Gopichand P. Godhwani Vs. Gift Tax Office - Court Judgment

Excerpt:
- article 14: [r.m. lodha, s.a. bobde & s.b. deshmukh, jj] retiral benefit - classification between part time lecturers and full time teachers held, the part-time lecturers form a class by themselves and the said classification between part time lecturers and full-time teachers for purpose of granting retrial benefits cannot be said to be unconstitutional or bad in law -- consumer protection act, 1986 -- article 16; right to pension held, it is true that the pension is neither a bounty nor a matter of grace depending upon the sweet will of the employer. however, the right of pension is always subject to the rules. it is not inherent in the employment. though pension is a payment for a past service rendered and it is a social welfare measure, but it is well settled that an employee is not entitled to pension de hors the rules. in the instant case the government resolution dated 21.7.1983 held that the said pension scheme is only applicable to the employees covered therein. a part time teacher, unfortunately, is not covered by the said scheme and, therefore, not entitled. retirement benefit; differentiation between full time teachers and part-time lecturers government resolution providing for retrial benefits to full-time teaching staff part-time lecturer were not entitled to said benefit held, it is true that the pension is neither a bounty nor a matter of grace depending upon the sweet will of the employer. however, the right of pension is always subject to the rules. it is not inherent in the employment. though pension is a payment for a past service rendered and it is a social welfare measure, but it is well settled that an employee is not entitled to pension de hors the rules. in the instant case the government resolution dated 21.7.1983 held that the said pension scheme is only applicable to the employees covered therein. a part time teacher, unfortunately, is not covered by the said scheme and, therefore, not entitled. - 4. it was submitted that the proceedings under gt act were initiated consequent to the failure under the it act, 1961, wherein the authorities invoked s. 24th july, 1981, permitting him to sell his shares to the other members of the godhwani family only and that too at cost, clearly establishes the fact that the property though was transferable, the transfer could be effected only at cost. further, the godhwani family members among themselves with a view to protect their interest, have clearly laid down of an agreement dt. that claim of the revenue was defeated because the revenue could not establish it with any evidence.ordera. kalyanasundharam, a.m.:the appeal is by the individual-assessee. the assessee has agitated against the authorities adopting the market value determined by the departmental valuation officer (dvo) and substituting the same for the consideration received on transfer of 7.5 per cent shares in the office premises at mittal towers and directing the assessee to pay the gift-tax on the same.2. the facts, as submitted by the learned counsel for the assessee, mr. prakash jotwani, are that eighteen persons jointly purchased the third floor of mittal. towers, b & c wings measuring 14,654 sq. ft. and an open terrace of 7, 100 sq. ft. for a consideration of rs. 18,74,500. thirteen persons of the total number of eighteen persons were belonging to the godhwani family and the thirteen persons between themselves held 75 per cent of the shares in the properties. the remaining belonged to the other five persons. he submitted that the property so acquired jointly by the eighteen persons was an indivisible and undivided property. the thirteen persons of the godhwani family amongst themselves entered into an agreement on 24th july, 1981, by which it was agreed to between the thirteen persons that no one amongst them shall sell his/her share in the property to any outsider except with the consent of the remaining joint owners. it was further stipulated or agreed to between the thirteen persons that anyone who desires to sell his/her share can do so to any of the remaining twelve persons the transfer shall be at cost. the assessee decided to sell off his 7.5 per cent share in the property. because of the constraint in the agreement dt. 24th july, 1981, placed on each of the thirteen persons of the godhwani family, the assessee was compelled to sell of his 7.5 per cent share in the property to the other co-owners or joint owners at cost. likewise the wife of the assessee too transferred her 7.5 per cent shares at cost to the other joint owners. this had nothing to do with the society in the sense that in the registers of the society there was only godhwani family and what transpired inter se between the members of the godhwani family had not to be reflected in the society records.3. on the above circumstances, the ao was of the view that the 7.5 per cent share of the assessee had a market value and the value was equal to the market price. he accordingly obtained the report of the dvo and determined the value of 7.5 per cent shares at rs. 14.786 lakhs. deducting therefrom the price received from the other co-owners the difference was treated as a deemed gift by the assessee and an amount of rs. 13,17,277 was considered as the amount of gift.4. it was submitted that the proceedings under gt act were initiated consequent to the failure under the it act, 1961, wherein the authorities invoked s. 52(2) of the said act treating the difference as undisclosed sale value. the proceedings got quashed because the department could not prove any such extra consideration passing hands between the seller and the purchaser. he submitted that in the gift-tax proceedings because there is noneed to prove exchange of extra money, the authorities relating to the market consideration, concluded that there was a deemed gift. the plea of the learned counsel was that the constraint to which the assessee got bond viz. the agreement dt. 24th july, 1981, permitting him to sell his shares to the other members of the godhwani family only and that too at cost, clearly establishes the fact that the property though was transferable, the transfer could be effected only at cost. he pleaded that this is a case of indivisible property, i.e. the property had no division by dimension and the owners jointly held the property. therefore, it being not a property which was free from encumbrances, in the sense that the other eleven persons, who were owners in their own right, had right to preserve and protect their interest. he submitted that in these circumstances, the authorities were not justified in taking the market value, which was applicable to a properly which was free from all encumbrances. reliance was placed on the calcutta high court decision in gto vs . ici (india) (p) ltd. : [1987]164itr574(cal) and the madras high court decision in cgt vs . indo 7yaders & agencies (madras) (p) ltd. : [1981]131itr313(mad) . further. reliance was also placed on the tribunal decision in gto vs. r. sambasive rao (1995) 55 ed 485 (bom.). the departmental representative relied on bederoon k. irani vs. ito (1986) 15 nd 627 (bom.).5. the rival contentions have been very carefully considered. the facts as emerge out from the records, which apparently are not disputed, are that the assessee has 7.5 per cent share in the office premises at mittal towers along with his wife who had another 7.5 per cent share and the balance of 60 per cent share was held by eleven other members of godhwani family and the remaining 25 per cent was owned by five members of another family. therefore, unless all the joint owners agreed to sell the property as a whole no buyer would be readily willing to come forward to buy a property with so many owners. a property that is owned by eighteen persons is not the same property that is owned by a single person. the large number of owners does have the effect of reducing the market value which is due to the fact of efforts to be made by the buyer to make or agree all the co-owners in regard to the value of the property and the litigations themselves, if any, that might be waged along with them. further, the godhwani family members among themselves with a view to protect their interest, have clearly laid down of an agreement dt. 24th july, 1981, that the property shall be transferred at cost to any member of the godhwani family only, who happens to be one of the joint owners.therefore, this added constraint would further bring down the market value. in fact this added constraint is a bar on any of the members dislodging the ownership rights of any of the other member and acts as a deterrent. in these circumstances, the price at which the property could be conveyed to other co-owners is the determinant of the circumstances and would, therefore, be the market value. the property having been transferred at market value, which in the instant case is at cost, there is no element of gift involved. we accordingly quash the order of the authorities below on this point.6. the second item of deemed gift is with reference to the sale of 10 equity shares of godhwani bros. (p) itd. the assessee sold all the ten shares to the existing shareholders at the rate of rs. 1,000 per share. during the income-tax proceedings the fair market value of the shares was calculated at rs. 20,584 per share. this fair market value was determined with reference to the balance sheet as on 30th june, 1984. because it was the case of the shares of a private limited company, whose shares are not quoted in the market, the value of the shares is determined with reference to the assets, etc. the balance sheet value as of 30th june, 1984, was adopted considering the fact that the shares were sold in april, 1984. the plea advanced by the counsel for the assessee was that in the case of a private limited company, whose shares are not quoted in the market, the shares are always sold with the concurrence of the existing shareholders. it was submitted that this is always so because very few shareholders, who are also directors of the company, do not want any outsiders to intervene in their affairs. he pleaded that he shares having been sold in april, 1984, the only balance sheet that was available was that of 30th june, 1983, and according to that balance sheet the value of the shares came to lakhs. 785 per share. he submitted that the assessee having sold the share at rs. 1,000 per share there was no element of gift involved. the departmental representative supported the orders of the authorities below.7. on this issue, after considering the rival contentions and the materials that are on our records, we are of the view, that there is considerable merit in the arguments advanced by the assessee. primarily there is no dispute between the parties that there being no ready available, the market value has to be determined with reference to the balance sheet only. the only point of difference is whether the value as per the balance sheet of 30th june, 1983, should be adopted or that of 30th june, 1984, should be taken. the date of sale of the shares, no doubt, is closer to 30th june, 1984, but at the time when the sale was made the only balance sheet that was available with reference to which the value could be determined, was that of 30th june, 1983. according to the balance sheet of 30th june, 1983, the value per share was rs. 785.considering the possible increase in the value, the assessee had sold the shares at rs. 1,000 per share. in our view, -therefore, the value realised on sale was reasonably the correct market value and on that basis there is no element of gift involved. we may observe that the value per share of rs. 20,584 was determined with reference to the income-tax proceedings wherein s. 52(2) of the it act, 1961, was applied for taxing the difference between rs. 20,584 and rs. 1,000 per share. that claim of the revenue was defeated because the revenue could not establish it with any evidence. for the purpose of gift-tax all that is required is that the consideration realised on sale when compared to the market value should be much less, such cases could be treated as a deemed gift. however, the market value which is a determinant, has to be determined with reference to the facts that exist at the point of occurrence of the sale. we accordingly uphold the claim of the assessee even on this ground.8. in the result, the appeal is allowed.

Judgment:
ORDER

A. KALYANASUNDHARAM, A.M.:

The appeal is by the individual-assessee. The assessee has agitated against the authorities adopting the market value determined by the Departmental Valuation Officer (DVO) and substituting the same for the consideration received on transfer of 7.5 per cent shares in the office premises at Mittal Towers and directing the assessee to pay the gift-tax on the same.

2. The facts, as submitted by the learned counsel for the assessee, Mr. Prakash Jotwani, are that eighteen persons jointly purchased the third floor of Mittal. Towers, B & C Wings measuring 14,654 sq. ft. and an open terrace of 7, 100 sq. ft. for a consideration of Rs. 18,74,500. Thirteen persons of the total number of eighteen persons were belonging to the Godhwani family and the thirteen persons between themselves held 75 per cent of the shares in the properties. The remaining belonged to the other five persons. He submitted that the property so acquired jointly by the eighteen persons was an indivisible and undivided property. The thirteen persons of the Godhwani family amongst themselves entered into an agreement on 24th July, 1981, by which it was agreed to between the thirteen persons that no one amongst them shall sell his/her share in the property to any outsider except with the consent of the remaining joint owners. It was further stipulated or agreed to between the thirteen persons that anyone who desires to sell his/her share can do so to any of the remaining twelve persons the transfer shall be at cost. The assessee decided to sell off his 7.5 per cent share in the property. Because of the constraint in the agreement dt. 24th July, 1981, placed on each of the thirteen persons of the Godhwani family, the assessee was compelled to sell of his 7.5 per cent share in the property to the other co-owners or joint owners at cost. Likewise the wife of the assessee too transferred her 7.5 per cent shares at cost to the other joint owners. This had nothing to do with the society in the sense that in the registers of the society there was only Godhwani family and what transpired inter se between the members of the Godhwani family had not to be reflected in the society records.

3. On the above circumstances, the AO was of the view that the 7.5 per cent share of the assessee had a market value and the value was equal to the market price. He accordingly obtained the report of the DVO and determined the value of 7.5 per cent shares at Rs. 14.786 lakhs. Deducting therefrom the price received from the other co-owners the difference was treated as a deemed gift by the assessee and an amount of Rs. 13,17,277 was considered as the amount of gift.

4. It was submitted that the proceedings under GT Act were initiated consequent to the failure under the IT Act, 1961, wherein the authorities invoked s. 52(2) of the said Act treating the difference as undisclosed sale value. The proceedings got quashed because the Department could not prove any such extra consideration passing hands between the seller and the purchaser. He submitted that in the gift-tax proceedings because there is no

need to prove exchange of extra money, the authorities relating to the market consideration, concluded that there was a deemed gift. The plea of the learned counsel was that the constraint to which the assessee got bond viz. the agreement dt. 24th July, 1981, permitting him to sell his shares to the other members of the Godhwani family only and that too at cost, clearly establishes the fact that the property though was transferable, the transfer could be effected only at cost. He pleaded that this is a case of indivisible property, i.e. the property had no division by dimension and the owners jointly held the property. Therefore, it being not a property which was free from encumbrances, in the sense that the other eleven persons, who were owners in their own right, had right to preserve and protect their interest. He submitted that in these circumstances, the authorities were not justified in taking the market value, which was applicable to a properly which was free from all encumbrances. Reliance was placed on the Calcutta High Court decision in GTO vs . ICI (India) (P) Ltd. : [1987]164ITR574(Cal) and the Madras High Court decision in CGT vs . Indo 7Yaders & Agencies (Madras) (P) Ltd. : [1981]131ITR313(Mad) . Further. reliance was also placed on the Tribunal decision in GTO vs. R. Sambasive Rao (1995) 55 ED 485 (Bom.). The Departmental Representative relied on bederoon K. Irani vs. ITO (1986) 15 ND 627 (Bom.).

5. The rival contentions have been very carefully considered. The facts as emerge out from the records, which apparently are not disputed, are that the assessee has 7.5 per cent share in the office premises at Mittal Towers along with his wife who had another 7.5 per cent share and the balance of 60 per cent share was held by eleven other members of Godhwani family and the remaining 25 per cent was owned by five members of another family. Therefore, unless all the joint owners agreed to sell the property as a whole no buyer would be readily willing to come forward to buy a property with so many owners. A property that is owned by eighteen persons is not the same property that is owned by a single person. The large number of owners does have the effect of reducing the market value which is due to the fact of efforts to be made by the buyer to make or agree all the co-owners in regard to the value of the property and the litigations themselves, if any, that might be waged along with them. Further, the Godhwani family members among themselves with a view to protect their interest, have clearly laid down of an agreement dt. 24th July, 1981, that the property shall be transferred at cost to any member of the Godhwani family only, who happens to be one of the joint owners.

Therefore, this added constraint would further bring down the market value.

In fact this added constraint is a bar on any of the members dislodging the ownership rights of any of the other member and acts as a deterrent. In these circumstances, the price at which the property could be conveyed to other co-owners is the determinant of the circumstances and would, therefore, be the market value. The property having been transferred at market value, which in the instant case is at cost, there is no element of gift involved. We accordingly quash the order of the authorities below on this point.

6. The second item of deemed gift is with reference to the sale of 10 equity shares of Godhwani Bros. (P) ITD. The assessee sold all the ten shares to the existing shareholders at the rate of Rs. 1,000 per share. During the income-tax proceedings the fair market value of the shares was calculated at Rs. 20,584 per share. This fair market value was determined with reference to the balance sheet as on 30th June, 1984. Because it was the case of the shares of a private limited company, whose shares are not quoted in the market, the value of the shares is determined with reference to the assets, etc. The balance sheet value as of 30th June, 1984, was adopted considering the fact that the shares were sold in April, 1984. The plea advanced by the counsel for the assessee was that in the case of a private limited company, whose shares are not quoted in the market, the shares are always sold with the concurrence of the existing shareholders. It was submitted that this is always so because very few shareholders, who are also directors of the company, do not want any outsiders to intervene in their affairs. He pleaded that he shares having been sold in April, 1984, the only balance sheet that was available was that of 30th June, 1983, and according to that balance sheet the value of the shares came to lakhs. 785 per share. He submitted that the assessee having sold the share at Rs. 1,000 per share there was no element of gift involved. The Departmental Representative supported the orders of the authorities below.

7. On this issue, after considering the rival contentions and the materials that are on our records, we are of the view, that there is considerable merit in the arguments advanced by the assessee. Primarily there is no dispute between the parties that there being no ready available, the market value has to be determined with reference to the balance sheet only. The only point of difference is whether the value as per the balance sheet of 30th June, 1983, should be adopted or that of 30th June, 1984, should be taken. The date of sale of the shares, no doubt, is closer to 30th June, 1984, but at the time when the sale was made the only balance sheet that was available with reference to which the value could be determined, was that of 30th June, 1983. According to the balance sheet of 30th June, 1983, the value per share was Rs. 785.

Considering the possible increase in the value, the assessee had sold the shares at Rs. 1,000 per share. In our view, -therefore, the value realised on sale was reasonably the correct market value and on that basis there is no element of gift involved. We may observe that the value per share of Rs. 20,584 was determined with reference to the income-tax proceedings wherein s. 52(2) of the IT Act, 1961, was applied for taxing the difference between Rs. 20,584 and Rs. 1,000 per share. That claim of the Revenue was defeated because the Revenue could not establish it with any evidence. For the purpose of gift-tax all that is required is that the consideration realised on sale when compared to the market value should be much less, such cases could be treated as a deemed gift. However, the market value which is a determinant, has to be determined with reference to the facts that exist at the point of occurrence of the sale. We accordingly uphold the claim of the assessee even on this ground.

8. In the result, the appeal is allowed.