1. The Income-tax Appellate Tribunal, Amritsar, has referred to us the following question of law for our opinion:
'Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held the gift of Rs. 20,000 made in the State of Jammu and Kashmir, liable to gift-tax in the hands of the assessee ?'
The relevant facts which surface the question are these. The assessee, Shri Kewal Krishan Kuthiala, bears the status of an individual and is a resident of Hoshiarpur. He filed a return of gift on February 29, 1973, declaring the taxable gift at Rs. 15,000. A revised return was filed on October 18, 1973, declaring the taxable gift as nil. The assessee earlier had sold land situate in Jammu and Kashmir and credited the sale proceeds thereof in his account maintained with Laxmi Commercial Bank, Jammu. Out of those deposits, the assessee gifted on amount of Rs. 20,000 to hisdaughter, namely, Miss Kum Kum Kuthiala, by means of a cheque which was credited in her account in the same bank. The gift concededly had been made in the State of Jammu and Kashmir. In these circumstances, the assessee claimed that the gift was exempt. In support thereof, he relied upon the certificate issued by the Jammu and Kashmir Government that the assessee was a subject of that State.
2. The GTO, however, did not allow exemption. In his view, Section 5(1)(ii) of the G.T. Act did not permit the assessee to claim the gift as exempt.
3. The assessee's appeal, however, was allowed by the AAC, who took the view that no charge under Section 3 of the Act was created, inasmuch as, the subject-matter of the gift was not situated within the taxable territories as defined in Sub-section (2) of Section 1. As a sequal thereto, it was held that unless charge was created, it was futile to make scrutiny of the exemption under Section 5(1)(ii) of the Act. In this view of the matter, the assessment was set aside. The Revenue took the matter in appeal before the Tribunal. The view of the AAC was upset and that of the GTO restored. The Tribunal observed: 'The exemption in respect of movable property situated in Jammu and Kashmir, is not absolute or unqualified, but it is subject to certain conditions. If the movable property outside India is owned by an individual who is both a citizen and at the same time 'ordinarily resident' in India, then the gift-tax will be chargeable.' Mr. K. K. Kuthiala, the assessee, them approached the Tribunal to refer the aforementioned question of law to this court.
4. Learned counsel for the assessee urged that the AAC has correctly approached the subject by giving paramountcy to Section 3 of the Act, whereas the Tribunal has without any sound reasoning given that status to Section 5(1)(ii) of the Act. He maintained that Section 3 was the charging section, and unless the gift squarely fell within that section, the other provisions of the Act could not be activated. Basis for the argument was twin-fold. Firstly, it was contended that the G.T. Act, 1958, was a legislative measure enacted by Parliament under Entry 97 of List I of Schedule VII to the Constitution, that is, under its residuary powers and as such the said Act could not apply to the State of Jammu and Kashmir under article 370 of the Constitution. Secondly, it was contended that the Act otherwise had not been extended to the State of Jammu and Kashmir under Section 1(2) of the Act. On the applicability of either principle, it was asserted that the subject of legislation under the Constitution stood curtailed. And further, in any case, under the Legislative measure, gift being the tax base, the question of any exemption arising under Section 5 cannot crop up on the facts and circumstances of the case. Reliance was placed on Second Gift-tax Officer v. Nazareth : 76ITR713(SC) , in which it was held that the G.T. Act had beenenacted under the residuary power of Parliament. Reliance was also placed on P. C. Oswal v. S.P. Mehta, WTO , in which the Jammu and Kashmir High Court has taken the view that the W.T. Act, 1957, had been enacted under the residuary powers of Parliament, but not in relation to Jammu and Kashmir, because the residuary power of legislation, unlike other States in India, belongs to the Jammu and Kashmir State Legislature and not the Union Parliament. In that case, the said Act in so far as it purported to be applicable to Jammu and Kashmir was held ultra vires the Constitution of India, as applicable to the said State. On the same parity of reasoning, it was asserted that the G.T. Act was also ultra vires. Learned counsel for the Revenue, on the other hand, challenged the submissions of the learned counsel of the assessee from all possible angles.
5. It is beyond doubt that the G.T. Act has been enacted by Parliament under its residuary powers of legislation under Entry 97, List I of Schedule VII. It is also beyond doubt that it extends under Section 1(2) to whole of India except the State of Jammu and Kashmir. In this situation, it is futile to go into the question whether the Act as such could or could not be enacted for the State of Jammu and Kashmir. The fact remains that it has not been extended to the State of Jammu and Kashmir and as such is an Act which is not applicable to that State. The point to be seen is on what axis does the tax revolves and does it revolve on an incident happening in a territory which falls out of the purview of the Act.
6. Section 3, the charging section, reads as follows :
'3. Charge of gift-tax.---Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the first day of April, 1957), at the rate or rates specified in the Schedule.'
This section, as is plain, does not stand imperially alone. It is conditioned, as it is subject to the other provisions contained in the Act. The use of the words 'subject to' has reference to effectuating the intention of the law, which is 'conditional upon'. See in this connection, K.R.C.S. Balakrishna Chetty & Sons & Co. v. State of Madras : 2SCR736 , in which a provision of the Madras General Sales Tax Act, 1939; came to be construed and it was held that the words 'subject to' meant 'conditional upon'. Section 3 is thus conditioned upon the other provisions contained in the Act. In addition thereto, the definition of the word 'gift' in Section 2(xii) is that it means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer or conversion of any property referred to in Section 4, deemed to be a gift under that section. Read in the light of that definition, the charge created under Section 3 relates to the transfer by one person to another of any existing movable or immovable property. Though 'gift' in a sense is the tax base, the tax is primarily leviable on the donor, the person who makes the taxable gift in question for the purpose. And the word 'person' as denned in Section 2(xviii) is patently very wide. It is held by the Supreme Court in Nazareth's case : 76ITR713(SC) , that gift-tax is not a tax on lands and buildings as such but is a levy upon a particular use, which is transmission of title by gift. So it is not difficult to discern from the scheme of the Act, and as thus spelled out by the Supreme Court, that the taxable event is the particular use of property by transmission of title by gift. So, to say that the taxable event was the property gifted and that by itself was the taxable incident is not correct. Sequelly placement of the gifted property per se whether 'within or without India' is also alien to the concept of Section 3 if read in plain terms and also whether it is movable or immovable. But, as said before, Section 3 being conditioned to other provisions contained in the Act, compulsorily needs to be read in conjunction with the other provisions and thus inevitably Section 5 comes to the fore with the aid of which the taxable event becomes crystallized. Section 3 says there shall be charge of tax in respect of the gifts, and Section 5 says gift-tax shall not be charged under this Act in respect of certain gifts. Thus, obviously, even on adopting the traditional pragmatic approach in construing the provisions of the G.T. Act, Sections 3 and 5, under legislative mandate, have to be read together.
7. Section 5(1) (i) & (ii) ;
'5. Exemption in respect of certain gifts.--(1) Gift-tax shall not be charged under this Act in respect of gifts made by any person-
(i) of immovable property situate outside the territories to which this Act extends;
(ii) of movable property situate outside the said territories unless the person-
(a) being an individual, is a citizen of India and is ordinarily resident in the said territories, or
(b) not being an individual, is resident in the said territories during the previous year in which the gift is made;'.
Plainly Section 5(1) (i) & (ii)(a) says that gift-tax shall not be charged under the Act in respect of the gifts made by any person of immovable property situate outside the territories to which this Act extends as also of movable property situate outside the said territories unless the person being an individual,is a citizen of India and is ordinarily resident in the said territories. When this Act does not extend to the State of Jammu and Kashmir, the relevant provisions can easily be substitutedly paraphrased to convey the legal statement that gift-tax shall not be charged under the Act, in respect of the gifts made by any person of movable property placed in the State of Jammu & Kashmir if that person being an individual, is a citizen of India and is ordinarily resident in the State of Jammu & Kashmir. Thus, if a person who is an individual, is a citizen of India and is ordinarily a resident in the State of Jammu & Kashmir, gift-tax is not to be charged from him in respect of the gifts made by him of movable property in the State of Jammu and Kashmir. But, if that person being an individual and a citizen of India is ordinarily a resident in the territories other than Jammu and Kashmir, that is, the remaining India to which the Act extends, then he is certainly liable to pay tax on the conjoint reading of Sections 3 and 5 of the Act. There are no means of escape for him. In the instant case, the assessee concededly is a resident of Hoshiarpur and had submitted himself to the jurisdiction of the ITO, Hoshiarpur, as a resident and ordinarily resident in that territory. He was thus clearly within the grip of the tax net. Placement of the corpus of the gift in the State of Jammu and Kashmir, in his case, was thus of no avail. Equally so was the certificate issued by the Jammu and Kashmir Government that he was a subject of the Jammu and Kashmir State.
8. Thus, on the view above taken, we have no hesitation to answer the question afore-posed in the affirmative, that is, against the assessee and in favour of the Revenue. There shall, however, be no order as to costs.
R.N. Mittal, J.
9. I agree.