S.C : Whether, on the facts and in the circumstances of the case, the assessee was entitled to exclude, under the proviso to s. 4(1)(a) of the WT Act, 1957, the value of the assets gifted to his wives in the wealth-tax assessment for the asst. yr. 1967-68 ?

Counsel Appeared

B.B. Ahuja, A. Subhashini, K.C. Dua, Harish N. Salve, Vivek Gambhir, Preveen Kumar and A. Subba Rao, for the Appearing Parties

M.N. VENKATACHALIAH, J.:

Civil Appeal No. 1118 of 1975, by special leave, by the CWT, Andhra Pradesh, and Civil Appeals Nos. 1226 and 1227 of 1975, on a certificate, under s. 29(1) of the WT Act, 1957 (the “Act”), by the assessee, raise a question as to the proper construction of the proviso to s. 4(1)(a) of the Act, which provides for exemption in respect of transferred assets which would otherwise be includible in the wealth of the assessee under s. 4(1)(a) of the Act.

2. The condition for the grant of the exemption under the proviso is that the transfer of the asset is either chargeable to gift-tax or is not chargeable under s. 5 of the GT Act, 1958. The particular point for consideration is whether, on the language of the proviso, the exemption is attracted only to such gifts as were chargeable to tax for any assessment year commencing “after the 31st March, 1964,” as understood by the Revenue or whether the gifts even made earlier would attract the benefit of the exemption as claimed by the assessees. There appears to be a divergence of judicial opinion on the point in the High Courts. In CWT vs. Sarala Debi Birla (1975) 101 ITR 488 (Cal) : TC65R.737, T. Saraswathi Achi vs. CIT (1976) 104 ITR 185 (Mad) : TC65R.738, CWT vs. Seth Nand Lal Ganeriwala (1977) 107 ITR 758 (P&H) : TC65R.738, M. G. Kollankulam vs. CIT (1978) 115 ITR 160 (Ker) : TC65R.641, Malti Harshey vs. CWT (1980) 121 ITR 676 (MP) : TC65R.739 and CWT vs. Rasesh N. Mafatlal (1980) 18 CTR (Bom) 334 : (1980) 126 ITR 173 (Bom) : TC65R.1031, several High Courts have construed the provision in the manner suggested by the Revenue. CWT vs. Smt. Hashmatunnisa Begum (1977) 108 ITR 98 (AP) : TC65R.736 has taken the opposite view extending a wider benefit of the exemption.

The opinion of the Calcutta High Court in CWT vs. Sarala Debi Birla (supra), which is representative of the view in favour of the Revenue, is under appeal in Civil Appeals Nos. 1226 and 1227 of 1975 and the opinion of the Andhra Pradesh High Court in CWT vs. Hashmatunnisa Begum (supra), which is favourable to the assessee is under appeal in Civil Appeal No. 1118 of 1975 preferred by the Revenue.

3. In Civil Appeal No. 1118 of 1975, the assessee, Smt. Hashmatunnisa Begum, the legal representative of the late Nawab Zahir Yar Jung Bahadur, claimed in respect of the asst. yr. 196768, that the value of the immovable properties gifted by the late Nawab to his wives before 1st April, 1964, should not be included in the net wealth of the Nawab as on the valuation date, 30th Sept., 1966. The Nawab, under three deeds of gift, one dt. 25th May, 1962, in favour of Smt. Hashmatunnisa Begum, his first wife, and two other deeds dt. 17th Aug., 1962, and 26th April, 1962, in favour of Smt. Fareed Jehan Begum, his second wife, gifted in their favour certain lands and buildings of a total value of Rs. 1,96,950. The gifts were chargeable to gift-tax and were accordingly assessed to gift-tax in the asst. yr. 1963-64. On behalf of the estate of the Nawab, who later died on 16th Dec., 1968, it was claimed in the proceedings for assessment to wealth for the asst. yr. 1967-68, that though the gifts were otherwise includible as belonging to the Nawab under s. 4(1)(a)(i), as the transfers were made to the spouses otherwise than for adequate consideration, however, as the gifts were chargeable to gift-tax, the proviso to s. 4(1)(a) was attracted and that the assets so transferred were not includible in the net wealth of the Nawab “for any assessment year commencing after the 31st March, 1964”. The WTO rejected this claim. The AAC, in the assessee’s appeal, confirmed the assessment. In the assessee’s further appeal before the Tribunal, the Tribunal, on a particular construction of the proviso, allowed the appeal and held that the assets transferred, which had attracted gift-tax, were not includible in the net wealth of the Nawab from the asst. yr. 1964-65 onwards. At the instance of the Revenue, the following question of law was referred to the High Court for its opinion :

“Whether, on the facts and in the circumstances of the case, the assessee was entitled to exclude, under the proviso to s. 4(1)(a) of the WT Act, 1957, the value of the assets gifted to his wives in the wealth-tax assessment for the asst. yr. 1967-68 ?”

The High Court agreed with the construction placed on the proviso by the Tribunal and answered the question in the affirmative and against the Revenue. The Revenue has come up in appeal by special leave.

4. In Civil Appeals Nos. 1226 and 1227 of 1975, the assessment years concerned are 1964-65 and 1965-66 corresponding to the valuation dates 31st March, 1964, and 31st March, 1965. On 7th Oct., 1959, Smt. Sarala Debi Birla, the assessee, made a gift of Rs. 1,00,011, to her minor daughter, Smt. Manju Rani Birla. The asset so transferred was included in the assessee’s wealth for the two asst. yrs. 1964-65 and 1965-66 under s. 4(1)(a)(ii) of the WT Act. The claim of the assessee that the proviso to s. 4(1)(a) operated to exclude the asset from the net wealth of the assessee as the transfer was chargeable to gift-tax was not accepted by the WTO who completed the assessment including the transferred asset in the assessee’s net wealth. The assessee’s appeal before the AAC was unsuccessful. However, the Tribunal accepted the contention of the assessee and by its appellate order dt. 11th May, 1970, allowed the assessee’s appeal holding that on a true construction of the proviso, so long as the gift was chargeable to, or exempt under s. 5, from gift-tax, to that extent s. 4(1)(a) ceased to have operation and the statutory fiction embodied in it was not attracted and that, as, at the relevant time, the gift was chargeable to gift- tax, the exemption was to operate from the assessment year commencing after 31st March, 1964. At the instance of the Revenue, the Tribunal referred the following question of law for the opinion of the High Court : “Whether, on the facts and in the circumstances of the case and on a proper interpretation of s. 4 (1)(a) of the WT Act as amended by the WT (Amendment) Act, 1964 (Act 46 of 1964), the sum of Rs. 1,00,011 gifted by the assessee to her minor daughter would be included in computing her net wealth ?

The High Court of Calcutta, in reversal of the view taken by the Tribunal, answered the question in the affirmative and against the assessee. The assessee has come up in appeal by certificate.

We have heard Shri B. B. Ahuja, learned counsel for the Revenue, and Shri Harish Salve and Shri Subba Rao, for the assessees.

The controversy generated on the point leading to the divergence of judicial opinion on the point is attributable to the somewhat inelegant and inappropriate phraseology of the provision. To appreciate the relevant contentions, it is necessary to notice the words of the proviso : “Provided that where the transfer of such assets or any part thereof is either chargeable to gift-tax under the GT Act, 1958 (18 of 1958), or is not chargeable under s. 5 of that Act, for any assessment year commencing after the 31st March, 1964, but before the 1st April, 1972, the value of such assets or part thereof, as the case may be, shall not be included in computing the net wealth of the individual;” The words “but before the 1st April, 1972,” were later introduced by the Finance (No. 2) Act, 1971, w.e.f. 1st April, 1972. The proviso was introduced by the amending Act of 1964, but given effect to from 1st April, 1965, by a notification. Under the various clauses of s. 4(1)(a), certain transfers of assets made by an individual in favour of, or for the benefit of, the spouse or of a minor child, not being a married daughter, of such individual, are required to be ignored and the transferred assets included in the wealth of the assessee, as belonging to him. Sec. 4(1)(a) aims at foiling an individual’s attempt to avoiding or reducing the incidence to wealth-tax by transferring the assets to or for the benefit of the spouse or the minor child of the individual, by requiring the inclusion of such transferred assets in computing the net wealth of the individual. However, the proviso makes the provision inoperative where and in so far as the transferred asset is either chargeable to gift-tax under, or is exempt under, s. 5 of the GT Act. The controversy surrounds the question whether the expression “for any assessment year commencing after 31st March, 1964”, occurring in the proviso should be read with the first part and as referring to the eligibility of the gifts for exemption with reference to the point of time at which the gifts were made or whether that expression does not condition the identity of the eligible gifts but only signifies the starting point for the exemption from wealth-tax. The assessees contend that the date of the gift is immaterial and as long as the transfer is chargeable to gift-tax or is exempt under s. 5—whatever may be the year in which the gift was made—the exemption from gift-tax must commence “for any assessment year commencing after the 31st March, 1964”. If the expression “for any assessment year commencing after the 31st March, 1964″, is intended to qualify and determine the gifts, the subject-matters of which are eligible for exemption, then the literal construction would be that the gifts made earlier to that period, though chargeable to gift-tax, would not attract the benefit of exemption. But the assessees say that the clause must be read as part of the second part of the proviso which contemplates the exemption. So read, the clause would qualify the commencement of the benefit of the exemption and not the point of time when the gift is required to be made to be eligible for exemption from wealth- tax. The learned judges of the High Court of Andhra Pradesh, in the course of the judgment under appeal in Civil Appeal No. 1118 of 1975 observed : ” . . . The words ‘for any assessment year commencing after the 31st March, 1964′ are referable to the assessment to be made under the WT Act. They render the provisions of s. 4(1)(a) inoperative irrespective of the fact whether the transferred asset was chargeable to gift-tax or not chargeable to gift-tax. The proviso specifies the period of exemption up to 31st March, 1964. Irrespective of the year of the gifts when the assets were gifted, they will not be included in the computation of the net wealth of the individual till the asst. yr. 1964-65. We are, therefore, of the view that the intention of Parliament was to exempt transfers made under cls. (i) to (iv) of s. 4(1)(a) from being computed in the net wealth of the individual up to the wealth-tax assessment year commencing after 31st March, 1964 . . .”

7. Sri Ahuja submitted that the words “for any assessment year commencing after the 31st March, 1964” could, in the context, only refer to the gift and gift-tax assessments. The proviso, he said, which was introduced by way of an amendment, was brought into force w.e.f. 1st April, 1965, by a notification which specified the commencement of the operation of the proviso and that, quite obviously, it would be redundant to read the clause under consideration as again referring to the commencement of the operation of the proviso. While the clause under consideration related to and qualified the gift and gift-tax assessments, the commencement of the exemption of the subject-matter of the gifts for purposes of wealth-tax was controlled and determined by the commencement of the operation of the proviso, which by a notification, was specified as 1st April, 1965. Sri Ahuja submitted that the proviso was intended to effectuate the legislative policy that in respect of certain gifts made in favour of a spouse or a minor child, during a specified period, the assets transferred under the gifts would have the benefit of exemption from the operation of s. 4(1)(a). This was because the legislature took into consideration that from 1st April, 1964, onwards, there was a sharp ascent in the rates of gift-tax and that the assets which constituted the subject-matter of such gifts attracting such high rates of gift-tax should not also be included in the net wealth of the donor for wealth-tax purposes which would otherwise be the consequence under s. 4(1)(a) of the Act. As the proviso originally stood, gifts chargeable to gift-tax for any assessment year commencing after 31st March, 1964, attracted the benefit of exemption. The outer limit for the period of such eligible gifts was later fixed by the amendment made by the Finance (No. 2) Act, 1971, w.e.f. 1st April, 1972, which introduced the words “but before the 1st April, 1972”. Accordingly, Sri Ahuja contends that only that class of gifts which were chargeable to gift-tax for any asst. yr. 1964-65 or thereafter (but subject to the limit fixed by the 1971 amendment) which would otherwise fall under s. 4(1)(a) were eligible for the benefit of the exemption. According to Sri Ahuja, the plain words of the proviso leave no room for doubt and where the enactment is clear and admits of only one meaning and does not admit of two or more meanings, it would be the plain meaning that should be given effect to. When the meaning is plain, says counsel, no recourse could be had to any rules of construction which would denude the provision of its plain and ordinary meaning.

8. Sri Harish Salve, presenting the case of the assessees, sought to point out the intrinsic anomaly of the cases between a gift made, say, on 31st March, 1963, and one made the very next day, i.e., the 1st of April, 1963, on the other, to show that while in the first case, even for the asst. yr. 1965-66, the transferred asset is includible in the wealth of the assessee, in the latter case, it is exempt for all times to come thereafter. Learned counsel pointed out that the criterion of higher rates of gift- tax as a justification supporting the classification also fails in view of the fact that under the, proviso, it is not only the gifts chargeable to tax but also those exempt under s. 5 that attract the exemption with the result that between two gifts which are both exempt under s. 5 of the GT Act, one is forever exempt from wealth-tax in the hands of the donor while the other is includible in his wealth for purposes of wealth-tax depending solely on the criterion of the date of gift—whether the gift was made prior to 31st March, 1963, or thereafter. Here, the criterion of classification of gifts on the basis of the exigibility to higher rates of tax, says Sri Salve, collapses and the cut-off date determining the difference in consequences in the two different classes of cases becomes wholly arbitrary. Sri Salve submitted that a construction which promotes its constitutionality has to be preferred to the one which, if accepted, would expose the provision to the vice of discrimination and unconstitutionality.

The essential basis of Sri Salve’s suggested construction rests on the requirement that the words “for any assessment year commencing after the 31st March, 1964”, should not be read as part of the first part of the proviso relating to gift-tax assessments but as part of the second part denoting the commencement of the operation of exemption from wealth-tax. This, we are afraid, will embog itself in the quagmire of irreconcilable constructional contradictions. The amendment introducing the proviso was brought about by an amending Act of 1964 ; but the date of the commencement of its operation was left to be fixed by a notification. The effect of the notification issued bringing the proviso into effect from 1st April, 1965, would be wholly ignored by the construction suggested by Sri Salve. Secondly, the introduction of the words “but before the 1st April, 1972”, would, if the construction suggested by Sri Salve is accepted, operate to take away the benefit of the exemption after 1st April, 1972, and the exemption would be confined only to the assessment years between 1964-65 and 1972-73. On a reading of the plain words of the proviso, the clause “for any assessment year commencing after the 31st March, 1964″, can only be read as relating to gift-tax assessments and not to wealth-tax assessments. But, Sri Salve contends that this literal construction would expose the provision to an attack on its constitutionality on the ground that it brings about a discrimination between two classes of assessees on nothing more than an arbitrary cut-off date. The cases of gifts exempted under s. 5, he says, illustrate the point as, according to Sri Salve, there could be no rational basis for discriminating between a gift exempted under s. 5 made on 31st March, 1963, on the one hand and on 1st April, 1963, on the other.

One of the pillars of statutory interpretation, viz., the literal rule, demands that, if the meaning of the statutory provision is plain, the Courts must apply it regardless of the result.

The very concept of interpretation connotes the introduction of elements which are necessarily extrinsic to the words in the statute. Though the words “interpretation” and “construction” are used interchangeably, the idea is somewhat different. Dr. Patrick Devlin says : ” . . . A better word, I think, would be construction, because construction, although one often used it alternatively with interpretation, suggests that something more is being got out in the elucidation of the subject-matter than can be got by strict interpretation of the words used. In the very full sense of the word ‘construction’, the judges have set themselves in this branch of the law to try to frame the law as they would like to have it . . .” [See Samples of Law Making (Oxford University Press), pp. 70-71].

“A statute”, says Max Radin, “is neither a literary text nor a divine revelation. Its effect is, therefore, neither an expression laid on immutable emotional overtones nor a permanent creation of infallible wisdom. It is a statement of situation or rather a group of possible events within a situation and as such it is essentially ambiguous. [See “Statutory Interpretation”: 43 Har. L. R. 863 (868)].

The observations of Lord Russell of Killowen in Attorney- General vs. Carlton Bank (1899) 2 QB 158, 164, though an early pronouncement, is refreshing for its broad common sense : “I see no reason why special canons of construction should be applied to any Act of Parliament, and I know of no authority for saying that a taxing Act is to be construed differently from any other Act. The duty of the Court is, in my opinion, in all cases the same, whether the Act to be construed relates to taxation or to any other subject, namely, to give effect to the intention of the legislature, as that intention is to be gathered from the language employed having regard to the context in connection with which it is employed … Courts have to give effect to what the legislature has said.”

13. The rule of construction that if the statutory provision is susceptible to, or admits of, two reasonably possible views, then the one which would promote its constitutionality should be preferred on the ground that the legislature is presumed not to have intended an excess of its own jurisdiction, is subject to the further rule that it applies only where two views are reasonably possible on the statutory language. If the words of the statute, on a proper construction, can be read only in a particular way, then they cannot be read in another way by a Court of construction anxious to avoid unconstitutionality. In a case, where, as here, a reference arises under the Act, the question of the constitutionality of the Act cannot be examined and pronounced upon. In State of Punjab vs. Prem Sukhdas (1977) 3 SCR 408, this Court made the point clear : “. . . This amounts to nothing short of legislation. We think that the view is an impossible one. The principle that, where a provision is capable of one of two interpretations, the interpretation which validates rather than one which may invalidate a provision applies only where two views are possible. It cannot be pushed so far as to alter the meanings of the clear words used in an enactment and to, in effect, repeal statutory provisions by making them useless without holding them to be void.” (Emphasis, italicised in print, supplied)

Even in regard to the constitutionality of the classification, it is not possible to rule out arguments as to the validity of the classification as wholly unstateable. In a taxing measure, the legislature enjoys a wider latitude and its dispensations are based on an interaction of diverse economic, social and policy considerations. Further, if the proviso is bad for discrimination, it would follow that the converse situation brought about by the later amendment, a discrimination as between gifts made as between the 31st March, 1972, and on 1st April, 1972, might also become bad. It is true that we are required to notice the provision as it stood at the relevant time.

We, however, should not be understood to have pronounced on the question of constitutionality. That is the task of the Court in a judicial review but the rule of preference of a particular construction amongst alternatives, in order to avoid unconstitutionality is unavailable here.

Accordingly, while Civil Appeals Nos. 1226 and 1227 of 1975 preferred by the assessee are dismissed, Civil Appeal No. 1118 of 1975 of the Revenue is allowed and in reversal of the order dt. 18th Sept., 1974, of the Andhra Pradesh High Court, the question referred is answered in the negative and in favour of the Revenue.

In the circumstances, the parties are left to bear and pay their own costs in these appeals.

[Citation : 176 ITR 98]