Case: Commissioner of Income Tax (Central Circle) Vs. Fomento Barges Private Limited

4. The facts show that assessee/respondent before this Court is a private limited company and Sociedade De Fomento Industries Limited is one of its sister concern. Both these companies were one of the promoters of Fomento Resorts and Hotels Limited (hereinafter referred to as "FRHL" for short). FRHL started its activities in October, 1981 and to finance the cost of project, a public issue was made in the year 1982 and thereafter rights issue was made in the year 1984. Loans were also taken from promoters, banks, financial institutions. To meet further need, FRHL approached financial institutions in the year 1986 which in turn agreed to provide for further finance, provided promoters brought additional finance either in the form of equity or as unsecured loans and repay outstanding over due amount. FRHL accordingly made rights issue in August, 1982 of 11,25,000/equity shares of Rs.10/each at par. It was fully subscribed by the members of the company including assessee, its sister concern and other share holders. Assessee purchased 9,80,000/equity shares of Rs.10/each in August, 1987. At that juncture the shares were quoted in terms of schedule (2) of the Gift Tax Act at Rs.5/per share. Excess amount of Rs.5/per share paid by assessee was held by Assessing Officer to be without any consideration and, therefore, a deemed gift under Section 4(1)(a) of the Gift Tax Act. Levy of the Gift Tax on an amount of Rs.49,00,000/representing difference in market prices and the face value of said 9,80,000/shares was questioned by Assessee in appeal before CIT(Appeals).CIT(Appeals) in its order dated 12.7.1999 in paragraph 3 accepted the appellants contention that Section 4(1)(a) of the Gift Tax Act had no application. However, it then proceeded to consider the case of cash gift and in the facts noted supra, held that there was cash gift by assessee to FRHL. It therefore, proceeded to confirm the gift tax charged by Assessing Officer. This later finding of the cash gift was questioned by the assessee in appeal before ITAT. The ITAT has evaluated rival contention in this respect. The contention of revenue before the ITAT was that share holding pattern should have been looked into and reasons for bringing additional fund in the form of subscription to the equity shares and not by making loans also should have been properly evaluated.

Court's reasoning:
6. In so far as the Division Bench judgment of Gujarat High Court is concerned, the said judgment reported in case of Commissioner of Gift Tax (supra) has been over ruled by the Honble Apex court in its judgment reported in the case of Reva Industries Pvt. Ltd Vs. Commissioner of Gift Tax, (2001) 249 ITR 337.   The Honble Apex Court has in the case of Khoday Distilleries Ltd (supra) has explained the differences between the transfer and allotment of share. It has noted in paragraph 7 that it is only on allotment that shares come to existence and in every case the words "allotment of shares" have been used to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person. Later on it is also pointed out that there is difference between issue of shares to a subscriber and purchaser of share from existing share holders. It is found that in first case there is creation while in second case there is transfer ofOn facts before its the Honble Apex Court has noted that when twenty shareholders did not subscribe to the right issue, the appellant allotted them to the seven investment companies, such allotment was not transfer. It found that therefore, Section 4(1)(a) of the Gift Tax Act had no application.7. We find that this observation of the Honble Apex Court is also attracted in the present matter. We have already noted supra that the finding of Section 4(1)(a) of the Gift Tax Act recorded by CIT(Appeals) was not in question before the ITAT.8. In this situation, we hold that substantial questions of law reproduced supra cannot be answered in favour of the appellant in the present matter.