Law:

Section:

Section 4 read with section 2(xxiv) of the Gift-tax Act, 1958 - Deemed gift - Assessee-firm owned shares in a company which were acquired at Rs. 60 per share - Assessee sold some of those unquoted shares at Rs. 50 per share to its partners and at Rs. 75 per share to wives and mother of partners - GTO determined value of shares at Rs. 99.40 per share by adopting break-up method and accordingly, assessed difference between both amounts to gift-tax - Whether since firm had sold a number of shares to two partners separately for cash consideration, and after such sale, each of partners became exclusively entitled to shares which had been sold to him, and in these shares, other partner had no interest whatever, there was a transfer of shares by firm to partner - Held, yes - Whether by applying break-up value method and arriving at market value of each share at Rs. 99.40, if GTO held that transfer of shares to other transferees at Rs. 75 per share was otherwise than for adequate consideration, he could not be said to have committed any illegality - Held, yes - Whether since transfers were for inadequate consideration, under section 4(1)(a) there was an element of gift attracting liability to pay gift-tax - Held, yes FACTS The assessee, a partnership firm owned certain shares in a company. The original cost of acquisition of those shares was Rs. 60 per share. The assessee-firm sold those shares to partners of the firm at Rs. 50 per share and to the wives and mother of the partners at Rs. 75 per share. The GTO concluded that the transfer of shares was for inadequate consideration, and, therefore, there was a deemed gift under section 4(1)(a) by the assessee-firm. Since the shares so transferred were not quoted shares, the GTO, by adopting the break-up method, ascertained the value share at Rs. 99.40 and since the assessee-firm had sold the shares for a lesser consideration, the difference between these two amounts was assessed to gift-tax. On appeal, the AAC held that there could be no transfer of the shares by the firm to its partners, and hence there was no liability to gift-tax. With regard to the transfer in favour of the three ladies, he held that the selling price…

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