, it is found that there is appreciable difference between the values of the properties, then the transaction will be taken as 'deemed gift'.
The Supreme Court ruled that such a conclusion cannot be drawn merely because according to the assessing officer there is some difference between the valuation of the property transferred and the consideration received. The Supreme Court also has ruled that the transaction was on inadequate consideration and the parties deliberately showed the valuation of the two properties as the same to evade tax. Therefore, what is clear to us is that it should be for inadequate consideration and it should show that the valuation was done to evade tax.
33. Revenue has also placed before us various case laws.
The Madras High Court in CGT v. D. Surendranath Reddy : [1998]233ITR21(Mad) , ruled that adequate consideration is not necessarily what is ultimately determined by someone else as market value unless the price was such as to shock the conscience of the court, it would not be possible to hold that the transaction is otherwise than for adequate consideration.
In CGT v. Indo Traders & Agencies (Madras) (P) Ltd. : [1981]131ITR313(Mad) , the Madras High Court observed that the provision is designed to check evasion of tax by persons transferring properties for inadequate consideration; that if a person had effected a gift which would be without consideration, he would be liable to be taxed under the Act; that the same person may, in order to avoid the tax, transfer properties for a paltry consideration so as to get out of the operation of the Act, then he can be made liable under Section 4(l)(a). The High Court further observed that it is this attempt at evasion which was sought to be thwarted by enacting Section 4(l)(a).
In Polestar Electronic (P) Ltd. v. Addl. CST & Anr. (1978) 41 STC 309 (SC), the Supreme Court observed reading as under:
A statutory enactment must ordinarily be construed according to the plain natural meaning of its language and no words should be added, altered or modified unless it is plainly necessary to do so in order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute. This rule of literal construction is firmly established and it has received judicial recognition in numerous cases.
The Supreme Court in Workmen, Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. : (1986)ILLJ142SC , observed that it is the duty of the Court, in every case where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smokescreen and discover the true state of affairs; that the court is not to be satisfied with form and leave well alone the substance of a transaction, that avoidance of welfare legislation is as common as avoidance of taxation and the approach in considering problems arising out of such avoidance has necessarily to be the same.
34. Therefore, what is clear to us is that any avoidance of tax by In genuine methods has to be dealt strictly and to see further that such attempts are destroyed by bringing that amount to tax in terms of the statute. Section 4(l)(a) is introduced to check the evasion of gift-tax by way of deeming provision. Deeming provision has to be applied strictly in terms of Section 4(1)(a) of the Act. In the event of inadequate consideration, the authorities are justified in bringing that amount to tax provided the same is a deemed gift. The Apex Court has ruled that Section 4(l)(a) of the Act has to be considered in broad commercial sense and not in a narrow sense. In the light of the dictum of the Supreme Court, we have to see as to whether 'deemed gift' is made out in the case on hand.
35. Now that we have seen the law, let us see the facts as to whether the transfer is not 'gift' in terms of the submission made before us. The assessing officer has considered this issue in detail in his order. The assessing officer notices that the assessee company has not been able to prove satisfactorily the subsidiary status of M/s Celestial Finance Ltd. with any documentary proof. The assessing officer further notices that M/s Celestial Finance Ltd. and M/s Alpha Securities Ltd. have not been shown as subsidiaries of the assessee company in its annual report. The assessing officer notices that as on the date of incorporation i.e. on 24-2-1992, M/s Alpha Securities Ltd. had the following shareholding pattern
(a)
Mrs. Thankam Nambiar
100 shares
(b)
Mr. T.C. Chouhan
100 shares
(c)
Mr. P.P. Katdhare
100 shares
As on the date of transfer of shares i.e. on 2-3-1993, the shareholding pattern of M/s Alpha Securities was as under:
(a)
Mrs. Thankam Nambiar
100 shares
(b)
Meena Nambiar
100 shares
(c)
P.P. Katdhare
100 shares
(d)
BPL Ltd.
360 shares
(e)
EEMS Company Ltd.
20 shares
The assessing officer therefore observes that M/s Alpha Securities Ltd. was not wholly owned subsidiary of the assessee company as on 2-3-1993.
The assessing officer further notices in his order about the shareholding pattern of M/s Celestial Finance Ltd. as on the date of incorporation i.e. 9-11-1992, reading as under
(a)
Ajit G. Nambiar
100 shares
(b)
Anju Nambiar
100 shares
(c)
Rajiv Chandrashekar
100 shares
As on the date of transfer of shares i.e. on 2-3-1993, the shareholding pattern of M/s Celestial Finance Ltd, stood as under:
(a)
Mrs. Thankam Nambiar
200 shares
(b)
Meena Nambiar
100 shares
(c)
Alpha Securities Ltd.
700 shares
From these figures, the assessing officer ruled that M/s Celestial Finance Ltd. was also not wholly owned subsidiary of M/s Alpha Securities Ltd.
The assessing officer also notices that the shareholders did not consist of only the family members of Mr. T.P.G. Nambiar, but some outside shareholders are also available. He has given details sin his order.
The assessing officer further notices that the declarations were filed in terms of Section 187 of the Companies Act, 1956 after three years and three months from the scheduled
date of acquisition of the beneficial interest. He noticed that it was only after the gift-tax issue was raised by the assessing officer in Trichur in February, 1996, that the assessee company has made necessary changes in the shareholding patterns of the group companies to make them the subsidiary companies. He has also noticed that M/s Alpha Securities Ltd. and M/s Celestial Finance Ltd. are the companies in the same group in which public are not substantially interested.
He also notices that on 31-3-1993 the assessee company has ensured that M/s Alpha Securities Ltd. ceases to be its subsidiary by making necessary changes in the shareholding pattern. He would also notice that the assessee company was holding shares in Alpha Securities Ltd. for a period hardly about 10 to 52 days. He notices the directors' report of the assessee company for the year 1992-93. After noticing all these factual aspects of the matter, he has come to a conclusion that it is a clear case of effecting transfer of shares in a circuitous fashion by involving two other companies. After noticing, he has come to the conclusion that as on the date of transfer, M/s Alpha Securities Ltd. actually had only three shareholders; and that M/s BPL Ltd. was brought as a shareholder only after the gift-tax issue was raised in February, 1996. He has also ruled that issuing 700 shares to M/s Alpha Securities Ltd. is an after thought. He has also noticed that the assessee company has intentionally and deliberately tried to make M/s Celestial Finance Ltd. and M/s Alpha Securities Ltd. as its subsidiaries to avoid payment of gift-tax. He has thereafter come to the conclusion that the contention of 'no gift' cannot be accepted. He would say that there is transfer from one company to another and that it is not a transfer by a holding company to the subsidiary company on facts.
36. All these facts have been noticed by the CGT(A) and after noticing the CGT(A) accepts that the assessee company had intentionally and deliberately tried to make M/s Celestial Finance Ltd. and M/s Alpha Securities Ltd. as their subsidiaries to avoid payment of gift-tax. The appellate authority also notices various aspects of the matter in its order. When this order was challenged in appeal, the Tribunal has accepted the findings of these two authorities. In our view, all the three authorities are justified in coming to their conclusions. The chronological events as accepted by the CGT(A) and the Tribunal would go to show that an attempt was made probably to avoid or evade gift-tax. Bundle of facts available on record would indicate the intention of the assessee in terms of the findings of all the three authorities. Despite strong argument of Sri Datar, learned senior counsel for the assessee company, we are not inclined to accept his submission. In the light of acceptable bundle of facts, if read as a whole, would indicate a 'deemed gift' in terms of Section 4(1)(a) of the Act.
37. We must also see as to whether there is inadequate consideration in terms of the material on record. All the three authorities have noticed that the assessee has chosen to transfer shares for a lesser consideration. Argument of the assessee is that there is no gift at all and that the gift has been made by a holding company to a subsidiary company, which would mean that the company has transferred shares to itself. Section 45 of the Act would not cover the transactions of this nature. The authorities have considered 'subsidiary' issue by reference to various material facts available on record. The assessing officer has chosen to refer the material facts. After referring to the material facts he would hold that none of the two companies were wholly owned subsidiary of the assessee as on the date of transfer, and that the statutory obligations under the Companies Act were not fulfilled. It is also noticed that the assessee company and M/s Celestial Finance Ltd. are two distinctly assessable entities, and the shareholders of both the companies are not the same. Details are furnished in the order of the assessing officer. CGT(A) in its order has considered in detail the said issue. In fact, the CGT(A) has noticed the findings at paras 13 to 29 that the status of holding company and the subsidiary are existing between the assessee and M/s Celestial Finance Ltd. Same is extracted in para 30 of the order of the CGT(A). CGT(A) has also referred to grounds of appeal and thereafter considered the merits of the matter in the light of the submissions made before him. He has noticed various case laws in the case on hand. After noticing various case laws, he has come to the conclusion that none of two companies were wholly owned subsidiary of the assessee company as on the date of transfer and that statutory obligations were not fulfilled. He has further noticed the correspondence in the order. He has also seen that after receiving notice from the assessing officer, the assessee has chosen to create the theory of subsidiary company. He has noticed the documents filed by the assessee in his order. After noticing the material aspects of the matter, he has answered this question as against the assessee. When the same was challenged before the Tribunal, the Tribunal has noticed in para 37 the contentions of the parties. After noticing the material available on record, the Tribunal has rejected the contentions urged by all the three authorities on facts and has chosen to hold against the assessee. Bundle of facts, as accepted by the authorities, could be disturbed by us only in the event of adverse findings not based on evidence. Material on record would reveal that the subsidiary company status has been given probably to avoid payment of gift-tax. Shares are provided for inadequate consideration. Status of subsidiary company in terms of the findings has lasted only for 50 days. They were not reported as subsidiary companies in the annual report of BPL. Even the benefits which have been provided is mostly made to T.P.G. Nambiar and members of his family. Declaration in terms of the Companies Act was not filed in time though it was filed subsequently. Therefore, from the material on record, we are of the view that the contention of transfer effected to itself, on the plea of such transfer as having been made by a holding company and a subsidiary company, do not appeal to us. Assessee however would rely on several judgments in support of his submission.-GTO v. Venesta Foils Ltd. (supra) is the judgment of Calcutta High Court. In the said case, Calcutta High Court has noticed deemed gift and also the principle of transfer from holding company to subsidiary company. A reading of the said judgment would show that the said judgment is clearly distinguishable on facts. It was not a case of transfer of shares to a single family, and it was also not a case of inadequate consideration as in the present case. Though the Calcutta High Court has ruled in favour of the assessee in that case, the same cannot be made automatically applicable to the facts of this case unless bundle of facts of this case would show no gift in terms of Section 4(1)(a) of the Act. So long as bundle of facts is staring against the assessee, the judgment of the Calcutta High Court cannot be made applicable to the assessee.
Bireswar Sarkar v. GTO & Ors. (supra) is another judgment of the Calcutta High Court. That was a case that arose out of a writ petition. In that case, the court noticed transfer by the petitioner of the assets at the book value to the company in which petitioner was automatically interested was not a deemed gift. The court has also noticed that there was no gift-tax applicable and that the GTO had abdicated his function under Section 16 of the Act. That case has been affirmed by the Division Bench of that court. But the said case also is distinguishable on facts.
Reva Investrnent (P) Ltd. v. CGT (supra), is also not available to the assessee since in that case the Supreme Court has ruled that no gift-tax liability would be attracted because the subsidiary companies has no other asset, and whatever was the value of the jewellery as determined by the department was in fact the value of the shares transferred by the subsidiaries to the assessee. This case is of no assistance to the assessee since the said judgment is also distinguishable on facts.
38. Therefore, we have no hesitation in accepting the concurrent findings of all the three authorities with regard to the status in this appeal. We reject the argument of the assessee on this aspect of the matter.
Issue relating to valuation of shares
39. Elaborate arguments have been advanced with regard to valuation of shares in the case on hand. Lots of arguments had been addressed both by Sri Datar, learned senior counsel for the assessee and Sri Indra Kumar, learned senior counsel for the revenue. Several legal points were shown to us for the purpose of valuation by the authorities. Sri Datar, learned senior counsel, as mentioned earlier, has invited our attention to r. 2 of Schedule II of the GT Rules for the purpose of valuation. He would also refer to us the WT Rules to say that the valuation that has been done by the CGT(A) has been enhanced without justification. Per contra, Sri Indra Kumar, learned senior counsel for the revenue, with vehemence, would say that lock-in period would not in any way affect valuation of shares. He would refer to us various case laws and various provisions in support of his submission.
40. After hearing, we have carefully perused the material on record. As mentioned earlier, the assessing officer has ruled the valuation at Rs. 20.94 crores. The CGT(A) has valued at Rs. 6.06 crores. Same has been enhanced by the Tribunal at Rs. 16.76 crores.
41. Before we touch upon the merits of the matter in this regard, let us see the relevant rules as applicable to the facts of this case.
Rule 2 of Schedule II of the GT Rules read as under:
2. The value of an equity share or a preference share in any company or a debenture of any company which is a quoted share or a quoted debenture shall be taken as the value quoted in respect of such share or debenture on the date on which the gift was made or where there is no such quotation on such date, the quotation on the date closest to such date and immediately preceding such date.
Explanation : The words and expressions used in this rule and rr. 3 to 7 but not defined and defined in rule 2 of Schedule II to the Wealth Tax Act shall have the meanings respectively assigned to them in rule 2 of that Schedule.
There is a reference to r. 2 of Schedule III of the Wealth Tax Act in r. 2 of Schedule II of the GT Rules. Hence we must also notice rule 2 of Schedule III of the Wealth Tax Act for the purpose of valuation. Sub-rr. (9), (11) of r. 2 and r. 13 of the Wealth Tax Act would be relevant for the purpose of valuation. They read as under
Sub-rule (9) of r. 2 of Schedule III:
(9) 'quoted share' or 'quoted debenture', in relation to an equity share or a preference share or, as the case may be, a debenture, means a share or debenture quoted on any recognized stock exchange with regularity from time to time, where the quotations of such shares or debentures are based on current transactions made in the ordinary course of business.
Explanation : Where any question arises whether a share or debenture is a quoted share' or 'quoted debenture' within the meaning of this clause, a certificate to that effect furnished by the concerned stock exchange in the prescribed form shall be accepted as conclusive.
Sub-rule (11) of rule 2 of Schedule III:
(11) 'unquoted share' or 'unquoted debenture', in relation to an equity share or a preference share or, as the case may be, a debenture, means a share or debenture which is not a quoted share or a quoted debenture.
Rule 13 of (Schedule III to) the Rules (Wealth Tax Act):
Forms for certificate of valuation of shares/jewellery, etc.-(a) the form for certificate of quoted shares or debentures of a company to be issued by a stock exchange under sub-r. (9) of r. 2 shall be in Form O-11.
42. It is an undisputed fact that the transferred shares suffered lock-in period. The question is as to how to treat the lock-in period for the purpose of valuation in terms of the GT Act.
43. The assessing officer has considered this issue in detail in his order. He has noticed quoted shares as well as unquoted shares. He has taken into consideration the valuation which was prevailing on the stock exchange as on the date of transfer of shares in his order. He has come to the conclusion that the lock-in period has not affected the transfer of shares from the assessee company. He has also noticed unquoted shares. Thereafter, he has chosen to give a finding in his order. When this order was challenged before the CGT(A), CGT(A) has taken pains to refer to various aspects of the matter including the case laws for the purpose of valuation.
44. The assessee company filed certificates issued by the Asstt. Manager, Listing of Bangalore Stock Exchange. They are
(1) A copy of certificate in Ref. No. 03/B-25 dated 24-3-2000 pertaining to M/s BPL Sanyo Utilities & Appliances Ltd.;
(2) A copy of certificate in Ref. No. 03/B-28 dated 24-3-2000 pertaining to M/s BPL Sanyo Technologies Ltd.;
(3) Xerox copy of certificate in Ref. No. B-32/03 dt, 23-3-2000 pertaining to M/s BPL Refrigeration Ltd.;
(4) Another certificate dated 29-3-2000 issued by the same authority.
The CGT(A) has accepted these additional documents. He notices other two certificates in Form 0-11 in para 42.4 of his order, and as against columns 4 and 5 and 6 this is what is stated .,
4. Number of occasions the share/debenture has been transacted during the year in ordinary course of business of the business of the stock exchange.
Nil
5. Value of the share/debenture as quoted on the 31st day of March of the year.
Nil
6. If the share/debenture is not quoted on the date mentioned in column 5, the value as quoted on a date immediately preceding the date mentioned in that column.
As per SEBI guidelines the shares allotted to the promoters of the company are not transferable for a period of three years from the date of allotment and the same are not tradable on the stock exchanges. The price quoted in the stock exchange are applicable only to shares which are tradable in the stock exchange.'
45. The Explanation to sub-r. (9) of r. 2 of Wealth Tax Act would provide that a certificate to that effect furnished by the concerned stock exchange in the prescribed form shall be accepted as conclusive. The CGT(A) notices this aspect of the matter in his order. The statement of the manager listing of Bangalore Stock Exchange was recorded by the assessing officer. She would say that the shares of M/s BPL Sanyo Utilities & Appliances Ltd. and M/s BPL Sanyo Technologies Ltd. were listed. She has stated that the shares are tradable. However, she has stated that the information given in col. 3 of the certificates was at the specific request of the companies in terms of letters dated 24-3-2000. In Form 0-11 this is what is stated as against cols. 3 to 6
3. Nature of instrument, whether it is a preference or equity share or a debenture.
Equity
4. Number of occasions the share/debenture has been transacted during the year in ordinary course of business of the stock exchange.
As per Annex. F
5. Value of the share/debenture as quoted on the 31st day of March of the year.
No trading on 31-3-1993
6. If the share/debenture is not quoted on the date mentioned in col. 5, the value as quoted on a date immediately preceding the date mentioned in that column.
The shares of the company were last traded on this exchange during the month of March on 29-3-1993 and the price is as under: Average-Rs. 39 Closing-Rs. 33.'
46. The CGT(A) has accepted the document filed by the assessee, and thereafter, he noticed that the shares in promoter's quota which was prevented from being traded in the stock exchange during the lock-in period could not be the subject-matter of quotation in the stock exchange and as a class these could not fall within the definition of quoted share. He ruled that for the purpose of determining the value of shares which were in lock-in period cannot be treated as quoted shares. He also noticed in detail the valuation of unquoted shares. After noticing he upheld the order of the CGT (sic) insofar as valuation of the unquoted shares.
47. When this order was challenged before the Tribunal, the Tribunal has ruled that in fact the assessee in this case has transferred shares even within the lock-in period, that means the restriction as to the transferability have not prevented the shares from being transferred. Only when it comes to the taxability, the assessee is trying to take the benefit of the restrictive clauses that are contained in terms of the issue of shares. The assessee has no doubt obtained the certificates subsequently from the BSE authorities, which were issued on the assessee's request. Shares of the company were listed securities in the stock exchange and they were all actively traded. Tribunal has also ruled that it is only the promoter's quota of shares which were in the lock-in period-, and that however, merely there being a bar on trading does not mean that the shares themselves were unquoted shares. In that view of the matter, he approved the action of the assessing officer and set aside the finding of the CGT(A).
48. After hearing, we have carefully seen all the three orders. Admittedly, certain additional materials were placed before the CGT(A). The CGT(A) noticing those materials has chosen to hold in favour of the assessee. The Tribunal has set aside the same by holding that the assessee obtained a certificate subsequently from the BSE authorities. Tribunal has ruled that merely there being a bar on trading does not mean that the shares themselves were unquoted shares. In this regard, we notice the materials placed before the officers. Form 0-11 is submitted. In terms of r. 2(9) of Schedule III, it is a certificate issued by the Bangalore Stock Exchange. It categorically says that in terms of SEBI guidelines, the shares allotted to the promoters of the company are not transferable for a period of three years from the date of allotment and the same are not tradable on the stock exchanges; and that the price quoted in the stock exchange are applicable only to shares which are tradable in the stock exchange. We also see a certificate issued by the Bangalore Stock Exchange dated 24-3-2000, in which there is stated that the share certificates were enfaced to the effect that 'those shares as hall not be sold/hypothecated/ transferred' and that the said certificate was issued on the request of BPL Sanyo Utilities and Appliances Ltd. These certificates are not disputed. Moreover, the certificate issued by the stock exchange in Form 11 is conclusive. There is a lock-in period. In our view, just because the shares are quoted in the stock exchange, that by itself would not mean that some value can be attached, and the value would be so available only if the shares would be traded. Mere quoting in the stock exchange would not give any valuation to it. At the most, it may only indicate ownership, but, the value of ownership is not determined. In such circumstances, in the light of the rule available on record, it is not possible for this Court to accept the finding of the Tribunal that these shares are to be taken as unquoted shares. We rather would agree that the finding of the CGT(A). CGT(A)'s order is based on reasonable and acceptable findings, whereas, the Tribunal's finding is a finding without proper reasons. The valuation has to be specific for the purpose of gift-tax. It cannot be suggestive of a hypothetical figure. In the written arguments placed before us, the revenue would say that evidently the information conveyed by the certificate issued by the manager listing at the instance of the company was not in accordance with the prescribed Form 11. However, subsequently certificates were produced after obtaining the same from Bangalore, Cochin and New Delhi. These certificates would make it clear that the shares in question were not traded and were not tradable. If that is so, in our opinion, the CGT(A) is right in holding that the lock-in-period is a factor that would go in favour of the assessee. After noticing the lock-in-period, the CGT(A) has chosen to accept the amount of Rs.. as the amount that warrants gift-tax. We accept his findings. Therefore, on facts, we are satisfied that the CGT is right in holding that the lock-in period is a factor that would go in favour of the assessee. We accept these findings. We therefore answer the Section 4(1)(a) question in favour of the revenue. However, on the question of valuation, we deem it proper to accept the order of the CGT.
49. Several judgments have been cited by the revenue in this regard. Bharat Haij Singhania & Ors. v. CWT & Ors. (supra), is a judgment of the Apex Court. That is a case in which the. Court was considering the valuation aspect of the matter. Facts in that case would show that it was prior to amendment of the Act in terms of the Wealth Tax Act.
CWT v. Purshottam N. Amersay & Anr. : [1969]71ITR180(Bom) , Purshottam N Amarsay & Anr. v. CWT : [1973]88ITR417(SC) and Ahmed G.H. Ariff & Ors. v. CWT : [1970]76ITR471(SC) are the decisions no doubt referable to valuation. But all these decisions are rendered prior to amendment. In the case on hand, method of valuation is provided in the: statute itself. Therefore, what we require to see is as to whether valuation is in terms of the statutory provisions. As mentioned earlier, the CGT(A) after evaluation has considered this aspect of the matter and we have accepted the same in terms of our earlier findings.
Issue relating to interest
50. The last issue that would arise is with regard to interest. Interest has been levied by all the three authorities. Interest is provided in Section 16B of the Act. Case laws are not wanting in this regard.
51. The Patna High Court in Ranchi Club Ltd. v. CIT : [1996]217ITR72(Patna) , has ruled that:
The object underlying Section 234A is to create additional liability to pay interest for the default in furnishing the return of income, the object is not to penalise an assessee, who has already filed the return under Section 139, for not producing accounts or documents and so on under Clause (ii) or (iii) of Section 142(l). In my considered opinion, therefore, the necessary conditions as required under Section 234A are not made out in the instant case and, therefore, the levy of interest is not justified.
52. When this order was challenged, the Apex Court has accepted the said judgment by dismissing the civil appeal filed by the CIT (Judgment is reported as CIT v. Ranchi Club Ltd. Subsequently, the Full Bench of Patna High Court has considered a similar issue in Smt. Tej Kumah v. CIT & Ors. (2001) 247 ITR 210 . The Patna High Court has ruled that the interest under sections 234A and 234B of the Income Tax Act, 1961, is leviable on the tax on the total income as declared in the return and not on the income as assessed and determined by the assessing authority. In the absence of any specific order of the assessing authority interest could not be charged and recovered from the assessee. In the case on hand, in our view, these judgments are clearly applicable to the facts of the case. We are in agreement with the submission of Sri Datar, senior advocate, that interest under Section 16B is leviable on the tax on the total income as declared in the return and not on the assessed income. In the light of the judgment of the Patna High Court referred to above, confirmed in an appeal by the Supreme Court, this question is answered in favour of the assessee.
53. Before concluding, we deem it proper to observe that the authorities are not powerless in reassessing in the case of tax evaders. Deemed provisions are provided to arrest this tendency of tax evasion. But the evasion proceedings has to be done strictly in accordance with the statute. Valuation methodology has to be based on the statutory rules dealing income in terms of law. However, it should not be irrational, arbitrary or unreasonable valuation. We also deem it proper to say that the authorities are to value the facts carefully to arrest the tax evasion, but at the same time, valuation has to be in accordance with law. This twin principle of arresting tax evasion with acceptable valuation is a factor that has to be borne in mind in gift-tax proceedings while considering the deemed gift in terms of Section 16 of the Act.
54. In the result, first three questions are answered in favour of the revenue.
Insofar as question Nos. 4 and 5 are concerned, we deem it proper to answer that Section 4(1)(a) of the Act is applicable to the shares transfer made by the appellant. However, insofar as valuation is concerned, we accept the findings of the CGT, but however without interest. In the light of our answer to the above questions, question No. 6 is answered in favour of the assessee. Ordered accordingly. No costs.
55. We also place on record the educative arguments advanced by Sri Aravind Datar, learned senior counsel and Sri Indra Kumar, learned senior counsel on the complicated questions of law in terms of the complicated questions of facts available on record.