$~28, 29 & 32
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 29.01.2018
+ GTA 1/2005
COMMISSIONER OF GIFT TAX ..... Appellant
versus
M/S JINDAL EQUIPMENT LEASING ..... Respondent
GTA 2/2006
COMMISSIONER OF GIFT TAX .....Appellant
versus
M/S STAINLESS INVESTMENTS LTD. ..... Respondent
GTA 3/2007
COMMISSIONER OF INCOME TAX DEL ..... Appellant
versus
MANSAROVER INVESTMENT LTD. ..... Respondent
Present: Mr. Deepak Anand, Jr. Standing counsel for appellant.
Mr. Ajay Vohra, Senior Advocate with Ms. Kavita Jha
and Mr. Vaibhav Kulkarni, Advocates for respondents.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A.K. CHAWLA
HON'BLE MR. JUSTICE S. RAVINDRA BHAT (ORAL)
%
The sole question for consideration in these appeals formulated
on 18.11.2005, is as follows:
"Whether the ITAT was correct in law in quashing the
assessment framed by the Assessing Officer under Section
16 (1) of the Gift Tax Act on the ground that condition
precedent for reassessment of the proceedings under the
said provision was not satisfied?
2. The necessary facts in this case are that the assessee (M/s Jindal
GTA 1/2005, 2/2006 & 3/2007 Page 1 of 4
Equipment Leasing & Consultancy Services Ltd) held shares in Jindal
Strips Limited (JSL). Similarly, Stainless Investments Ltd. and
Mansarovar Investment Ltd (the appellants in GTA 2/2006 and GTA
3/2007)) also held shares. The JSL made an announcement, issuing
Partly Convertible Debentures (PCD). According to the scheme, each
of its shareholder was entitled to one right share valued at a face value
of `10/- (at a premium of `40/-) and a non-convertible portion, at
`60/-. The non-convertible portion could, however, be sold to M/s.
Citibank at a discounted rate of `38/-. The assesee renounced its rights
and obtained consideration therefor. They also claimed losses on
account of the difference between the material value shown by them
(of the rights issue) and the consideration received by them. The
Assessing Officer (AO), while considering the income tax returns,
held that the transaction was sham and proceeded to disregard the
claim for capital loss. However, the assessment was concluded on the
basis that the amounts received were in fact business receipts. The
assessee's appeals before the CIT(A) and ultimately to the ITAT were
successful. The Revenue appealed to this Court. By a judgment
(Commissioner of Income Tax Vs. Jindal Equipment Leasing & Ors.
ITA 174/2003 and connected cases), the Court reversed the findings of
the ITAT.
3. In the meanwhile, Gift Tax Officer formed an opinion that the
renouncement of the right issue by the assessee was for inadequate
consideration and therefore, amounted to a notional or deemed gift
under Section 4(1)(a) of the Gift Tax Act. Notice was issued on the
basis that by virtue of second explanation to Section 16(1), failure to
GTA 1/2005, 2/2006 & 3/2007 Page 2 of 4
file returns, empowered the tax authorities to assess the alleged
omission. Taking clue from its order made in the income tax
proceedings, the ITAT reversed the stand of the AO. It is in this
background that the Revenue urges that the notice under Section 16 in
the present case is valid.
4. Apart from relying upon the findings of this Court in
Commissioner of Income-tax, Delhi Vs. Abhinandan Investment Ltd.
(2015) 63 taxmann.com 263 (Delhi), learned counsel for the Revenue
submits that the ITAT proceeded on an erroneous assumption that its
findings with respect to the nature of the transaction ( i.e. as sham)
absolved the assessee from any gift tax liability. It is also urged that
the ITAT fell into error in placing too much importance on the facts
that the cost of the shares in this case was determined on the basis of a
transaction that took place after the actual sale of shares in this case.
5. Learned counsel relied upon the judgment of Supreme Court in
Reva Investment Pvt. Ltd. Vs. Commissioner of Gift Tax, (2001) 249
ITR 337 (SC). He also relied upon Rule 20 of the Third Schedule to
the Wealth Tax Act in support of the Revenue's arguments.
6. Learned Senior counsel for the assessee contended that the
approach and findings of the ITAT, taking cognizance of the fact that
the declaration with respect to the transaction being sham, was logical.
It was urged that once the ITAT took note of the fact that the
transaction was invalid or a device, the position with respect to how it
had to be treated between the two parties was clear. In these
circumstances, there was no question of resorting to the assessee under
Section 16 of the Act in the present case.
GTA 1/2005, 2/2006 & 3/2007 Page 3 of 4
7. This Court has considered the submissions. It is not disputed
that in Abhinandan Investments, this Court reversed the ITAT's
findings and held that the consideration received and shown by the
assessee to be a capital loss in income tax proceedings was a device.
At the same time while holding that the characteristic of the sale
proceeds as a capital loss, was sham, the Court did not ignore the
underlying validity of the share transaction or transfer. It proceeded to
bring the amounts into question to tax either as business receipts or
as business losses. Such being the case, this Court is of the opinion
that alike treatment had to be given. Furthermore, at the stage, when
the ITAT intervened in gift tax proceedings (which are the subject
matter in these appeals), it considered only the validity of the
proceedings, but, did not consider whether in fact the transaction
under Section 4(1)(a) amounted to a deemed gift; no conclusive
finding in that regard was rendered; nor any finding could have been
rendered or was given.
8. For the above reasons, the impugned orders are hereby set
aside. The matters are remitted to the ITAT for fresh consideration in
accordance with law.
9. The appeals are allowed in the above terms.
S. RAVINDRA BHAT, J
A.K. CHAWLA, J
JANUARY 29, 2018/rc
GTA 1/2005, 2/2006 & 3/2007 Page 4 of 4
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