BALIA, J. - (1.) HEARD the learned counsel for the parties.
(2.) THE following substantial question of law arising out of the order of Income Tax Appellate Tribunal, Jaipur Bench, Jaipur has been referred to this Court in GTA No. 6/ (JP)/1986 under Sec. 26 (3) of the Gift Tax Act in pursuance of the order made by this Court on 4. 3. 1997 in D. B. Gift Tax Reference No. 6/94 :- " Whether on the facts and in the circumstances of the case, the ITAT was justified in holding that there could be no element of deemed gift whereby sustaining the order of the GCT (Appeals) and dismissing the departmental appeal ?" The facts giving rise to this reference are that the Assessee Company-respondent entered into a partnership with Ex- ruler of Marwar H. H. Gaj Singh on 12. 11. 1974 for the purposes of running a hotel titled as Umaid Bhawan Palace. By means of the agreement, the Assessee company was to bring in its capital asset, namely, the building known as the `umaid Bhawan Palace' as its contribution to the partnership capital, with a condition that it will revert back to contributing partner viz. , the assessee company on dissolution of the firm. The capital account of assessee in the firm was credited with Rs. 50,70,000/- , which was the book value of the asset on the date of its contribution. The Assessing Officer invoked the provisions of Section 4 (1) (a) of the Gift Tax Act of 1958 (hereinafter called the Act of 1958) for the purpose of subjecting difference in the book value of the building and its market value estimated to be Rs. 80,30,000/- as deemed gift in favour of Maharaj Gaj Singh the other partner in the firm and accordingly the department levied Gift Tax on the said amount. On appeal by the Assessee, the CIT (Appeals) relying on the decisions of the Supreme Court Sunil Siddhanthbhai vs. CIT (1), held that when a partner brings in his capital assets as his contribution to the firm capital there is no doubt a transfer, but the amount that is credited to his capital account cannot be considered as deemed consideration as on the date such asset was brought into the firm as partner's contribution towards capital. Therefore, there cannot be any deemed gift in terms of Section 4 (1) (a) of the Act of 1958. Consequently, the appeal was allowed by order dated 31. 3. 1986. On further appeal, the Tribunal affirmed the view taken by the CIT (A ). Learned counsel for the Revenue has urged that once it is held that bringing property as a capital contribution to the firm amounts to a transfer, the provisions of Section 4 (1) (a) comes into operation and the deference between the apparent consideration for which the property has been transferred to the partnership firm and the estimated market value of the property on the date of transfer sought to be considered as a deemed gift made by such partner.
(3.) LEARNED counsel for the respondent has urged, on the other hand, that in view of the clear decision of the Supreme Court in Sunil Siddhanthbhai vs. C. I. T. (supra), the consideration as on the date the asset is brought into the firm as capital contribution, is incapable of valuation and, therefore, clause (a) of sub-section (1) of Section 4 cannot be invoked for want of necessary determination of requisite the conditions for its operation. Sub-section 1 (a) as it existed at the relevant time when the building in question was contributed by the respondent assessee company as capital to the firm reads as under :- " For the purposes of this Act, where the property is transferred otherwise then for adequate consideration, the amount by which the market value of the property at the date of transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor to the transferee. Provided that nothing contained in this clause shall apply in any case where the property is transferred to the Government or where the value of the consideration is determined or approved by the Central Government or Reserve Bank of India. " Apparently the present cases does not attract the proviso to Section 4 (1) (a) of the Gift Tax Act, 1958. ;