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Commissioner Wealth-tax, Bombay City-i Vs. Y.A. Fazalbhoy - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberWealth-tax Reference No. 3 of 1970
Judge
Reported in[1980]131ITR115(Bom); [1981]5TAXMAN319(Bom)
ActsWealth Tax Act, 1957 - Sections 4(1)
AppellantCommissioner Wealth-tax, Bombay City-i
RespondentY.A. Fazalbhoy
Excerpt:
.....is that the assessee must have satisfied is that the assessee must have transferred those assets to his minor child, not being a married daughter, without adequate consideration. (i), it is significant to note that while referring to the assets in the name of the wife, parliament had clearly provided that the assets which are directly or indirectly transferred by an individual otherwise than for adequate consideration or in connection with an agreement to live separately will be treated as a part of the net wealth of the individual. (1), the legislature clearly wanted to include any asset directly or indirectly transferred in the case of an assessee while no such intention is apparent in the provisions of sub-cl. we are not, therefore, satisfied that there is any error in the..........4(1)(a)(ii) of the w.t. act, as it stood at the relevant time. the wto included the value of the shares transferred by the assessee to him brother's grand-daughter and to him brother's wife (sic) in assessing the net wealth for all the four years in question. while doing so he took into account the statement made by the assessee before the wto that the transfers were made because he was advised to do so in favour of some one in the family in such a manner that the wealth remained in the family without being diminished at the rate it would be if he continued to hold them. the obvious reference was to the effect of taxation in respect of the wealth of the assessee. the wto also took into account the statement made by the assessee's brother who had transferred certain shares in favour of.....
Judgment:

Chandurkar, J.

1. This reference is made at the instance of the revenue arising out of the assessment to wealth-tax in respect of the assessee for the assessment years 1960-61, 1961-62 and 1962-63. The assessee gifted 500 shares of the General Appliances & Refrigeration Co. Ltd., on August 21, 1958, to his brother's grand-daughter and on the same day an equal number of shares of the same company were fitted by the assessee's brother to the three minor children of the assessee. Later, on April 6, 1959, 100 shares of Photophone Equipment Ltd. were gifted by the assessee's brother's son to the assessee's three minor children, viz., two sons and one daughter.

2. Now, the question which arose before the WTO for the purpose of assessment of the net wealth of the assessee in respect of the above assessment years was whether the shares received by the three minor children of the assessee were includible in the net wealth of the assessee having regard to the provisions of s. 4(1)(a)(ii) of the W.T. Act, as it stood at the relevant time. The WTO included the value of the shares transferred by the assessee to him brother's grand-daughter and to him brother's wife (sic) in assessing the net wealth for all the four years in question. While doing so he took into account the statement made by the assessee before the WTO that the transfers were made because he was advised to do so in favour of some one in the family in such a manner that the wealth remained in the family without being diminished at the rate it would be if he continued to hold them. The obvious reference was to the effect of taxation in respect of the wealth of the assessee. The WTO also took into account the statement made by the assessee's brother who had transferred certain shares in favour of the children of the assessee and he found that the assessee's brother had admitted that the transfers were intended to be mutual and that the cross-gifts were a part of a single arrangement for the purpose of s. 4 of the W.T. Act. He, therefore, held that the transfers will be deemed to have bee made to the assessee's own minor children or alternatively to a person or association of persons for the association of persons for the benefit of his children and the value of the shares transferred by the assessee had to be included in the assessee's wealth.

3. I appeal by the assessee, the AAC deleted the addition made by the WTO only in respect of the assessment years 1963-64, but in the appeal in respect of the three earlier years 1960-61, 1961-62 and 1962-63, the order of the WTO was upheld by the AAC. The assessee went in appeal against the order of the AAC to the Tribunal for the assessment years 1960-61 to 1962-63. The Tribunal accepted the assessee's contention that the shares standing in the names of the minor children could not be treated as having been transferred by the assessee in favour of his minor children having regard to the provisions of s. 4(1)(a)(ii) of the W.T. Act, as they then stood. The WTO had also filed an appeal in respect of the assessment year 1963-64, and the Tribunal, following its view taken in respect of the assessment years 1960-61 to 1962-63, rejected the appeal filed by the department. The correctness of the view taken by the Tribunal is now sought to be subjected to the scrutiny of this court in the from of the following question which has been referred to this court by the Tribunal at the instance of the revenue:

'Whether, on the facts and in the circumstances of the case, the value of 500 shares of the General Radio and Appliances Ltd. and 100 shares of Photophone Equipment Pvt. Ltd. was includible in the net wealth of the assessee for the assessment years 1960-61 to 1963-64 (both inclusive) under the provision of section 4(1)(a)(ii) as it stood at the relevant time ?'

4. Section 4(1)(a)(ii) at the material time read as follows:

'4. (1) In computing the net wealth of an individual, there shall be included, as belonging to him -

(a) the value of assets which on the valuation date are held -

(i) by his wife to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live separately; or

(ii) by a minor child not being a married daughter to whom such assets have been transferred by the individual otherwise than for adequate consideration; or........'

Sub-clause (ii) of s. 4(1)(a) came to be amended with effect from April 1, 1965, and this is the form in which the provision stands today. The relevant part of the amended section reds as follows:

'4. (1) In computing the net wealth of an individual, there shall be included, as belonging to that individual -

(a) the value of assets which on the valuation date are held - ........

(ii) by a minor child, not being a married daughter, of such individual, to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration.'

5. Now, Mr. Joshi's contention is that the amendment which has been made by interposing the words 'directly or indirectly' in sub-cl. (ii) of sub-s. (1)(a) of s. 4 must be treated as a clarificatory or declaratory amendment and, therefore, even in the original form in which the provision was worded prior to the amendment and, therefore, even in the original form in which the provision was worded prior to the amendment, should be so construed as to take within its sweep an indirect transfer. It is, therefore, contended that wherever it is found that ultimately the object of the cross-transfers, as in the instant case, was to benefit the minor and at the same time see that there is reduction in the total net wealth in so far as the computation of the net wealth of the assessee is concerned, such transfers will have to be ignored. The contention raised on behalf of the revenue must be negatived on the plain reading of the words of sub-clause (ii) of s. 4(1)(a). The unamended clause which was in force at the material time is not at all ambiguous. If the words used by the legislature are given their plain and grammatical meaning, it is obvious that the intention of the legislature was to brig within the mischief of that provision only such transfers as were directly made by the individual in favour of his minor child not being a married daughter and which were not for adequate consideration. The words 'have been transferred by the individual' in the unamended provisions on only men that the transfers must in fact be made by the individual in favour of the minor child. The 'individual' in the provision refers to the assessee and, therefore, before assets standing in the name of the minor child and acquired by him are sought to be included as part of the net wealth of the assessee under the unamended s. 4(1)(a)(ii), the pre-condition which must be satisfied is that the assessee must have satisfied is that the assessee must have transferred those assets to his minor child, not being a married daughter, without adequate consideration.

6. There is intrinsic evidence in s. 4(1)(a) itself which indicates that in so far as transfers in favour of the minor child were concerned, cl. (ii) was intended to apply only to direct transfers. If we look at the provisions of cl. (i), it is significant to note that while referring to the assets in the name of the wife, Parliament had clearly provided that the assets which are directly or indirectly transferred by an individual otherwise than for adequate consideration or in connection with an agreement to live separately will be treated as a part of the net wealth of the individual. The absence of the words 'directly of indirectly' in cl. (ii) his to be viewed in the context of their specific use in the first clause. If the intention of the Legislature has to be gathered from the words used by the Legislature and the words used by the Legislature have to be given their natural grammatical meaning, then it is obvious that while using those words in the provisions of cl. (i) of sub-s. (1), the Legislature clearly wanted to include any asset directly or indirectly transferred in the case of an assessee while no such intention is apparent in the provisions of sub-cl. (ii). The fact that sub-cl. (ii) is amended later on with effect from April 1, 1965, will not become relevant for the purpose of the present case because we are concerned with the earlier assessment years.

7. It is also not possible to accept the argument that the amendment should be considered as declaratory or clarificatory. Section 4 sets out the assets which are to be included in the net wealth of the assessee. If certain transfers are made in favour of the minor by the assessee under the general law in assessee would cease to be the owner of the property transferred. Unless a statutory provision is made, property so transferred to the name of the minor, whether directly or indirectly, cannot be included in the wealth of the assessee. Such inclusion is not the normal rule and there is, therefore, no question of the amendment being declaratory or clarificatory. We are not, therefore, satisfied that there is any error in the view taken by the Tribunal. Consequently, the question referred must be answered in the negative and in favour of the assessee.

8. The assessee to get the costs of the reference.


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