The Judgment of the court was delivered by
M. S. MENON C.J. - This is a reference under section 26(1) of the Gift-tax Act, 1958. The assessment year is 1958-59; and the question referred is :
'Whether, in the absence of any mention in the gift deed itself, the assessee is entitled to the deduction of Rs. 28,163 in the evaluation of the gift for the purposes of levy of gift tax ?'
The gift tax was made by the assessee on January 8, 1958. The document itself is not before us; but there is no doubt that the Tribunal has proceeded on the assumption that the property covered by the gift deed was charged with two liabilities : one, in respect of a kuri transaction of the assessee with the Catholic Syrian Bank Limited, Trichur, and another, in respect of an overdraft account of the assessee with the said bank.
The statement of the case puts the total of the two liabilities at Rs. 28,163. Annexure 'B' to the statement of the case is a certificate from the Catholic Syrian Bank Limited to the effect that the liability in respect of the kuri transaction was Rs. 22,000 on the date of the gift. It must follow that the liability in respect of the overdraft account on that date was Rs. 6,163.
We see no reason to say that the assessees kuri liability of Rs. 22,000 and his overdraft liability of Rs. 6,163 on the date of the gift deed should not be taken into account in calculating the value of the property over which he had created a charge for those liabilities. According to section 6 of the Gift-tax Act, 1958, the value of any property other than cash transferred by way of gift shall be estimated to be the price which in the opinion of the Gift-tax Officer it would fetch if sold in the open market on the date on which the gift was made. The market value of a property must be the price that a prudent and willing buyer will pay to a prudent and willing seller, and it is impossible to visualise a prudent buyer who will not take into account the liabilities with which a property is impressed and make adequate deductions in the price in order to compensate for the existence of those liabilities.
The fact that the liabilities are, or are not, mentioned in the document of gift is of no consequence. If a property is charged with liabilities, then those liabilities must be taken into account in assessing the market value of the property, whether the liabilities are mentioned in the deed of gift or not.
It follows that the question referred has to be answered in the affirmative, that is, in favour of the assessee and against the department. We do so, but without any order as to costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by sub-section (6) of section 26 of the Gift-tax Act, 1958.
Question answered in the affirmative.