1. These appeals are disposed of by a consolidated order, as a common point is involved in these appeals regarding applicability of Section 64(1)(iv), (v) and (vi) of the Income-tax Act, 1961 ('the Act') in respect of transfers for inadequate consideration by the appellants (assessees) to their relations covered by the said clauses.
2. The assessees are close relatives. They were promoters of Electra India (P.) Ltd. and Electra (Jaipur) (P.) Ltd. All the three assessees hold shares in these private limited companies which they have transferred at face value to their relations specified in the aforesaid clauses of Section 64(1). The question is whether the transfer of shares at face value is for adequate consideration because the aforesaid clauses of Section 64(1) would apply only if it is held that the transfers were otherwise than for adequate consideration.
In the case of Mohit Kumar Jain, who had transferred shares to his sons in Electra India (P.) Ltd. at face value, the ITO noted that the assessee himself in the wealth-tax return on valuation dates on 31-3-1975 and 31-3-1976 had shown the value of shares in Electra India (P.) Ltd., at Rs. 204 and Rs 341 per share, respectively, and that the higher market value as compared to face value was supported by the fact that there had been issue of bonus shares by the said company on 11-11-1976 and 10-11-1978. He, accordingly, held that the transfer by the assessee to his minor sons on 26-3-1975 and 8-5-1975 was not for adequate consideration. He, accordingly, added Rs. 2,040 as dividend income of the assessee (out of dividend income of Rs. 4,000 declared on the transferred shares in the assessment year 1980-81).
3. In the case of Ajay Kumar Jain where the transfer of shares in Electra (Jaipur) (P.) Ltd. were to the assessee's wife Anjula Jain on 7-11-1975 and to minor sons Anuj Jain on 29-3-1980, the ITO noted that the assessee in the wealth-tax return for valuation date of 31-3-1975 had declared the value of shares in the said company at the rate of Rs. 155 per share (the ITO has not mentioned the value declared by the assessee in the wealth-tax returns for the assessment years 1979-80 and 1980-81 which would be relevent in the case of the transfer of shares to the minor son). The ITO, accordingly, treated Rs. 757 as dividend attributable to inadequate consideration (out of Rs. 2,000 being dividend declared in respect of the transferred shares in the assessment year 1980-81).
4. In the case of Ami Chand Jain where the transfer was of 300 shares of Electra (Jaipur) (P.) Ltd. to the assessee's son's wife on 23-6-1976, the ITO noted that the asse ssee on valuation date of 31-12-1975 had shown the market value of shares at Rs. 155 per share.
He, accordingly, treated Rs. 1,705 and Rs. 1,136 as dividend attributable to inadequate consideration (out of dividend of Rs. 3,000 each declared on the transferred shares for the assessment years 1979-80 and 1980-81).
5. The AAC in identical orders upheld the orders of the ITO in the cases of the three assessees.
6. At the hearing before us the learned Counsel for the assessees urged that as the purchases by the three assessees of shares in the aforesaid two companies were at face value, the transfers by them to their specified relations at face value was not for inadequate consideration.
We are unable to accept this contention. The cost of acquisition by the assessees has no relevance for considering the question whether the transfers were for adequate consideration. If the transfers are not for adequate consideration, which has to be judged from the angle of market value on the date of transfer, then the provisions of Section 64(1) would apply. We have already pointed out above that the three assessees in their wealth-tax returns had themselves declared the market value of shares at figures much higher than the face value of the shares. The learned Counsel has filed before us charts showing break up value of the shares in the two companies on different valuation dates. These charts show that the market value of the shares declared by the assessees were based on the break up value of the shares. It is, thus, clear that the transfer of shares on their face value by the three assessees to their specified relations were otherwise than for adequate consideration. It has been held that the transfer should be for adequate consideration, i.e., consideration equal or nearly equal to the value of the assets transferred in order that Section 64 may not apply--Tulsidas Kilachand v. CIT  42 ITR 1 (SC) (see Kanga and Palkhivala's Law and Practice of Income-tax, Volume 1, 7th edition, page 604).
7. The learned Counsel for the assessees relied on CGT v. Cawasji Jehangir Co. (P.) Ltd.  106 ITR 390, 398 (Bom.) where it was observed that in order that the Court may hold that a particular transfer is not for adequate consideration, the difference between the true value of the property transferred, and the consideration that passed for the same, must be appreciable. The Court further observed that adequate consideration cannot be construed with precision. We have already noted above that there was appreciable difference between the market value of the shares transferred by the three assessees and the consideration received, namely, the face value of the shares.
8. The learned Counsel for the assessee next relied on CWT v. Bejoy Kumar Karnani  117 ITR 543 (Cal.). In that case the Court was dealing with the valuation of shares of an investment company and observed that the value of unquoted shares should be determined on the basis of the average earning capacity of the company. This case is clearly distinguishable as we are not dealing with the shares in an investment company. Even otherwise we notice that Electra India (P.) Ltd. declared dividends ranging from 10 per cent to 15 per cent in the years under consideration and the asset backing of the said company showed that the market value of the shares was much more than their face value of Rs. 100 each.
9. The assessee next relied on CGT v. In do Traders & Agencies (Madras) (P.) Ltd.  131 ITR 313, 321 (Mad.). In that case the Court observed that unless the price was such as to shock the conscience of the Court, it would not be possible to hold that the transaction is otherwise than for adequate consideration. We have already noted above that there was appreciable difference between the market price of the transferred shares and the face value of the shares. The market price of the shares was around twice the face value of the shares on the date of transfer and, therefore, there was an appreciable difference between the consideration for the transfer and the market price of the transferred shares.
10. The assessee next relied on CIT v. K.K. Birla  137 ITR 126 (Cal.). In that case assessee's transfer of shares to his wife at price of Rs. 4.22 per share as against the purchase price paid by the assessee of Rs. 4.12 per share was held to be for adequate consideration. In that case, the Tribunal had found that the said company had not declared any dividends and, therefore, the fair market price of the shares had to be determined on the basis of break up value of the shares on the date of transfer (which has been done in the cases in appeal before us). The Tribunal had further found that there were serious restrictions on the transfer of impugned shares in the private limited company as the shares could be transferred only to the specified relations of the members of the company as indicated on page 131 of K.K. Birla's case (supra). In view of those special circumstances, the High Court held that the transfer was for adequate consideration. However, the facts in the cases before us are clearly distinguishable because in the two companies under consideration, there are no similar restrictions on the transfers. Restrictions imposed by Clause 23 of the articles of association of Electra (Jaipur) (P.) Ltd. and Clause 39 of Electra India (P.) Ltd. are normal clauses which appear even in the articles of public limited companies which is to the effect that the directors can decline to register transfer of shares in their discretion.
11. We have already noticed above that the Calcutta High Court in K.K.Birla's case (supra) approved the Tribunal's determination of fair market value of the shares on the basis of break up value of the shares. This is exactly what has been done in the cases before us.
12. The Supreme Court in Tulsidas Kilachand's case (supra) construed adequate consideration as excluding love and affection which may be good consideration but is not adequate consideration. The Bombay High Court in CIT v. Vivian Bose  118 ITR 989 went over the case law on the point of adequate consideration.
13. We have carefully considered the facts of the cases, submissions of the parties and the case law and we hold that the transfers by the three asses-sees to their relations were not for adequate consideration and, therefore, the provisions of Section 64(1) were rightly applied in their cases. The assessees have not addressed us on the quantum of addition under Section 64. We have, therefore, not gone into it.
14. In the result the orders of lower authorities are confirmed and the appeals are dismissed.