Law:

Section:

Section 16, read with section 4 of the Gift-tax Act, 1958 and section 52 of the Income-tax Act, 1961 - Reassessment - Assessment year 1962-63 - 'ICI', a non-resident company, promoted three manufacturing companies in India - To finance these companies, 'ICI' made available sterling loans to respondent company its subsidiary to enable respondent to advance to and to aforesaid three companies - Loans were advanced to aforesaid three companies by respondent on condition that respondent would take up equity shares in these companies initially in its own name and thereafter transfer same to 'ICI' at issue price as and when 'ICI' called upon respondent to do so - Said terms and conditions were approved by Controller of Capital Issue, Reserve Bank of India and Central Board of Revenue - Subsequently, on demand of 'ICI', respondent transferred said shares to 'ICI' - Respondent was assessed to income-tax and notional capital gains were assessed in its hands in respect of transfer of said shares - Tribunal held that respondent was obliged and bound under said arrangements to transfer shares to 'ICI' and there was no case for application of 52 of 1961 Act - Said findings of Tribunal were upheld by Supreme Court - Subsequently, GTO who was also ITO, issued notice to respondent under section 16(1) of 1958 Act on ground that a gift had been made by respondent within meaning of section 4(a) and same had escaped assessment - Whether since transfer of shares in question was not without adequate consideration, conditions precedent for proceedings under section 16(1) of 1958 Act were not fulfilled and, therefore, said transfer of shares did not come within mischief of section 4(a) of 1958 Act, - Held, yes - Whether it was not open to GTO to shut his eyes to judicial pronouncements on nature and character of transaction involved on record and arrive at contrary opinion - Held, yes FACTS 'ICI' was a non-resident company and the respondent company was its subsidiary. 'ICI' promoted three companies namely, company 'A', company 'E' and company 'T', in India. To finance the aforesaid projects, 'ICI' made available sterling loans to the respondent to enable the respondent to advance…

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