Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee would be entitled to the exemption of Rs. 50,000 under s. 5(1)(viii) of the GT Act ?

Counsel Appeared

M. Srirama Rao & M.J. Swamy, for the Assessee : M.S.N. Murthy, for the Revenue

Y.V. ANJANEYULU, J.:

The Tribunal made this reference under s. 26(1) of the GT Act. The assessment year involved is 1973-74 for which the relevant previous year commenced from October 20, 1971, and ended on November 5, 1972. The assessee was a partner in a partnership firm in his individual capacity. It appears that a sum of Rs. 1,71,373 standing to the credit of his account in the partnership books was thrown into the common stock of the joint family on October 20, 1971, so that after the individual property was impressed with the character of the joint family property, it became the property of the family consisting of the assessee, his wife and his son. For the asst. yr. 1973-74, the question arose whether the assessee’s impressing his individual property of the value of Rs. 1,71,373 with the character of joint family property constituted a gift either wholly or partly for purposes of the GT Act. Noticing the provisions contained in s. 4(2) of the GT Act, which came into force from April 1, 1972, through the Finance (No. 2) Act of 1971, the Revenue was of the opinion, that a transaction of gift was involved. Accordingly, proceedings were initiated and an assessment was made under the GT Act for the year 1973-74. Having regard to the provisions contained in s. 4 (2) of the GT Act, the GTO determined the value of the gift at Rs. 1,14,248. The sum of Rs. 1,71,373 thrown into the common stock of the joint family, when partitioned, fell to the share of the assessee, his wife and his son in three equal shares. It is stated that the assessee migrated from Marwar and that he is governed by the Benares/Mithila School so that in a partition between a father and son, the wife gets an equal share in the coparcenary property. Accepting the aforesaid claim, the GTO held that each one of the three members of the joint family would be entitled to a sum of Rs. 57,124 constituting one-third of the total value of the gift. Excluding the 1/3rd portion attributable to the assessee who made the gift, the balance amount of Rs. 1,14,248 was deemed to be a gift by the assessee during the previous year relevant to the asst. yr. 1973-74 and assessed as such.

2. Before the GTO, the assessee claimed that in so far as the gift to the wife is concerned, he is entitled to claim exemption under s. 5(1)(viii) of the Act so that Rs. 50,000 has to be exempted against the sum of Rs. 57,124 falling to the share of the assessee’s wife. The GTO declined to accept the assessee’s contention. The result was that gift-tax was levied on the total sum of Rs. 1,14,248 which represented 2/3rds of the sum impressed with the character of joint family property.

3. Against the aforesaid assessment, the assessee carried the matter in appeal to the AAC. The AAC, confirming the order of the GTO, dismissed the appeal.

4. The assessee carried the matter in second appeal to the. Tribunal. Before the Tribunal, two contentions were raised. Firstly, it was contended that there was no liability to pay gift-tax inasmuch as the gift in the present case was made long prior to April 1, 1972, when the amendment to s. 4(2) of the GT Act came into force. The second contention was that in relation to the gift in favour of the wife, exemption under s. 5(1)(viii) of the Act ought to be granted. The Tribunalrejected the first contention of the assessee and accepted the second contention and granted exemption under s. 5(1)(viii).

5. Aggrieved by the order of the Tribunal, both the assessee and the Revenue came on a reference to this Court. At the instance of the assessee, the Tribunal referred the following question of law : ” Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee’s declaration dated October 20, 1971, by which he threw the capital of Rs. 1,71,373 standing to his credit in the firm of which he was a partner, into the common hotchpot of his family had to be considered for the purpose of liability to gift-tax with reference to the provisions of sub-s. (2) of s. 4 of the GT Act, 1958, inserted w.e.f. April 1, 1972, by the Finance (No. 2) Act, 1971, and, consequently, the said transaction attracted gift-tax liability for the asst. yr. 1973-74 ? “

6. At the instance of the Revenue, the following question of law was referred: “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee would be entitled to the exemption of Rs. 50,000 under s. 5(1)(viii) of the GT Act ?”

7. Sri Srirama Rao, learned counsel appearing for the assessee, conends that the amendment to s. 4(2) of the GT Act had come into force only on April 1, 1972, and the gifts prior to that date fall outside the ambit of levy under the GT Act. This contention, in our opinion, is plainly untenable. For the asst. yr. 1973-74, the previous year commenced on October 20, 1971, and ended on November 5, 1972. Therefore, the date of the gift, namely, October 20, 1971, fell within the previous year relevant to the asst. yr. 1973-74. There can be no dispute about the fact that the provisions of s. 4(2) of the GT Act have come into force w.e.f. the beginning of the asst. yr. 1972-73. Consequently, the act of the assessee in converting his individual property into that of joint family property on October 20, 1971, resulted in a transaction of gift for the asst. yr. 1973-74. This is based on the general principle that the law as is in force on the first day of the assessment year is applicable for the assessment year concerned. The proposition is too well-settled. Sri Srirama Rao also does not dispute the above general principle. What he contends is that either expressly or by necessary implication, the general rule goes out of application and that is what is argued in the present case. According to learned counsel on October 20, 1971, when the transaction of gift was effected, there was no statutory sanction for taxing any deemd gift. The sanction came much later on April 1, 1972. Thus, by necessary implication, contends learned counsel, gifts effected prior to April 1, 1972, cannot be attracted by the GT Act. It is urged that instances are not wanting where the legislature excluded the operation of the above general principle by giving retrospective effect to the provisions enacted or by setting out circumstances clearly indicating by implication a position contrary to what has come to be applied as a general principle. True, there are occasions when the Courts had examined the provisions contained in the statutes and come to the conclusion that in the special facts and circumstances, the general principle will have no application. But, that can only be where such a principle can be culled out either expressly or by necessary implication. Our attention has been invited by Srirama Rao to the decision of the Supreme Court in CIT vs. Shah Sadiq & Sons (1987) 166 ITR 102. The following observations are pertinent : ” This Court in Karimtharuvi Tea Estate Ltd. vs. State of Kerala (1966) 60 ITR 262, observed that it was well-settled that the IT Act as it stands amended on the first day of April of any financial year must apply to the assessment of that year. Any amendments in that Act which came into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment was actually made after the amendments came into force. There, the Kerala Surcharge on Taxes Act, 1957, having come into force on September 1, 1957, being the date appointed by the Kerala Government under s. 1(3) of the Act, and not being retrospective in operation, by express intendment or necessary implication, could not be made applicable from April 1, 1957.”

We may point out in the present case that there is nothing, either in express terms or by necessary intendment, which would support the contention of learned counsel that the general principle that the law as on the first day of the assessment year is not applicable. Learned counsel brings to the notice of this Court that simultaneously with the amendment of the GT Act, amendments also were made to the IT Act and WT Act and the language employed in amending s. 64(2) of the IT Act and s. 4(2) of the WT Act are not in pari materia with the language used for effecting amendment to the GT Act. Having perused the language of all the three enactments, we are unable to say that any contrary intention can be culled out from the amendment made to the GT Act.

Learned counsel referred to the decision of the Rajasthan High Court in CIT vs. Laxman Singh (1986) 159 ITR 983. Having looked into this decision, we do not consider that it has any application to the case on hand. We find in that case that jewellery was sold on March 29, 1972, and March 31, 1972, falling in the previous year relevant to the asst. yr. 1972-73 and consequently a claim to levy capital gains tax for the asst. yr. 1973-74 could not be sustained. That decision does not in any way advance the assessee’s case. In the circumstances, we hold that the Tribunal was right in rejecting the assessee’s contention that no gift-tax liability arises for the asst. yr. 1973-74. The question referred to this Court at the instance of the assessee is, therefore, answered in the affirmative, i.e., in favour of the Revenue and against the assessee.

10. As regards the second question referred at the instance of the Department, we consider that the Tribunal was justified in granting exemption under s. 5(1)(viii) of the Act. Sec. 4(2) of the GT Act is merely declaratory of what is a deemed gift in circumstances where an individual impresses his individual property with the character of joint family property. The provision declares that for purposes of computation of taxable gifts made by the individual, the individual shall be deemed to have made a gift of so much of the converted property as the members of the HUF other than such individual would be entitled to, if a partition of the converted property had taken place immediately after such conversion. The real effect of this provision is to ask the question as to what is the extent of converted property which each member of the family would be entitled to if a partition of the converted property had taken place immediately after such conversion. There is no dispute before us on this question and the assessee, the assessee’s wife and the assessee’s son would be entitled to the converted property in three equal shares if a partition of the converted property had taken place immediately after such conversion. In the light of this admitted fact, the extent of gift declared by sub-s. (2) of s. 4 of the Act is clear and that is the extent that the converted property goes in favour of the other members of the family on a partition immediately after the conversion. The extent of that property in the present case is : . Rs. Assessee’s wife 57,124 Assessee’s son 57,124 Total 1,14,248 That is how the GTO computed the taxable gift in his order. The moment the property of Rs. 57,124 is attributable by way of gift to the assessee’s wife, then the logical consequence of such a gift is that it earns exemption under s. 5(1)(viii) of the GT Act. It is not possible to say that while there is, for the purpose of gift-tax, a gift in favour of the assessee’s wife, that statement should be limited only to the ascertainment of the assessee’s wife’s share and the further consequence flowing out of such a gift should not be given effect to. In our opinion, the acquiescence of the fact that the transaction involved transfer of Rs. 57,124 to the wife upon partition which has to be deemed to be a gift under s. 4(2) of the Act has the necessary consequence of exemption conferred by s. 5(i)(viii) of the Act. In our opinion, the Tribunal was right in granting exemption of Rs. 50,000 accepting the assessee’s claim in this regard.

We accordingly answer the second question referred to us at the instance of the Department also in theaffirmative, i.e., in favour of the assessee and against the Revenue. Having regard to the circumstances, the parties shall bear their own costs.

[Citation : 173 ITR 439]