1 gtr-1-88 Ladda IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION GIFT TAX REFERENCE No. 1 of 1988. The Commissioner of Gift Tax Bombay City XI - Bombay... ... Applicant. Versus Trustees of Mount Nepean Trust ... Respondent. Mr D. K. Kamwal for the Applicant. Mr F.V. Irani with Mr A.K. Jasani for the Respondent. CORAM : J.P. Devadhar & A.R. Joshi, JJ. DATE : 28th November,2011. P.C. :- 1. At the instance of the Commissioner of Gift Tax Bombay City-XI, Bombay, the Income-tax Appellate Tribunal has referred the following question of law for the opinion of this Court. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law, in holding that there was no deemed gift under Section 4 (1) (a) of the Gift Tax Act? 2 gtr-1-88 Ladda 2. The Assessment order involved herein is AY 1973-1974 3. The relevant facts are that the assessee is the Trustee of Mount Nepean Trust which was created by one Ardeshir Bomanji Dubash. The corpus of the Trust was house property known as “Mount Napean” and the Settler and his wife were the first Trustees. As per the terms of the Trust Deed, the property in question was to be held by the Trustees for the Settler for life and full power of variation of the terms of the deed was reserved by the Settler. By an Indenture dated 2nd August, 1945, the terms of the Deed were varied to provide for the right of residence to all the three sons of the said Ardeshir Bomanji Dubash and their family members. Clause 4 of the Trust Deed provided that the Trustees were to hold property from and after the death of the last survivor of the three sons namely, Kaikhushru, Ratanji and Bomanji and shall offer for outright sale of the trust property for Rs. 8,00,000/-, to Behram Kaikhushru Dubash, if he be alive and if Behram be not alive to his son Ardeshir and so on. 4. As the surviving son Shri Ardeshir Bomanji and his wife released, renounced, relinquished and disclaimed all their respective right and interest in the trust property by a deed of release dated 5th February, 1973, the trust property was offered for sale to Shri Behram Kaikhushru in pursuance of Clause 4 of the Trust Deed dated 2nd August, 1945 for a consideration of Rs. 8,00,000/-. On the said Behram Kaikhushru Dubhash accepting the offer, by an indenture dated 24th February, 1973 the trust property was transferred to him for a 3 gtr-1-88 Ladda consideration of Rs. 8,00,000/-. 5. The Assessing Officer in the assessment order after noticing that the market value of the trust property on the day of transfer was Rs.76,18,143/- applied the provision of Section 4 (1) (a) of the Gift Tax and brought the differential amount of Rs.68,18,143 (76,18,143 minus Rs. 8,00,000/- ) to tax by treating the same as deemed gift. Challenging the aforesaid order, the Assessee filed an appeal before the CIT (A) who up held the order of the Assessing Officer. 6. On further appeal, the ITAT held that the consideration of Rs.8,00,000/- for transfer of the trust property in question being in implementation of the terms of the Trust Deed, the Assessing Officer was not justified in holding that the consideration for transfer of the property was inadequate. Accordingly the ITAT held that the addition of Rs.68,18,143/- was not justified. At the instance of the Revenue, the ITAT has framed the aforesaid question for the opinion of this Court. 7. The basic argument of the Revenue is that on the date of transfer of the trust property, the market value of the property being more than the price at which it was transferred, the Assessing Officer was justified in bringing the differential amount to tax by invoking the provisions of Section 4 (1)(a) of the Gift Tax Act, 1958. 8. We see no merit in the above contention. As rightly contended by Mr Irani, learned counsel for the Assessee, in the present case, the Trustees of the Trust were under an obligation to transfer the property in question at a fixed sum of Rs.8,00,000 to the beneficiaries of the Trust and in the absence of any discretion vested in the 4 gtr-1-88 Ladda Trustees, the Assessing Officer was not justified in holding that the consideration for which the property in question was transferred, was inadequate. The Apex Court in the case of Commissioner of Gift Tax vs. B.S. Apparao reported in 248 ITR 103 has held that a transfer by the assessee to meet his obligation under the law cannot be regarded as a gift within the meaning of the Gift Tax Act,1958. In the present case, the trust property was transferred in accordance with the terms of the Trust Deed. When the Trustees were under an obligation to transfer the property at a fixed price and there was no discretion vested in them to alter the sale consideration, the A.O. Could not have referred to the market rate and hold that the consideration was inadequate. In these circumstances, no fault can be found with the decision of the ITAT in holding that the A.O. was not justified in invoking Section 4 (1) (a) of the Gift Tax Act. Accordingly, the question referred to us is answered in the affirmative i.e. in favour of the Assessee and against the Revenue. Reference is disposed of accordingly with no order as to costs. (A.R.Joshi,J) (J.P.Devadhar,J.)