1. The assessee is a company in which the public are not substantially interested. The company had a paid-up capital of Rs. 10,000. In the year ending 31-3-1972, relevant to the assessment year 1972-73, 900 fresh shares were issued at Rs. 100 each to a group of persons belonging to the family of Shri L.N. Gokuldas, 12 French Bridge, Chowpathy, Bombay-7. The GTO called upon the assessee-company to file a return of the gift. The assessee filed a return showing the taxable gift as nil along with a covering letter in which it was stated that no gift was involved in the issue of new shares by the company and that there was no taxable gift. The GTO, however, observed that the assessee during the previous year had issued 900 shares at par value, that the value of the assets shown in the balance sheet was Rs. 2,79,762, that the total value of the assets held by the assessee-company worked out to Rs. 15,58,362, that deducting from this the liabilities shown in the balance sheet of Rs. 12,87,434, the net worth of the company worked out to Rs. 2,70,928, that when the worth of the company was divided by 1,000, i.e., the number of shares, the value of each share came to Rs. 271 ; that the value of 900 shares worked out to Rs. 2,43,900 ; and that the said shares were transferred for consideration of Rs. 90,000.
The GTO observed that there was a transfer of assets, in that assets worth Rs. 2,43,900 were transferred for a consideration of Rs. 90,000.
In other words, he stated that the assessee transferred certain property for inadequate consideration. It was explained before the GTO on behalf of the assessee that under article 4 of the articles of association of the company the board of directors have got a right to allot shares up to the authorised shares ; the company allotted 900 equity shares at face value of Rs. 100 each ; that there was an accumulated loss as per balance sheet as on 31-3-1972 to the extent of Rs. 10,45,500 ; that the shares were not quoted in the stock exchange ; and that looking into the balance sheet no person would come forward to purchase the shares and, therefore, there was no question of any premium for the assessee. The GTO observed that the loss was there only in the balance sheet because of depreciation on cylinders but, however, there was an intrinsic value to the shares as calculated by him in the assessment order. He held that there was a transfer of property and that the said property was transferred for a consideration being less than the market value. He determined the deemed gift under Section 4(1 )(a) of the Gift-tax Act, 1958 ('the Act'), at Rs. 1,53,900, being the difference between Rs. 2,43,900 and the consideration received of Rs. 90,000. He deducted the statutory exemption of Rs. 5,000 and determined the taxable gift at Rs. 1,48,900. On appeal before the Commissioner (Appeals), it was contended on behalf of the assessee that there was no transfer; that the allotment of shares by a company cannot be considered to be a transfer ; and that, therefore, there was no liability to gift-tax. The' Commissioner (Appeals) observed that in this case, cash was received by the company and the shares in the company were transferred by it to the person, who gave cash to it in lieu of the shares offered to him. The Commissioner (Appeals) by a peculiar reasoning, found in paragraph two of his order, rejected the assessee's contention and held that it is clearly a transfer liable to gift-tax. The Commissioner (Appeals) further enhanced the taxable gift by Rs. 90,000, taking the value of each share at Rs. 371 as against Rs. 271 adopted by the GTO. Against this order of the Commissioner (Appeals) the assessee has come on further appeal before us.
2. The learned chartered accountant Shri G. Satyanarayana stressed before us that the allotment of shares by a company would not involve a transfer, attracting the provisions of the Act. In this connection he referred to the ruling of the Supreme Court in the case of CGT v. N.S.Getti Chettiar  82 ITR 599. He also referred us to the ruling of the Supreme Court in the case of Bacha F. Guzdar v. CIT AIR 1955 SC 74 which is also extracted at pages 11 land 112 of Guide to the Companies Act, Ninth Edition, 1980, by Shri A. Ramaiab. He pointed out that the company is a juristic person and is distinct from the shareholders and that, therefore, there is nothing in law to support the assumption that a shareholder who has bought shares, purchased any interest in the property of the company which is a juristic person entirely distinct from the shareholders. On behalf of the revenue, reliance was placed on the order of the Commissioner (Appeals).
3. We have considered the rival submissions. The facts leading to this assessment are very simple. The assessee-company which had a paid-up capital of Rs. 10,000, wanted some working capital. For that purpose it had issued 900 shares at Rs. 100 each. The authorities below have proceeded on the footing that when the company issued shares at par value, it should be presumed that there was a deemed gift in respect of the amount represented by the difference between the market value and the value for which the shares were allotted. The GTO and the Commissioner (Appeals) have proceeded to work out the market value for the purpose of arriving at the deemed gift. Having heard the parties, we are of the opinion that it is not necessary for us to go into the question of finding out the market value of the shares because we are of the considered opinion that there was no transfer at all involved in this case. It is an axiomatic proposition of law that a company is a juristic person, quite distinct from the shareholders. A shareholder of the company cannot be said to have any interest in the property of the company though he has a right to participate in the profits of the company if and when the company decides to divide them. As pointed out by the Supreme Court in the case of Bacha F. Guzdar (supra) referred in the book Guide to the Companies Act, at page 112, it is clear that a shareholder does not buy any interest in the property of the company when shares were allotted to him. On the allotment of shares the shareholder becomes entitled to participate in the profits of the company in which he held the shares, if and when the company declares, subject to the articles of association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. There can, therefore, be no question of any sale- of the property of the company by the company to any shareholder. Only when there is a transfer of property by one person to another without adequate consideration, the question of application of Section 4(1)(a) would arise for consideration. When there is no transfer, there can be no deemed gift whatsoever. We, therefore, hold that the assessment made in this case is not warranted in law. It is, accordingly, cancelled.