Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the conveyance of certain lands made by the assessee to her sister’s daughters did not amount to making of a ‘gift’ taxable as such under the GT Act, 1958, and, therefore, the assessment made on the ‘gift’ was not valid in law and should, therefore, be cancelled ?

C.V. Rajan, for the Revenue : R. Janakiraman, for the Assessee

SRINIVASAN, J.:

The questions which have been referred to this Court at the instance of the Revenue are as follows :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the conveyance of certain lands made by the assessee to her sister’s daughters did not amount to making of a ‘gift’ taxable as such under the GT Act, 1958, and, therefore, the assessment made on the ‘gift’ was not valid in law and should, therefore, be cancelled ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the transfer made by the assessee in favour of her two sisters of certain lands and the transfer made by the two sisters in favour of the assessee conveying certain other lands to the assessee were not independent transactions of gift under the GT Act, 1958, but amounted to an ‘exchange’ as defined under s. 118 of the Transfer of Property Act, 1882 ?”

2. The short facts of the case may be stated as under : By a deed of settlement dt. 10th July, 1971, the assessee settled certain lands on her sister’s two daughters. On the same day, by a deed of settlement, her sister’s daughters settled certain other properties on the assessee. The GTO took the view that the settlement deed by which the assessee settled the lands on her nieces amounted to a gift coming within the purview of the GT Act and assessed her accordingly. On appeal, the AAC found that the transaction was covered by s. 118 of the Transfer of Property Act, 1882, and it would only be an exchange and not a gift within the meaning of the GT Act. Consequently, he allowed the appeal. On further appeal by the Revenue, the Tribunal confirmed the decision of the AAC. On that, the Revenue prayed for a reference to this Court and, accordingly, the aforesaid two questions are referred to this Court.

3. It is seen from the facts of the case that the two documents, viz., the one by the assessee and the other by her nieces, were executed on the same day, i.e., 10th July, 1971. They were also registered on 12th July, 1971. While the document executed by the nieces of the assessee was registered earlier as document No. 1768, the document executed by the assessee was registered as document No., 1769. In both these documents, there is a recital that the document was being executed at the request of the respective settlees. Though the values of the properties covered under the two documents differ, the transaction satisfies the requirements of an exchange. The facts clearly show that both the documents form part of one transaction.

4. Sec. 118 of the Transfer of Property Act defines “exchange” in these terms : Sec. 118 :

“When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an ‘exchange’. A transfer of property in completion of an exchange can be made only in manner provided for the transfer of such property by sale.”

The section does not require that an exchange should be brought about by one document only. There is nothing in law which prevents an exchange being brought into existence by two documents. In Mulla’s Transfer of Property Act, Seventh Edition, at page 780, the following passage occurs : “Mode of transfer : The mode of transfer is the same as in the case of sales. Therefore, in the case of immovable property, the rules in s. 54 as to registration or delivery of possession apply. Thus, an exchange of tangible immovable property of the value of Rs. 100 and upward if not made by registered instrument is invalid. In the case of immovable property, an exchange is usually made by mutual conveyances, but it is not necessary that there should be two separate deeds.”

5. In Prabhu Dia vs. Shadi Ram AIR 1919 Lahore 246, it was held by Broadway J. that it is for the Courts to decide, not only on the document itself, but on all the materials on the record, whether the transaction was a sale or an exchange. In that case, two deeds of sale were drawn up on the same day and it was held that the transactions were proved to be an exchange and not a sale. This principle was reaffirmed by a Division Bench of the Allahabad High Court in Kishen Lal vs. Ram Lal AIR 1927 All 696, wherein it was laid down that extrinsic evidence is admissible for the purpose of showing that two documents, though purporting to be separate sale deeds, are in reality part and parcel of the same transaction which was one of exchange. On the evidence in that case, it was held that the transaction amounted to an exchange.

6. In Ram Badan Lal vs. Kunwar Singh, AIR 1938 All 229, another Division Bench of that Court held that no hard and fast rule can be laid down as to when two transactions amount to a sale or to an exchange. It was pointed out that if the consideration for a transfer is not paid in cash but is paid by the transfer of ownership of some property, it would only be an exchange and not a sale. It was also held that the mere fact that the values of the properties transferred had been fixed does not convert the transaction into one of sale. The following passage in the judgment would be relevant : “It is not the name or form of the transaction but the nature of the consideration paid for the transfer which determines the nature of the transfer itself. If the consideration for the transfer is not paid in cash, but is paid by transfer of the ownership of some property, it would be only an exchange and not a sale.”

7. Learned counsel for the Revenue places strong reliance on the decision of this Court in CIT vs. Ramal Ammal (1982) 31 CTR (Mad) 16 : (1982) 135 ITR 292 (Mad). In that case, the assessee purchased from certain villagers, lands which contained gypsum under registered sale deeds. Under separate agreements entered into on the same date, the villagers were given the option to repurchase the lands. The assessee thereafter entered into an agreement with her husband under which the husband had to do the mining operations in those lands after obtaining the requisite mining licence. The assessee’s husband had to pay Rs. 2 per ton of gypsum mined and Re. 1 per ton towards the cost of the land, compensation for damages caused to the land, etc. The dues payable to the Government on account of the mining operations had to be paid by the husband. For the asst. yrs. 1966-67 to 1969-70, the assessee adjusted the sum of Re. 1 per ton received towards the cost of the land against the price paid by her for those lands by applying some formula to distribute the price over the several years and claimed certain sums being portions of the purchase price, as deductible in computing her income for each of those years. The ITO rejected the claim for deduction on the ground that the amount received by her was towards a capital outlay. The AAC held that the transaction of sale and agreement to repurchase should really be considered as a lease of the lands to the assessee for mining gypsum and as the lands had to be reconveyed within the period of seven years, the assessee had not derived any enduring or permanent advantage. That view was upheld by the Tribunal on appeal. On a reference, it was held by the Division Bench, on the facts, that merely because an option to repurchase was reserved with or conferred on the vendor, it did not mean that the purchaser had obtained something less than the full title. It was further held that what the purchaser had obtained under the document of sale was the land itself and the entire fee in the land. On a true construction of the documents in that case, it was held that the assessee had acquired a fixed capital item, namely, gypsum-bearing land, and the price paid was for the acquisition of that fixed capital item and hence it was capital expenditure. The Division Bench made the following observation on which learned counsel for the Revenue places reliance : “Another reason why the doctrine of substance is not available in discussions in revenue matters is that, given the taxable event, the tax attaches on the event as it charges or unfolds itself. It often happens that there may be more than one way of bringing about a desired result, and while one method may yield a tax advantage, the same result brought about by a different method might land the person concerned in tax liability or reduction of tax advantage to a greater or a lesser degree. Courts have, therefore, been chary of introducing into the discussions of liability to tax the test of substance in interpreting transactions with tax consequences. The fact that a particular result can be achieved by treating the transaction as of a different kind from that which the parties have put it through, would not give jurisdiction to the Tribunal to ignore the form of the transactions which had commended itself to the parties and which the parties had adopted for incorporating the transaction. The Tribunal cannot tax on the basis of substance; neither can it let off an assessee from tax on the same basis.”

The same decision referred to the observations made by the House of Lords in Duke of Westminster vs. IRC (1935) 19 Tax Cases 490 (HL) that “even the doctrine of substance can only mean that a Court having once ascertained the legal rights of the parties may disregard mere nomenclature and proceed to decide the question of taxability or non-taxability in accordance with the legal rights”. This shows that it is for the Court to ascertain in the first instance the nature of the transaction from the facts and circumstances of the case. If the Court finds that the transaction is of one particular character, then the legal rights which flow from that transaction have to be upheld.

The Division Bench also referred to the decision of the Supreme Court in CIT vs. Motors & General Stores (P) Ltd. (1967) 66 ITR 692 (SC), wherein the Supreme Court had quoted with approval the following passage in IRC vs. Wesleyan & General Assurance Society (1948) 30 Tax Cases 11 : (1948) 16 ITR (Suppl) 101 (HL) : “It may be well to repeat two propositions which are well established in the application of the law relating to income-tax. First, the name given to a transaction by the parties concerned does not necessarily decide the nature of the transaction. To call a payment a loan if it is really an annuity does not assist the taxpayer any more than to call an item a capital payment would prevent it from being regarded as an income payment if that is its true nature. The question always is what is the real character of the payment, not what the parties call it. Secondly, a transaction which on its true construction is of a kind that would escape tax, is not taxable on the ground that the same result could be brought about by a transaction in another form which would attract tax.” Thus, it is clear that the name given by the parties to a transaction is not conclusive and the facts and circumstances of each case have to be looked into to decide the nature of the transaction.

In T. Mammo vs. K. Ramunni AIR 1966 SC 337, it was held that the nomenclature of a deed and the amount of the stamp paid on it, though relevant, are not conclusive on the question of construction. In CGT vs. Thiruvenkata Mudaliar 1977 CTR (Mad) 85 : (1977) 107 ITR 661 (Mad) : TC35R.691, a Division Bench of this Court had to consider whether a document styled as a settlement deed was a settlement or a will. While holding that the document was only a will, the Division Bench pointed out that the nomenclature given by the parties to the transaction in question was not decisive.

Learned counsel for the Revenue drew our attention to the decision of a Division Bench of the Karnataka High Court in CIT vs. Maganathi Amba Devi (1987) 60 CTR (Kar) 137 : (1986) 162 ITR 796 (Kar) : TC35R.321. In that case, the assessee and her husband settled certain immovable properties in favour of their son and daughter under a registered settlement deed dt. 21st Sept., 1972. On the very next day, viz., 22nd Sept., 1972, the son and daughter executed an agreement undertaking to pay annuity to the assessee and her husband. The assessee claimed that the settlement was not a gift within the meaning of the term occurring in s. 4(1)(a) of the GT Act, 1958, and that the annuity payable under the agreement should be considered as a consideration for the settlement if the settlement was treated as a gift. The GTO rejected the claim of the assessee and assessed the gift to gift-tax. The AAC dismissed the appeal filed by the assessee. The Tribunal allowed the appeal of the assessee and remitted the matter to the AAC for determination afresh treating the agreement and the settlement deed as one document. On a reference, the Division Bench held that in the settlement deed as finally registered, there was no stipulation for payment of annuity by the son and daughter to the assessee and on an examination of the settlement deed, it was clear that it constituted only a gift. It was also pointed out that any agreement entered into between the parties either contemporaneously or subsequently to whittle down the earlier gift or the terms of the gift could not properly be relied on by the authorities under the Act. We do not see how this decision helps the Revenue in the present case. On the facts of that case, the Division Bench of the Karnataka High Court took the view that there was only a transaction of gift.

On the facts and circumstances of this case, the Tribunal has taken the view that the transaction is one of exchange and not a gift and that view cannot be said to be unreasonable or perverse. Hence, we agree with the conclusion of the Tribunal and hold that the transaction in question is only an exchange.

In the result, the two questions referred are answered in the affirmative and against the Revenue. The Revenue will pay the costs of the assessee. Counsel’s fee Rs. 500.

[Citation : 171 ITR 464]