Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the gift of Rs. 10,30,000 made by the Karta of the assessee-HUF out of the HUF’s funds by delivery of the amount to the donee was void ab initio and the said amount continues to be an asset belonging to the assessee HUF and the same is includible, while computing the net wealth of the assessee-HUF, for wealth-tax purposes ?

High Court Of Madhya Pradesh : Indore Bench

K.P. Gupta (HUF) vs. CIT

Sections WT 2(m), WT 3

Asst. Years 1987-88, 1988-89, 1989-90, 1990-91

A.R. Tiwari & Shambhoo Singh, JJ.

IT Ref. No. 19 of 1995

27th August, 1996

Counsel Appeared

Nazir Singh for the Appellant; Vivek Sharan, for the Respondent



At the instance of the assessee, the Tribunal has stated the case and referred the undernoted common questions of law in both these cases on applications registered as R.A. Nos. 63, 64, 65 and 66/Ind/1995 arising out of the orders passed on 28th Feb., 1995 in ITA Nos. 33, 63, 64 and 65/Ind/1992 for asst. yrs. 1987-88 to 1990-91 and R.A. Nos. 67 ,68, 69 & 70/Ind/1993 arising out of the orders passed on 28th Feb., 1995, in WTA Nos. 31,60,61 & 62/Ind/1992 for asst. yrs. 198788 to 1990-91, for consideration :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the gift of Rs. 10,30,000 made by the Karta of the assessee-HUF out of the HUF’s funds by delivery of the amount to the donee was void ab initio and the said amount continues to be an asset belonging to the assessee HUF and the same is includible, while computing the net wealth of the assessee-HUF, for wealth-tax purposes ?”

2. Briefly stated, the facts of the case are that the assessee is an HUF. The Karta of this family during the year under consideration made a gift of cash amount of Rs. 10,50,000 in favour of one Motilal Sharma of Delhi. The AO held that the Karta of the family had no legal right to make the gift and as such gift made by him was void and that the gifted amount continued to remain property of the assessee. He, therefore, included the said amount in the net wealth of the assessee. The assessee then filed appeals before the CWT(A). The assessee placed reliance on CIT vs. Motilal Ramswaroop (1970) 76 ITR 43 (Raj) : TC 65R.634. The Tribunal vacated the orders of CWT(A) and restored the orders passed by the AO. Dissatisfied, the assessee filed the applications under s. 27 (1) of the WT Act, 1957. On those applications, the Tribunal stated the case and referred the aforesaid question of law.

We have heard Shri Nazir Singh learned counsel for the applicant/assessee and Shri Vivek Sharan, learned counsel for the non-applicant/Revenue in both these references.

The AO negatived the claim based on the linchpin of alleged gift by the Karta of Hindu Undivided Family (HUF) of Rs. 10,50,000 to Shri Motilal Sharma of Delhi. In appeal No. WT-108/90-91/529, Dy. CWT (Asstt). on 4th Dec., 1991 dislodged the order of AO on placing reliance on case of Motilal Ramswaroop (supra), and decided that addition of this amount for the purpose of wealth-tax was liable to be deleted. The Tribunal, on appeal by Asstt. CIT, vacated the order of Dy. CWT (Asstt.) in Appeals Nos. 30,31,60 to 62/Ind/1992 and Nos. 32,33,63 t65/Ind/1992 for asst. yrs. 1987-89 to 1990-91 and restored the one passed by AO. The assessee now seeks opinion via references.

5. Four factors and features stare in the face : (i) Gift-tax has been admittedly levied on the aforesaid amount as is clear from the order of gift-tax assessment. (ii) No coparcener of HUF has oppugned the gift or protested about gift-tax. (iii) No provision of law is pressed into service which may compel assessee to suffer double jeopardy of taxation i.e., payment of gift-tax and then levy of wealth-tax on the same amount. (iv) Levy of gift-tax is stated by the Revenue to be in the status of individual without bothering to appreciate the source of money. There is no material to show that the amount ever belonged to the alleged individual and did not belong to HUF. As is clear and pointed out above, the Tribunal lightly brushed aside the vital contention on assumption that gift-tax was levied in the status as individual and not as Karta of HUF. In this assumption, what is optionally overlooked is that identity of the amount was not in doubt and as such same property was not liable to be exposed to double taxation. In our view, when we excorticate the issue we find that such an exercise led to frivolity liable to be incinerated.

The counsel for the applicant contended that the amount prior to gift indisputably belonged to HUF. This being so, what is, he argued, meant by status as individual and why the assessee should suffer on account of mistake of label by the Revenue ? The essence is that this is not the way to skip or skirt the issue.

The counsel for the non-applicant is unable to satisfy us as to how the amount, is subjected to gift-tax which is higher than wealth-tax, and can be treated as wealth in the hands of Karta of HUF ? The discordant position is obvious. If this amount is includible as an asset for purposes of wealth-tax then levy of gift-tax was impermissible, vice versa, when gift-tax is levied, then it would be grotesque to impose liability of wealth-tax too. It is here that the Revenue is purposefully silent, little realising that silence is not always gold.

In slashing taxes, India is in excellent company. In 1979, Ireland abolished wealth-tax, Germany substantially lowered it, USA cut capital gains tax and U.K. reduced its maximum personal rate of personal tax from 83 to 60. After even nine and forty years since independence, India has 15 per cent of the world’s population, but has only 1.5 per cent of the world’s income. Today, India, poised to usher in 21st century, is still the 21st poorest nation on earth. And litigative impulse sights no terminal point, and perhaps refuses to evanesce. Where is the finality ? In Parashuram Pottery Works Co. Ltd. vs. ITO 1977 CTR (SC) 32 : AIR 1977 SC 429 : TC 51R.1141, the apex Court, in the context of tax matter, ruled that there has to be finality. There has to be veracity.

In case of Motilal Ramswaroop (supra), the High Court of Rajasthan held that : “Held, in the WT reference, that the amount of Rs. 4 lakhs, together with the estimated interest thereon, ceased to be an asset of the assessee for wealth-tax purposes whether the gifts were void or voidable and that amount could not be taxed under the WT Act. It may be that the transfer by way of gifts was liable to be questioned by members of the family, but that would not make such transfer a revocable transfer and s. 4(1)(a)(iv) of the WT Act, has no application to the case.”

In Sunil Kumar & Anr. vs. Ram Prakash & Ors. AIR 1988 SC 376, it is held that the rights of a coparcener “are not independent of the control of the Karta”. In a Hindu family, the Karta or manager occupies unique position. It would be ludicrous to imagine that one would opt to press the plea of gift to pay more amount by way of gift-tax to save lesser amount by way of wealth-tax and to permit such imagination to prevail.

The case on hand thus evidently but elvishly, manifests malady, not melody. Taxation here appears to be vexation. Law is a leveller, not a producer of unmerited adversity. What puzzles is that if gift by Karta is void ab initio in terms of s. 2(xii) then why gift-tax was imposed ? And after this event treating the gift as valid and levying gift- tax, can the authorities somerset and speak about validity for gift-tax and invalidity for wealth-tax ? This proclivity of plus and minus has to perish. No person or authority should be permitted to slip under umbrella of inconsistent positions.

We are not shown any provision of law which could first permit levy of gift-tax and then levy of wealth-tax on same property. In fact one is mutually destructive of the other. New Testament 2 Corinthians 3 : 6 highlighted that “The letter killeth, but the spirit giveth life. It is a case of taking wealth-tax but not returning gift-tax. are two sides of same coin. The moment one denies the existence of one side, one loses the coin itself. There has to be rationality, was Lord Keynes right in his observation that “Men will do the rational thing, but only after exploring all other alternatives” ? Where is the necessity to explore ? Indisputably, these two taxes cannot co- exist. It as inutile and futile to foul and flagellate in this manner.

In the face of facts and features, we are satisfied that the Tribunal was not right in vacating the order of first appellate authority and in holding that gifted amount, subjected to gift-tax and consented to, even if impliedly by other coparceners, continued to belong to the HUF for wealth-tax purposes. We are also satisfied that the Tribunal was not right in holding that the gifted amount was assessable to wealth-tax. Ex consequenti, we see the error, vividly visible, and are obligated to demolish it to free the assessee from pang of patent illegality in the face of levy of gift-tax on the same amount. It is improper to wrench and wriggle on the fulcrum of supposed status of individual vs. HUF when money evidently belonged, prior to accepted gift, to HUF. Such a position, as taken by the Tribunal, in reversing the verdict of first appellate authority, is fittingly frangible. The label is not euonymus. May be, we would have felt inclined to agree with Revenue if there was no levy of gift-tax on the same amount. The Revenue has no solution to this big “if” and remains unable to unknot the conundrum. Law and justice have to be seen to live in harmony.

We thus answer the question in both these cases in the negative i.e. against the Revenue and in favour of the assessee, Strangely enough, validity of gift was considered in wealth-tax proceedings. These misc. civil cases are thus decided in terms indicated above but with no orders as to costs. Counsel fee for each side in each case is, however, fixed at Rs. 750.00, if certified. Transmit a copy of this order to the Tribunal for further action in the light of our answer in conformity with law. Retain this order in IT Ref. No. 19 of 1995 and place its copy in the record of IT Ref. No. 20 of 1995 for ready reference.

[Citation : 234 ITR 456]

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