Law:

Section:

Section 2(xii) , read with section 4 of the Gift-tax Act, 1958 – Gift – Assessment year 1958-59 – Assessee was subsidiary of a foreign-company – There was a scheme or arrangement between assessee and foreign company – As a result of said scheme assessee obtained loans from foreign company on condition that it would invest said amount in purchasing or acquiring shares of manufacturing companies – As per said arrangement assessee was to hold shares beneficially but as and when called upon it was required to transfer shares to foreign company at par value – Accordingly, such a transfer was made – GTO sought to tax amount representing difference between market value and par value of shares – However, neither existence nor bona fide nature of aforesaid arrangement was doubted - Whether once said arrangement was accepted as valid and legal, transactions taking place in view of that arrangement could not amount to transfer otherwise than for adequate consideration – Held, yes – Whether, therefore, there were no materials for holding that there was any gift assessable to tax that had escaped assessment under clause (1) of section 16 – Held, yes FACTS The assessee petitioner was a subsidiary of a foreign company. The foreign company had decided to make substantial investments in India for manufacture of extended range of products which were previously imported. There was a scheme or arrangement and as a result of that scheme the petitioner had obtained loans from the foreign company on condition that the petitioner would invest the said loans in purchasing or acquiring the shares of three manufacturing companies. Subject to certain terms the petitioner would enjoy dividends so long as the petitioner retained the shares and the petitioner would hold the shares beneficially but as and when called upon the petitioner would invest the said loans in purchasing or acquiring the shares of three manufacturing companies. Subject to certain terms the petitioner would enjoy dividends so long as the petitioner retained the shares and the petitioner would hold the shares beneficially but as and when called upon the petitioner would transfer the said shares to foreign company at par…

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