Gift Tax not Applicable to Share Transfers or Transfer of Property, as part of it is to Effectuate a Settlement: Delhi HC [Read Order]

Recently in the case of Commissioner of Gift Tax vs. Ramesh Suri, Delhi High Court ruled that Gift Tax is not applicable to share transfers or transfer of property, as part of it is to effectuate a settlement.

The bench comprising Justice S. Ravindra Bhat and Justice R. K. Gauba was hearing an appeal of Revenue.

In instant case, the Assessee Ramesh Suri purchased 17,90,700 shares of M/s Bharat Hotels Limited at `25.70 per share and the said purchase made from different companies controlled by family members. During its course a dispute arose from the family members regarding the control of company. Eventually share transfers were made pursuant to a family settlement.

Ramesh Suri made some of the purchase from the companies controlled by his brother G. Sagar Suri and other purchase from immediate family members of G. Sagar Suri. This resulted in transfer of shareholding and controlling rights in respect of M/s Bharat Hotels Limited to Ramesh Suri, including his family and his younger brother Lalit Suri. These transactions were subject to income tax and gift tax proceedings.

The AO after having thorough study on Section 2(24) of the Gift Tax Act, and Section 4 of the said Act, has opinioned that the amount paid excess over par value amounted to taxable under both the Income Tax Act and the Gift Tax Act.

However, the CIT (A) reversed the decision of AO holding that the said transaction doesn’t comes under taxable income and the ITAT endorsed the same opinion by relied on the judgment of the Gawahati High Court in Ziauddin Ahmed vs. Commissioner of Gift Tax, (1976).

Prakash Kumar, Advocate on behalf of Assessee contended that Ziauddin Ahmed applies to this case like similar situation held in that case too, certain shares were transferred pursuant to a family settlement, and it was held that the provisions of the Gift Tax Act would not be attracted because such transfer or execution is in the interest of family peace and harmony, which is ensured through the settlement, and the value or consideration of that cannot be set down in exact terms.

The Delhi High Court pressed the relevance of Gawahati High Court judgment proposed by Tribunal found that transfer was pursuant to a family settlement and stated that the provisions of the Gift Tax Act would not be applicable.

Accordingly, the Court held that provisions of gift tax would ordinarily not apply to share transfers or transfer of property, as part of it is to effectuate a settlement and such transaction is not taxable.