INCOME TAX ACT, 1961

Section 28

Business income - Gift made by assessee-company to other corporate entities - AO alleged existence of family settlement and taxed market value of shares gifted as business income -

Assessee-company engaged in financing of goods, material, movable and immovable properties and also trading in shares, securities, stocks and debentures, gifted shares held as stock-in-trade to 4 different companies. AO took the view that shares were transferred to newly formed companies as a sequel to family realignment and therefore, these gifts could not be held as a valid gift being 'voluntary' and in view of family arrangement. Accordingly, AO held that assessee had deliberately withheld disclosure of value of consideration received by assessee on transfer of the shares, therefore, AO taxed market value of shares as business income of assessee. Held: Gift made by assessee-company could not be said to be a part of a family arrangement as a company could not be a member of a family but a separate juridical entity having its own separate existence. It is an undisputed fact that the assessee being absolute owner of the shares gifted, had full enjoyment rights, including to alienate, discard and even demolish, unless prohibited by some statutory provisions, it was within powers of assessee to make gift at its free-will. Further, shares were credited in books of account of donor. The gift was also authorised by articles of association, approved by Board of Directors and Shareholders. As assessee had gifted the shares and there was no sale of security by assessee, there was not any inflow of cash, receivable or other consideration and there was no question of accrual of any consideration to assessee. Accordingly, gift made by a corporate entity, i.e., assessee to 4 different corporate entities, in absence of any consideration, could not be charged to tax in the hands of donor assessee as business income.

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