Sabyasachi Mukharji, J.
1. On the 29th March, 1967, a notice was issued to the petitioner I.C.I. (India) Private Ltd. by the Gift-tax Officer, 'B' Ward, Companies Dist. IV, Calcutta, intimating that he had reason to believe that the gift made by the petitioner assessable to gift-tax for the assessment year 1962-63 had escaped assessment. The assessee was, therefore, required to file a return of the gift made by the assessee for the aforesaid assessment period. The petitioner replied on the 15th May, 1967, intimating to the Gift-tax Officer that it was unaware of any gift having escaped assessment to gift-tax and accordingly it submitted a nil return in the prescribed form. It is the validity of the said notice, which was issued under Section 16(1), of the Gift-tax Act, 1958, which is under challenge in this application under Article 226 of the Constitution. In order to appreciate this challenge it is necessary to refer to certain facts. The petitioner is a subsidiary of the Imperial Chemical Industries Ltd. incorporated in the United Kingdom. The said Imperial Chemical Industries Ltd. is shortly referred to as ICI. It is the case of the petitioner that after the last world war, ICI had decided to make substantial investments in India for manufacture of extended range of products which were previously imported ; as a result Alkali & Chemical Corporation of India Ltd., hereinafter referred to as ACCI, was substantially expanded and two new companies were promoted, namely, Indian Explosives Ltd., hereinafter referred to as IEL and Atic Industries Ltd., hereinafter referred to as Atic. In or about 1949, the Government of India asked ICI to consider manufacture of commercial blasting high explosives in India. ICI decided to finance foreign exchange requirements for the aforesaid projects by making sterling loans available to the petitioner, namely, ICI (India) Pvt. Ltd., to enable the petitioner to take up equity shares in the aforesaid three manufacturing companies initially in the name of the petitioner with a view to get tax advantage under sections 15C and 56A of the Indian Income-tax Act, 1922, with an understanding to transfer the said shares to ICI as and when ICI would call back the loans. On the 1st of October, 1953, method of financing in the case of IEL was specially outlined, discussed and accepted at the meetings between the representatives of the Government of India, of ICI and of the petitioner-company. The meetings were held in or about October, 1953, and the decisions of the meetings relating to financing in the case of IEL were recorded in the minutes. The terms and conditions of the loan arrangement were subsequently set out in an agreement dated the 5th November, 1953, called 'The Declaration of Intention' between the Government of India, ICI and the petitioner. The said 'Declaration of Intention' was relating to the shares of Indian Explosives Ltd. It recorded as follows :
'It is Id's present intention to subscribe for so much of this later issue as will ensure that it retains control of the new company. It may be convenient that ICI (India) should for a time hold beneficially the shares which under this agreement are to be allotted to ICI. If this is done, ICI (India) will pay the amount due on allotment and subsequent calls with money borrowed from ICI. Subsequently ICI (India) may repay the loan by transfer to ICI of the shares so held. Government have no objection to this course of action.'
2. On the 4th August, 1955, the terms and conditions in respect of the loan arrangement regarding Atic shares covered by an agreement called 'Declaration of Intention' were entered into. It contained identical terms. On the 13th December, 1955, there was a letter from the chairman of the petitioner to Mr. Iyengar, of the Ministry of Commerce & Industry, setting out the terms and conditions for advancing loans to the petitioner by ICI regarding ACCI. Then there was a letter from the ACCI to the Controller of Capital Issues on the 24th March, 1956, and on the 4th July, 1956, there was a letter from the ACCI to the Secretary, Central Board of Revenue, asking for confirmation that the benefit of Section 56A of the Indian Income-tax Act, 1922, would be available to the subscribers to the fresh capital. The petitioner on the 7th March, 1957, wrote to the Assistant Controller, Reserve Bank of India, regarding the shares of ACCI. The Finance Act, 1959, however, altered the system of taxing dividends as a result whereof the dividends passing from manufacturing companies to ICI suffered, according to the petitioner, double taxation. The assessee-company was already in existence but the other three companies mentioned hereinbefore were incorporated later. ICI, therefore, devised a scheme by which it could make the investments as desired by it and by which it could also take advantage of the tax relief which could be availed of by the new enterprises under sections 15C and 56A of the Indian Income-tax Act, 1922. The scheme in short was that the ICI would arrange to let the assessee hold the shares in the three companies by investing the money which was to be given by ICI to the assessee. The modus operandi was that the ICI would give that money by way of loan to the assessee who agreed that the shares in the three companies mentioned hereinbefore would be transferred to ICI in satisfaction of the loan at par or issue price as and when desired by ICI. All this was done after negotiations with the concerned department of the Government of India at the highest level with the approval of the Reserve Bank of India. The entire scheme was conceived and put into operation prior to the 30th of November, 1956. There was a provision for charging interest by the ICI from the assessee at the rate which came to 5 1/2 per cent. per annum but the interest was not to exceed the dividends received by the assessee from those shares. It was the assessee's claim that this arrangement was advantageous both to ICI and the assessee. ICI took the risk of depreciation in shares or otherwise attached to the new business ensuring that the capital appreciation from the shares, if any, also went to itself. The assessee did not suffer any disadvantage because it had to pay no interest if no dividend was received and it could get the benefit of any dividend in excess of 5 1/2%. As a result of ICI investment being held through the assessee indirectly, ICI had achieved an advantage of saving tax in the United Kingdom amounting to 68,000 during the relevant years. Thereafter, as mentioned hereinbefore, the structure of taxation under the scheme of the Indian Income-tax Act underwent a change in 1959, and as a result of the Finance Act, 1959, the system of grossing up of dividend under Sections 16(2) and 18(5) of the Indian Income-tax Act, 1922, was abolished and intercorporate dividends became liable to income-tax at each stage. Thus, the dividends passing from the three companies through the assessee to ICI became liable to tax at two stages. This affected the net return of the three companies substantially. In these circumstances, it was decided by the ICI that the investments in the three companies should be held by it directly. For that reason it called upon the assessee in February, 1961, to transfer to it those shares in the three companies at the issue price in satisfaction of the sterling loans in accordance with the previous arrangement. The approval of the Reserve Bank to this transfer was received in February, 1961, and the transfer was made in March and April, 1961. Thefacts as narrated hereinbefore were found by the Tribunal in the case of assessment of the assessee under Section 52 of the Indian Income-tax Act, 1922, and these findings were recorded by the Supreme Court in the decision reported in the case of /. C. I. (India) Private Ltd. v. Commissioner of Income-tax : 83ITR710(SC) .
3. Thereafter, on the 29th March, 1967, as mentioned hereinbefore, the impugned notice was issued. On the 30th March, 1967, the Income-tax Officer assessing the petitioner for the assessment year 1962-63, who is also by virtue of Section 7 of the Gift-tax Act, 1958, the Gift-tax Officer in this case, added a sum of Rs. 14,40,62,901 to the total income as notional capital gains on the ground that the market value of the aforesaid shares was higher than the face value at which these were transferred. On appeal the Appellate Assistant Commissioner deleted the said addition. On the 18th/ 25th April, 1967, the petitioner wrote to the Central Board of Direct Taxes pointing out that the transfer of shares was made by the petitioner to ICI in accordance with the contractual obligation and there was no question of gift. On the 30th June, 1967, the Central Board of Direct Taxes replied that the department had not accepted the position that there was any contractual obligation under which the transfer was made and, therefore, the question of gift-tax liability had to be considered. On the 18th October, 1967, an order was passed by the Appellate Assistant Commissioner in the appeal for the assessment under the Income-tax Act referred to hereinbefore. On the 23rd September, 1968, the Income-tax Officer issued a notice under Section 147 of the Income-tax Act, 1961, with a view to include the sum of Rs. 14,40,62,901 as income escaping assessment. There was an appeal preferred by the revenue against the order of the Appellate Assistant Commissioner referred to hereinbefore relating to the income-tax for the assessment year 1962-63 and the said appeal was disposed of by the Appellate Tribunal on the 19th February, 1969, dismissing the appeal of the revenue and upholding the contention of the petitioner that there was no occasion of capital gains. The Tribunal, after recapitulating the correspondence and the relevant facts, came to the following conclusion :
'Taking this along with the minutes of the meeting with the officials of the Government of India, in October, 1953, it is clear that the whole idea of ICI throughout was to make some funds available to the assessee so that the shares could be acquired in its name and that the shares could be transferred to ICI as and when it demanded.
In October, 1953, there was no mention of any capital gains tax being revived. At that time the assessee could not have had any idea of avoiding or reducing any liability to capital gains tax. The learned counsel for the department laid some emphasis on the fact that there was no enforceable arrangement. The question as to whether there was an enforceable arrangement or not is not really material. What we have to find out is whether the object in putting through these transactions or taking over the shares at par or at issue price was one of avoidance or reduction of liability to capital gains tax. That object docs not get established by the mere absence of an enforceable arrangement. Having regard to the assessee being the subsidiary of ICI there is nothing surprising about the arrangement not being so formal or not being put through after complying with all the necessary legal formalities. The absence of formal agreement is thus understandable in this context and cannot by itself suggest anything in favour of the department. Businessmen are not always motivated by legalistic considerations. Even taking that the arrangement was only binding morally and not legally, still so long as the assessee wanted to fulfil a moral obligation and had not the capital gains tax in mind, it cannot be said that the transaction was entered into with the object of avoidance or reduction of liability to capital gains tax.
In our opinion, once the facts mentioned therein are taken as correct, the inference that the transaction was not for the purpose of avoiding or reducing liability to capital gains tax has to follow.'
4. The Tribunal confirmed the decision of the Appellate Assistant Commissioner that on the material on record it did not justify the conclusion of the Income-tax Officer that the object of the transfer of the shares of all the three companies by the assessee to the ICI was the avoidance of liability to tax on capital gains which would attract Section 52 of the Act. The Supreme Court, in the judgment referred to hereinbefore, was of the opinion that the findings of the Tribunal were amply supported by evidence and were eminently reasonable. On the 14th March, 1973, notice was issued under Section 16(1) of the Gift-tax Act, 1958, by the Gift-tax Officer. The petitioner thereupon moved this application on the 22nd March, 1973, under Article 226 of the Constitution and obtained the rule nisi. In answer to the rule nisi in the affidavit-in-opposition in paragraph 14 on behalf of the revenue it was stated, inter alia, as follows:
'I say that the said notices dated 29th March, 1967, and 14th March, 19-72, were lawfully and validly issued. I say that the gift-tax proceedings in the case of the petitioner were initiated on the ground that the petitioner-company had transferred shares valued at Rs. 19,55,93,621 to ICI for Rs. 5,25,30,720. By the aforesaid transfer, a gift valued at Rs. 14,40,62,901 was made by the petitioner-company to ICI. The aforesaid transfer was without adequate consideration and in settlement of the loan account of Rs. 5,25,30,720 standing to the credit of ICI (London) in the books of account of the petitioner-company. I say that there was no contractual or legal obligation at any point of time upon the petitioner-company to transfer the aforesaid shares at par to Id. It is submitted that there was no contract and/or agreement in writing about the transfer of the said shares and there was no firm offer and/or acceptance by and between the petitioner-company and ICI in respect of the said aforesaid shares. I say that the aforesaid notices were lawfully and validly issued on proper and bona fide application of mind by the respondent No. 1. It is most emphatically denied that the said action of the respondent No. 1 is mala fide or perverse or not warranted by the provisions of the Gift-tax Act as alleged or at all. I further say that ICI (London) is not a company within the meaning of Section 2(vii) of the Gift-tax Act as alleged or at all. I say that the ICI (London) at all material times did not fulfil the requirements of sections 592 to 602 of the Companies Act. It has also been found by the Income-tax Appellate Tribunal, Bench A, in its order in W.T.A. No. 653 of 1962-63 that the ICI (London) did not deliver to the Registrar of Joint Stock Companies any return of documents under sections 592 and 597 of the Companies Act, 1956. I say that the notice under Section 16(1) of the Gift-tax Act was issued lawfully, validly in bona fide exercise of jurisdiction and on the basis of valid and substantial materials.'
5. The petitioner-company has transferred shares valued at Rs. 19,55,93,621. These were transferred to ICI in repayment of the loan of Rs. 5,25,30,720. The question is whether on the materials indicated above, can it be said that there were materials to believe that the gift made by the petitioner which was assessable to tax under the Act has escaped assessment. Therefore, the Income-tax Officer has to find out whether the transaction of transferring the shares at par value of Rs. 5,25,30,720 by the petitioner to ICI was a gift in terms of the Gift-tax Act, 1958.
6. Section 4(1)(a) of the said Act provides that where a property is transferred otherwise than for adequate consideration the amount by which the market value of the property at the date of the transfer exceeds the value of consideration shall be deemed to be a gift made by the transferor.
7. On behalf of the petitioner it was contended that evidence relating to financing of capital or the arrangement in this case was available before the Income-tax Officer who was also the Gift-tax Officer on the date of issue of the impugned notice and on this evidence the higher authorities had determined that there was a scheme or arrangement pursuant to which this transfer took place and that finding or conclusion of the higher authorities was on appraisal of the quality of evidence and in view of such finding by the higher authorities up to the Supreme Court it must be held that there was no evidence to hold that there was any gift in this case which had escaped assessment. It was, secondly, contended that the Income-tax Officer in the income-tax assessment had taken the market value as the fullvalue for consideration of the share transfers and on that basis it had proceeded to tax the petitioner on capital gains. The same officer again for the purpose of the Gift-tax Act took the opposite view. It was in these circumstances contended that the belief of the Income-tax Officer that the gift liable to duty had escaped assessment was not a belief held bona fide but a mere pretence. It was then contended that if the amount resulting from a transaction was liable to be taxed as capital gains under the provisions of the Income-tax Act, 1961, the said transaction could not be subjected to be taxed under the provisions of the Gift-tax Act, 1958.
8. Therefore, the material question for determination in this case is whether it can be said that there were materials to believe that the property was transferred otherwise than for adequate consideration. In the instant case, having regard to the finding recorded by the Tribunal in the assessment under the Income-tax Act on the capital gains question which is approved by the Supreme Court it is manifest that there was a scheme or arrangement and as a result of that scheme the petitioner had obtained loans from ICI on condition that the petitioner would invest the said loans in purchasing or acquiring the shares of the three companies referred to before. Subject to certain terms the petitioner would enjoy dividends so long as the petitioner retained the shares and the petitioner would hold the shares beneficially but as and when called upon the petitioner would transfer the said shares to ICI at par value. The transfer in the instant case by the petitioner of the shares to ICI, which is the subject-matter of consideration in the instant case, took place by virtue of the above arrangement. On behalf of the revenue it was contended that there was no legal or contractual obligation. In order to be an obligation which is legal or contractual there must be an agreement. It is indisputable that there was such an agreement in the instant case. Secondly, such an agreement must be for consideration. It is not also in dispute that there was consideration mutual on the part of the petitioner as well as on the part of the ICI for the arrangement referred to hereinbefore. Thirdly, such an agreement must not be contrary to the provisions of law or illegal. No. such provision has been indicated. I may also mention that neither the existence nor the bona fide nature of the agreement was doubted. It is true that the agreement is not embodied in any formal document and not recorded in any formal arrangement; that does not, in my opinion, detract from making the arrangement enforceable in the sense that the petitioner was bound to transfer the shares at par value as and when called- upon to do so by ICI. If that is the position then it cannot be said that the transfer was otherwise than for adequate consideration. It is not the case of the revenue that the arrangement referred to hereinbefore entered into prior to November, 1956, was not for any consideration or not for adequate consideration.
9. If once that arrangement was valid and legal, then transactions taking place in view of that arrangement cannot amount to a transfer otherwise than for adequate consideration. In that view of the matter, it must be held that there were no materials for holding that there was any gift in the instant case and as such any such gift assessable to tax has escaped assessment under Clause (1) of Section 16 of the Act.
10. On behalf of the revenue it was contended that gift as defined under Section 4 of the Act constituted deemed gifts. If transactions referred to in Section 4 of the Gift-tax Act took place then these might be considered to be gifts irrespective of and independently of the question whether these amounted to gifts under the general law or under the Transfer of Property Act. It was the gift as defined under the Gift-tax Act, 1958, that was made subject to tax tinder the Act. In these circumstances, amount resulting from a transaction might become liable to capital gains tax and at the same time might become subject to the Gift-tax Act, 1958. In aid of this submission reliance was placed on the observations of Channell J. in the case of Stevens v. Durban-Roodepoort Gold Mining Co. Ltd.  5 TC 402 of the report, where the learned judge observed as follows :
'There could be double taxation if the legislature distinctly enacted it, but upon general words of taxation, and when you have to interpret a Taxing Act, you cannot so interpret it as to tax the subject twice over to the same tax. But it all depends upon its being the same tax, and as the Attorney-General has said, there is nothing to prevent either one legislature, or two legislatures if they have jurisdiction over the subject-matter, imposing different taxes upon the same subject-matter. Double taxation in one sense is common enough in the case of these companies which have their head establishments in one country and their business in another, although no doubt there is always a sort of grievance felt in reference to it. So when one comes to consider it, that proposition, although sound in one sense, is fallacious as regards any sense that is applicable to the present case.'
11. Reliance was also placed on the observations of the Supreme Court in the case of Jain Brothers v. Union of India : 77ITR107(SC) , where the Supreme Court observed that there could be double taxation if the legislature had distinctly enacted and the Constitution did not contain any prohibition against double taxation. Counsel for the revenue drew my attention to the decision of the Madras High Court in the case of Commissioner of Gift-tax v. B. Sathiar Singh : 98ITR316(Mad) , where the Madras High Court held that even in a case where a transaction resulted in subjecting the amount to capital gains tax the same amount could be subject to tax under the Gift-tax Act. On behalf of the assessee, on the other hand, reliance was placed on the observations of the Punjaband Haryana High Court in the case of Sardarni Ahilya Raghbir Singh Raja Sansi v. Commissioner of Income-tax , where it was held that once the transfer was covered by Section 52(1) of the Income-tax Act 1961, and levy of capital gains made and the transaction was treated as one for full consideration under the Income-tax Act, it must be treated as such for all purposes and hence no gift could be involved in the transaction and no liability arose under the Gift-tax Act. Section 47 of the Income-tax Act, 1961, does not provide that the market value should be treated as the consideration for the transfer for all purposes and the Gift-tax Act as such also does not deal with transactions which take place under Section 52 of the Income-tax Act, 1961. Gift under the Gift-tax Act, 1958, must be as defined in Clause (xii) of Section 2 of the Act including the deemed gift as contemplated by Section 4 of the Act. If the transactions came within the mischief of the said definitions then these would be subject to tax, irrespective of the fact that these might be subject to tax under any other provision of the direct tax laws treating the transactions as something other than gift. lam, therefore, with great respect inclined not to accept this ratio of the Punjab and Haryana High Court that once a transaction had been treated as for full consideration under the Income-tax Act, it should also be treated as such for the purpose of the Gift-tax Act. In the view I have taken on the first aspect of the matter, however, it is not necessary for me to examine this question in great detail. I am of the opinion that the condition precedent was not fulfilled in the instant case, because in the transfer of the shares pursuant to the arrangement, there was no question of the same being without adequate consideration under Section 4(a) of the Gift-tax Act, 1958, and there was no gift involved. In the premises, challenge to the notice must be upheld.
12. The impugned notice is hereby set aside and quashed and the respondents are hereby restrained from giving effect to the same. If any assessment has been made pursuant to the said notice, the same is also quashed and set aside. The rule is made absolute to the extent indicated above.
13. There will be no order as to costs.
14. There will be a stay of operation of this order for sis weeks.