Law:

Section:

Section 2(xii) of the Gift-tax Act, 1958 - Gift - Assessment year 1961-62 - Assessee-company transferred its assets to its subsidiary company which had agreed to take over liabilities of assessee and balance consideration was satisfied in shares issued to assessee-company. Balance value of assets vested in subsidary company, was much more than face value of shares and excess value was shown in share premium account by subsidiary company - Subsidiary company had accepted liabilities in respect of share premium account in favour of assessee - Whether on facts it could not be said that assets of much higher unless were transferred for inadequate consideration so as to connect transaction into a gift - Held, yes - Whether, therefore, there was gift chargeable to tax - Held, no FACTS By an agreement, the assessee company sold its business to its subsidiary. By that agreement, the assets of the assessee-company were transferred to its subsidiary, which took over all the liabilities of the assessee-company. The residue of the consideration for the sale and purchase was satisfied by the issue of 998 shares of £1 each credited as fully paid up of the subsidiary company in favour of the assessee-company, out of the authorised capital of £1,000 on 1,000 shares (of £1 each), two shares as fully paid up having been already issued in its favour earlier. The excess of the net value over the aggregate of liabilities taken over was credited in the share premium account in the books of the subsidiary company. The GTO issued notice to the assessee-company under section 16 stating that the consideration at which the business of the assessee-company had been sold to its subsidiary was far less than that of the fair market value. Since adequate consideration had not been paid, there was a gift which was chargeable to gift-tax and that inasmuch as the petitioner-company had not filed a gift-tax return, and, taxable gift had escaped assessment. On writ, the Single Judge held the notice to be without jurisdiction and void. On appeal : HELD 'Gift' under the definition of section 2 (xii ) is a transfer by one person to another of any existing movable or immovable property made…

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