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Commissioner of Gift-tax, Gujarat Vs. Ansuya Sarabhai-(Decd) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberGift-tax Reference No. 1 of 1975
Judge
Reported in(1981)22CTR(Guj)201; [1982]133ITR108(Guj)
ActsGift Tax Act, 1958 - Sections 2 and 4(1)
AppellantCommissioner of Gift-tax, Gujarat
RespondentAnsuya Sarabhai-(Decd)
Appellant Advocate N.U. Raval, Adv.
Respondent Advocate S.P. Mehta, Adv.
Excerpt:
direct taxation - gift - sections 2 and 4 (1) of gift tax act, 1958 - whether transaction effected by release deed dated 12.07.1964 executed by assessee taxable within meaning of act of 1958 - release deed in question did not effect any gift bilateral or multilateral between parties as contemplated by section 2 (xii) with section 2 (xxiv) - section 4 (1) (c) non-applicable to deed in question - finding reached by competent authority that document in question reflected bona fide transaction - held, question answered in negative and in favour of assessee. - - ansuya sarabhai, out of natural love and affection, released, surrendered and yielded her right, title and interest for life in that net income of the trust property in favour of the said children and grandchildren of late shri.....majmudar, j. 1. at the instance of the revenue, a question of law has been referred to us by the income-tax appellate tribunal, ahmedabad bench 'a', for out opinion under s. 26(1) of the g. t. act, 1958. the said question reads as under : 'whether, on the facts and in the circumstances of the case, the transaction effected by the release deed dated july 12, 1964, executed by the assessee is taxable within the meaning of the gift-tax act, 195 ?' 2. the relevant facts leading to this reference may now be stated. assessee, smt. ansuya, was the sister of late shri ambalal sarabhai. late shri ambalal sarabhai created a trust whereby the transferred to the trustees, who were the members of his family, certain shares with a direction that the net income of this trust property, that is, shares,.....
Judgment:

Majmudar, J.

1. At the instance of the revenue, a question of law has been referred to us by the Income-tax Appellate Tribunal, Ahmedabad Bench 'A', for out opinion under s. 26(1) of the G. T. Act, 1958. The said question reads as under :

'Whether, on the facts and in the circumstances of the case, the transaction effected by the release deed dated July 12, 1964, executed by the assessee is taxable within the meaning of the Gift-tax Act, 195 ?'

2. The relevant facts leading to this reference may now be stated. Assessee, Smt. Ansuya, was the sister of late Shri Ambalal Sarabhai. Late Shri Ambalal Sarabhai created a trust whereby the transferred to the trustees, who were the members of his family, certain shares with a direction that the net income of this trust property, that is, shares, should be given to the assessee, Smt. Ansuya Sarabhai, during her lifetime for her absolute use and benefit. After the death of Smt. Ansuya Sarabhai, the trustees had to transfer and assign the trust property absolutely to the children and grandchildren of late Ambalal Sarabhai in certain specified proportions, as mentioned in the deed of settlement dated 30th August, 1949.

3. Pursuant to the aforesaid deed, the assessee was paid the net income arising from the trust property for a number of years. Thereafter, on 12th July, 1964, by a deed, Smt. Ansuya Sarabhai, out of natural love and affection, released, surrendered and yielded her right, title and interest for life in that net income of the trust property in favour of the said children and grandchildren of late Shri Ambalal Sarabhai who were otherwise to get the trust property after the demise of Smt. Ansuya Sarabhai. For the assessment year 1965-66, the assessee filed a gift-tax return computing the value of her interest released at Rs. 74,563. The GTO (as per his assessment order) computed the taxable gift at Rs. 94,089 after allowing statutory exemption of Rs. 5,000. The GTO computed the value of 20 equity shares in Karamchand Premchand Ltd., at Rs. 31,240 and 80 equity shares in Sarabhai Sons P. Ltd. at Rs. 98,093. It appears that after the aforesaid assessment order was passed by the GTO, the assessee wrote a letter to the GTO, pointing out that the order of assessment was suffering from an apparent error of law and that under s. 4(c) of the G. T. Act, the release effected by the assessee of her life interest as per the document in question, should be treated as bona fide release. The assessee also preferred an appeal to the AAC who by his order dated 30th October, 1967, allowed the appeal and held that the s. 4(c) of the G.T. Act was applicable to the case. He also held that the release was bona fide and concluded that this transaction was not liable to gift-tax and the GTO was directed to refund the amount of tax, if already paid.

4. Against the decision of the AAC, the GTO filed an appeal to the Appellate Tribunal. The Tribunal, after hearing the arguments of both the sides, came to the conclusion that on an interpretation of the relevant recitals in the release deed, it was apparent that the assessee had not passed on her life interest to the ultimate beneficiaries by the document in question, but the assessee had released the trust from its responsibility for giving the income to the assessee during her lifetime and had made it clear that the ultimate beneficiaries may at once assume and retain possession and enjoyment of the corpus. Thus, the right of the ultimate beneficiaries to resume the corpus had been accelerated by the deed and they had been made full owners of the shares. In that view of the matter, the Tribunal held that the document in question did not effect any transfer which could be covered by the provisions of the G. T. Act, 1958. As stated earlier, dissatisfied, the revenue sought a reference on a question of law to this court from the Tribunal and the Tribunal, accordingly, granted the said request of the revenue and that is how the question of law referred to us for our opinion has resulted in the present reference.

5. In order to appreciate the nature of the controversy between the parties it is necessary to keep in view certain admitted facts which emerge clearly from the record of this case. By the deed of trust dated 30th August, 1949, settlor, Shri Ambalal Sarabhai of Ahmedabad, settled certain properties comprising of shares in M/s. Sarabhai Sons P. Ltd. and Karamchand Premchand P. Ltd. unto three trustees mentioned in the deed of settlement and the settlor in consideration of natural love and affection which he bore to his sister, Ansuya Sarabhai, the present assessee, and his children and grandchildren, effected the trust of the said shares and directed the trustees to pay the net income of the property to the settlor's sister, Ansuya (the present assessee), during her lifetime for her absolute use and benefit. It was further provided that, after the death of the said Ansuyaben, the trustees shall transfer and assign the trust property absolutely to the children and grandchildren of the settlor in the manner provided by the deed of settlement. The trustees were given a direction to sell the trust property or a part thereof and invest the sale proceeds in any securities or investments as the trustees might in their absolute discretion think fit.

6. Pursuant to the aforesaid deed of settlement, the assessee went on receiving the income from the aforesaid trust property for years together. Thereafter, on 12th July, 1964, she exectuted a release deed, which is the document in question in the present proceedings. As the relevant recitals in the said release deed have to be construed for deciding the question referred to us for our opinion, we reproduce at this stage the relevant recitals of the said release deed :

'This indenture made this 12th day of July, 1964, between Ansuyaben Sarabhai of Ahmedabad, inhabitant, hereinafter called 'the releasor' (which expression shall, where the context so requires or permits include her heirs, executors and administrators) of the one part and Gautam Sarabhai, Vikram Sarabhai, Anand Sarabhai, Suhrid S. Sarabhai, Mridula A. Sarabhai, Bharti Sarabhai, Leena A. Sarabhai, Geeta S. Mayor and Gira A. Sarabhai, also of Ahmedabad, inhabitant, hereinafter called 'the releasees' (which expression shall, unless where the context so requires or permits include his or her respective heirs, executors, administrators and assigns) of the other part whereas by a deed of trust dated 30th August, 1949, made between Ambalal Sarabhai (therein referred to as the settlor) of the one part and Gautam Sarabhai, Vikram A. Sarabhai, Sarladevi Sarabhai therein referred to as the trustees of the other part, the settlor out of natural love and affection transferred and delivered unto the trustees the shares specified in the schedule to the said deed of trust (therein referred to as the trustees) to hold the same unto the trustees upon the trusts for the purposes and subject to the powers and provisions therein declared and contained of and concerning the same.

And Whereas by the said deed of trust it was, inter alia, provided as follows :-

(a) The trustees shall pay the net income of the trust property to the settlor's sister, Ansuyaben Sarabhai, during her lifetime for her absolute use and benefit.

(b) From and after the death of the said Ansuyaben Sarabhai the trustees shall transfer and assign the trust property absolutely to the children and grandchildren hereinafter named of the settlor in the following proportions :-

1. One-fourth of the trust property of Gautam Sarabhai;

2. one-fourth of the trust property of Vikram Sarabhai;

3. one-eighth of the trust property of Anand Sarabhai; minor son of Suhrid A. Sarabhai, deceased;

4. one-eighth of the trust property to Suhrid S. Sarabhai; minor son of Suhrid A Sarabhai, deceased;

5. one-twentieth of the trust property to Mridula Sarabhai;

6. one-twentieth of the trust property to Bharti Sarabhai;

7. one-twentieth of the trust property to Leena A. Sarabhai;

8. one-twentieth of the trust property to Geeta S. Mayor; and

9. one-twentieth of the trust property to Gira A. Sarabhai.

And Whereas, pursuant to the said deed of trust, the trustees have been paying the net income of the trust property to the releasor for her absolute use and benefit And Whereas the trust consists of shares, more particularly described in the first schedule here under written, now in the hands of the trustees as trustees of the said deed of trust.

And Whereas in consideration of the natural love and affection which the releasor bears towards the releasees who are the children and grand-children of the brother of the releasor, the releasor is desirous of releasing, surrendering and extinguishing her life interest in the net income in the portion of the trust property specified in the second schedule hereunder referred in favour of the releasees.

Now This indenture Witnesseth that in pursuance of the premises and in consideration of the natural love and affection which the releasor bears towards the releasees, the releasor doth hereby release, surrender and yield unto the releasees her right, title and interest for life in the net income of the portion of the trust property, more particularly described in the second schedule herein referred, under the said deed of trust dated 30th August, 1949, to hold the same unto and to the use of the releasees to the intent that the share and interest respectively reserved unto the releasees by the deed of trust dated 30th August, 1949, expectant on the death of the releasor may be accelerated and take effect in possession as from the date hereof and that the releasees may at once assume and henceforth retain possession and enhoyment thereof to the entire exclusion of the releasor or o any benefit to her, reserved under the said trust deed dated 30th August, 1949, in the portion of the trust property more particularly specified in the second schedule hereunder written, provided always that nothing herein contained shall be construed to accelerate the share or interest of the releasees under the said trust deed in respect of the shares other than those specified in the second schedule hereunder written.

And the releasor doth hereby release and discharge the trustees of the said deed of trust dated 30th August, 1949, from the obligation to pay to her henceforth the net income reserved to her for her life in the portion of the trust property more particularly specified in second schedule hereunder written and the releasor doth hereby acknowledge and confirm that she has received from the trustees of the said deed of trust dated 30th August, 1949, her share in the income of the trust property due to her up to the date of these presents.'

7. Mr. Raval, learned advocate appearing for the revenue, submitted that the aforesaid recitals in the release deed in question clearly showed that thereby the assessee had relinquished her life interest in favour of the releasees, viz., the parties mentioned as parties of the other part in the said document and, consequently, the transaction reflected by the said deed was liable to be brought to tax under the provisions of the G. T. Act, 1958. In this connection, Mr. Raval urged the following two contentions :

(1) That the assessee had, by the aforesaid deed, effected a gift of her life interest in the trust property as provided by s. 2(xii) read with s. 2(xxiv) of the G. T. Act, 1958.

(2) In the alternative, it was submitted by Mr. Raval that even assuming that the transaction in question did not squarely fall within the aforesaid main provisions, even then, the said transaction would be covered by the provision of s. 4(1)(c) of the G. T. Act, 1958, and will be deemed to be gift as per the said provision and, consequently, liable to be brought to tax.

8. Before we deal with the aforesaid submission of Mr. Raval for the revenue, it is necessary to have a look at the relevant statutory provisions of the G. T. Act. Section 3 is the charging section and it provides :

'Subject to the other provisions contained in this ACt, there shall be charged for every assessment year commencing on and from the 1st 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 1st day of April, 1957), at the rate or rates specified in the Schedule.'

9. Thus, any gift effected by an assessee during the relevant previous year would be liable to be brought to tax under charging s. 3. Consequently, a question would arise as to whether by executing the aforesaid release deed, any gift was made by the assessee in favour of the beneficiaries mentioned in the said document. Section 2(xii) of the Act defines the word 'gift' and states :

'Gift' 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.'

10. Thus, the word 'gift' connotes transfer of existing property both movable and immovable by one person to another made voluntarily without consideration and it also takes care of certain other transactions which may not directly be covered by the operative part of the said definition in s. 2(xii), and seeks to include transfer or conversion of any property referred to in s. 4 which contemplates deemed gift for the purpose of the Act. The word 'transfer of property' is defined by s. 2(xxiv) and it reads :

''Transfer of property' means any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes -

(a) the creation of a trust in property;

(b) the grant or creation of any lease, mortgage, charge, easement, license, power, partnership or interest in property;

(c) the exercise of a power o appointment of property vested in any person, not the owner of the property, to determine its disposition in favour of any person other than the done of the power; and

(d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person.'

11. Section 4 of the Act deals with deemed gifts which by virtue of the inclusive definition of the word 'gift' as defined in s. 2(xii) would become chargeable to gift-tax. The relevant portion of the said section reads as under :

'(1) For the purposes of this Act, -

(a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the dated of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor :

Provided that nothing contained in this clause shall apply in any case where the property is transferred to the Government or where the value of the consideration for the transfer is determined or approved by the Central Government or the Reserve Bank of India; (b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee to the transeror, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transfer;

(c) where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment, to the extent to which it has not been found to the satisfaction of the Gift-tax Officer to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment;

(d) where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any other person jointly without adequate consideration and such other person makes an appropriation from or out of the said property, the amount of the appropriation used for the benefit of the person making the appropriation or for the benefit of any other person shall be deemed to be gift made in his favour by the person who causes or has caused the property to be so vested.'

12. In the light of the aforesaid relevant statutory provision, we have to proceed to decide the question which has arisen before us.

13. We have already reproduced in the earlier part of this judgment, the relevant recitals from the release deed dated 12th July, 1964. A comprehensive reading of these recitals shows that the assessee who was having a life interest in various shares which were settled in trust by the original settlor, chose to release her life interest in the majority of the shares which were the trust properties. It is pertinent to note at this stage, that, originally, the deed of settlement of 1949, settled upon trust 56 shares in Sarabhai Sons Ltd. and 60 shares in Karamchand Premchand Ltd. with a direction to the trustees to realise income from these shares for the benefit of the assessee during her lifetime by way of life interest. So far as the deed of release dated 12th July, 1964, is concerned, it sought to release the assessee's life interest in 20 shares in Karamchand Premchand Ltd. and 80 shares in Sarabhai Sons Ltd. which then formed part of the trust estate amongst other shares which were originally settled by the settlor in trust. So far as the shares selected by the assessee for the purpose of release of her life interest therein by the deed dated 12th July, 1964, were concerned, she made it explicitly clear that the she was giving up her life interest in those shares which were mentioned in the second schedule of the document and she discharged the trustees mentioned in the said trust deed dated 30th August, 1949, from their obligation to pay her thenceforth the net income reserved to her for her life in the portion of the trust property more particularly specified in the second schedule thereunder written and the releasor, that is, the assessee, confirmed that she had received from the trustees of the said deed of trust dated 30th August, 1949, her share in the income of the trust property due to her up to the date of the release deed. She also made it clear that she had released, in consideration of the natural love and affection which the releasor had towards the releasees who were the children and grandchildren of the brother of the releasor, her right, title or interest in the net income of the portion of the trust property which was made the subject-matter of the release deed and the releasees were to hold the release deed and the releasees were to hold the share and interest respectively reserved unto the releasees by the deed of trust dated 30th August, 1949, expectant on the death of the releasor and, therefore, the aforesaid interest was to be accelerated and was to take effect in possession as from the date of the release deed itself and the concerned releasees had a right to the enjoyment of the concerned shares mentioned in the second schedule to the document to the entire exclusion of the releasor or of any benefit to her. It, therefore, appears clear that the assessee who was the releasor had released or surrendered her life interest in the portion of the trust property which discharged the trustees of their obligation under the trust deed qua that portion of the property and enabled the releasees who were beneficiaries under the original deed of 1949, to resume possession of the entire corpus of the concerned trust property which was the subject-matter of the release deed. Thus, the existing right of the beneficiaries in that portion of the trust property was accelerated. It is, therefore, apparent that the document in question did not reflect a transfer by which the assessee as releasor had gifted her subsisting life interest in the concerned portion of the trust property in favour of any done who had to enjoy henceforth the lifetime of the donor, that is, the releasor. Mr. Raval appearing for the revenue contended that there was no bar in law for the assessee in gifting her life interest in favour of the ultimate remaindermen and they can be constituted as donees of the life interest. Mr.Raval's aforesaid submission, on principle, is correct. But, viewed in the light of the aforesaid recitals in the document in question, it appears clear to us that by the said document, the assessee as a releasor had not effected any fight of her life interest in favour of any done. On the contrary, she has surrendered and released her life interest in the concerned trust property with the result that life interest to that extent which had earlier vested in the releasor became extinguished on execution of the release deed itself and what the beneficiaries as a second party got by the release deed was in full possession of the corpus of the concerned portion of the trust property on the principle of acceleration. The releasees were then to enjoy the said corpus not as donees of the life interest of the releasor but in their own right as remindermen under the original settlement deed of 1949 whose right to actual possession of the corpus got accelerated on account of the release deed as effected by the releasor. It is important to note that on account of the release deed in question, the trustees of the trust were discharged of their subsisting obligation as trustees qua life interest in question which the releasor thought fit to release. Thus, to that extent,. the trust itself came to an end and for the shares mentioned in the second schedule of the document thenceforth there remained no trustees with any obligation to pay income of those shares to any one nor there remained any remindermen in the field, so far as the shares mentioned in the second schedule were concerned. It is also interesting to note that even though the release deed in question mentioned the releasor as the party of the first part and the ultimate beneficiaries and remaindermen as per the earlier document of 1949 as party of the second part and even thought they have signed the release deed, the fact remains that the operative part of the release deed reflects unilateral intention on the part of the releasor, that is, the assessee, to divest herself of her life interest in the shares in question and to surrender her interest to the trustees with a view to bring to an end her life interest in the trust property. Thus, the operative provision of the aforesaid indenture of release is purely selfinduced on the part of the releasor desiring to surrender her entire life interest in the concerned shares with a view to accelerate the vested remainder of the original beneficiaries under the settlement deed of 1949. Thus, the operative part of the release deed represents a unilateral act on the part of the releasor to relinquish and surrender her life interest in the portion of the trust property in question. In that view of the matter, it is obvious that the definition provision of s. 2(xii) cannot be pressed into service by the revenue in the present case. As we have already stated above, before a transfer can be styled as gift, it must be shown that there is a transfer by one person to another of any existing movable or immovable property, of course, made voluntarily and without consideration. So far as this part of the definition goes, it requires transfer between two persons. Unilateral transaction by which one party chooses to release her interest in a given property cannot be covered by the first part of this definition. As we have already noted above, relevant recitals in the release deed contra-indicate any transfer by one person to another. Mr. Raval is right when he contended that life interest can be voluntarily made the subject-matter of a gift. There can be no doubt about this proposition. But the question whether the aforesaid recitals in the deed in question effect any such transfer of life interest without consideration by one party to another. The relevant recitals in the deed show on the contrary that by a unilateral act on the part of the releasor, the assessee released her life interest in the property in question and surrendered all her rights in that property unto the trustees with the result that the original beneficiaries' rights to enjoy the corpus became accelerated. Even though the transfer was made voluntarily and without consideration, still, as it was not a bilateral transfer, the first part of the definition of the word 'gift' as given by s. 2(xii) cannot be pressed into service by Mr. Raval for the revenue. Mr. Raval in support of his first contention also relied upon the provision of s. 2(xxiv)(d), which we have already referred herein above. Mr. Raval submitted that there was a case of transfer or disposition and included transfer entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. Placing strong reliance on s. 2(xxiv)(d) Mr. Raval submitted that, in the present case, the recitals in the release deed when read in juxtaposition with the original settlement deed, clearly show that the releasor had not surrendered all her life interest in the entire trust property, but has selected a portion of it for the purpose of the said release deed and, to that extend, the release deed in question did diminish directly the value of the remainder of the property of the concerned releasees. The relevant recitals in the release deed when read in the light of the original settltment deed, leave no room for doubt that the releasor by effecting the release deed in question, had diminished the value of her life interest in the entire trust property and to that extent, it went to swell the value of the property of the concerned beneficiaries. But this will be of no avail to the revenue for the simple reason that before s. 2(xxiv)(d) can apply it must be shown by the revenue that the transaction in question was entered into be any person with the intention mentioned in the said provision. This provision postulates that there must be a transaction between two parties. Thus,it must be abilateral transaction or a multilateral transaction. In the present case, as we have already shown above, the relevant operative

provisions of the deed clearly show that the releasor had voluntarily sought to release her life interest in the concerned selected portion of the trust property as mentioned in the second schedule to the document. Thus, it was not a transaction between more than one person. In short, it was not a bilateral or multilateral transaction. On a conjoint reading of s. 2(xii) read with s. 2(xxiv)(d) of the Act, it appears clear that before any transaction can be styled as gift, it must imply a transaction of transfer by one person to another, that is, there must be plurality of parties involved in the transaction. In the present case, the releasor herself of her own, decided to walk out and efface herself to release and surrender her life interest in the concerned trust property which was selected for that purpose. In the case of such a unilateral transaction wherein the releasees had no voice of their own, it cannot be said that any transfer by one person to another was effected thereby. It is, therefore, not possible to accept the submission of Mr. Raval for the revenue that the document in question reflected a transfer which was covered by the first part of the definition of the word 'gift' as provided by s. 2(xii) read with s. 2(xxiv)(d) of the Act. At this stage, we may mention that it is now a settled legal position, as we will notice a little later, that before a transaction can amount to gift as contemplated by the relevant provision of the G. T. Act, 1958, it must amount to a transaction between more than one person and similarly before the transaction between more than one person and similarly before the transaction can be covered by the provisions of s. 2(xxiv)(d), it must be shown by the revenue that the transaction in question was a bilateral or multilateral transaction. On the clear recitals of the release deed in question, such a conclusion cannot be reached and, hence, the first submission of Mr. Raval s liable to fail.

14. That takes us to the second and an alternative submission of Mr. Raval for the revenue. He submits that even assuming that the deed in question did not reflect a transaction which was covered by the first part of the definition of the word 'gift', even then, it may amount to a deemed gift which is contemplated by s. 4(1)(c) of the Act. We have already reproduced the said provision in the earlier part of this judgment. The lad provision squarely applied to all unilateral acts by which a party may release, discharge, surrender, forfeit or abandon any interest in any property. To that extent, the release deed in question may be covered by the first part of s. 4(1)(c). But even then, a further question would remain as to whether it has been found to the satisfaction of the GTO that the said release was bona fide made. From the record of this case, it appears clear that so far as the GTO is concerned, he never applied his mind to this aspect of the matter. He never made any attempt to find out the bona fides of the releasor and to reach any conclusion one way or the other on this aspect. A mere reading of the relevant provision of s. 4(1)(c) shows that before any release or surrender can be dubbed a deemed gift, it must be shown by the revenue that the GTO was satisfied with respect to that release or surrender that it was not bona fide made by the concerned party. In the absence of any such satisfaction being reached by the GTO, the document in question would remain outside the scope of s. 4(1)(c) and cannot be styled as a deemed gift. Not only the GTO never reached such a negative finding, but he did not also make any effort in that behalf. The assessee, immediately after the assessment order pointed out to the GTO the apparent error committed by him in his assessment order when he sought to bring to tax the amount of Rs. 94,089 and submitted that the transaction in question was a bona fide release a contemplated by s. 4(1)(c) of the G. T. Act. The assessee requested the GTO to rectify the said mistake. The GTO paid no heed to that request. The assessee raised this very contention before the authority in appeal. Even at that stage, the GTO did not think fit to appear and contest the proceedings. The AAC considered the pros and cons of the case and came to a clear finding that s. 4(1)(c) was inapplicable to this case as the release in question was made bona fide by the assessee. The AAC on this aspect relied on the two silent features of this case, viz., (i) by the said release deed the assessee had merely carried out the intention of the settlor who had himself selected the ultimate beneficiaries under the deed of settlement of 1949 and unto them, she had released her remainder of the life interest and accelerated the vested remainder of those three beneficiaries; (ii) the age of the assessee at the relevant time when she executed the release deed was 76 years. Under these circumstances, the assessee had bona fide released her life interest and brought it to end so far as the concerned trust property went. Thus, the AAC on facts reached a clear finding that the release in question was a bona fide release. Even before the Tribunal, no contention was raised on behalf of the revenue that the transaction in question was not bona fide transaction, but the submission was that such a question should not have been gone into by the AAC. The said submission was rightly rejected by the Tribunal. The Tribunal noted that the assessee had already written on 12th May, 1966, to the GTO urging that the assessee had relinquished her life interest in the trust property with a view to accelerate the rights of the reversioners, and that she had made it clear that through misunderstanding she had included the release of her life interest as a taxable gift in the gift-tax return. She had also invited the GTO's attention to s. 4(1)(c) under which certain transactions could not be deemed to be a gift except in certain circumstances. The Tribunal noted the fact that the assessee had enough funds and being an old lady, she chose to surrender her life interest. The Tribunal, accordingly, held that there was nothing improper on the part of the AAC to consider the point of non-applicability of s. 4(1)(c) of the deed in question. Thus, it appears clear on the record of this case that at no stage, any finding was reached by the competent authority that the document in question did not reflect a bona fide transaction. On the contrary, the AAC reached a positive finding of facts that the transaction in question was a bona fide one. In that view of the matter, it cannot be urged by Mr. Raval for the revenue that the release in question reflected a transaction which amounted to a deemed gift under s. 4(1)(c) especially when the finding of fact reached to the contrary by the AAC is not disturbed by the Tribunal, namely, that the release deed reflected a bona fide transaction which was well justified according to the circumstances in which the releasor was placed at the relevant time. Such a finding of fact based on relevant evidence cannot be disturbed by this court in reference prceedings. Hence, even the second alternative submission of Mr. Raval for the revenue can be of no avail to him and had got to be repelled. We may mention at this stage that our attention was invited by Mr. Raval to various decisions of the different High Courts as well as the supreme Court. We will briefly refer to them. The first decision to which our attention was invited by Mr. Raval for the revenue was in the case of Provident Investment Co. Ltd. v. CIT : [1953]24ITR33(Bom) . A Division Bench of the Bombay High Court had to consider the question of capital gains under s. 123 of the Indian I. T. Act, 1922, as it applied then and the short question before the Bombay High Court was as to whether a sum of Rs. 1 crore which was received by the assessee for resigning the managing agency was assessable as capital gains under s. 12B of the Act. It was noted by the Bombay High Court that as s. 12B stood at the relevant time, it provided that tax shall be payable by the assessee under the head 'Capital against' in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st March, 1946. The question of exchange was ruled out as the same was not in debate between the parties and the only question which remained for consideration was whether the transaction in question effected the sale or transfer of a capital asset. It was held that the transaction in question was neither a sale not a transfer and hence the amount in question was not chargeable to capital gains tax. In this connection, certain relevant observations were made by the Bombay High Court. It was observed (pp. 39, 40) :

'If a transaction creates certain legal rights and obligations, then the court must give effect to those legal rights and obligations and must not, overlooking these rights and obligations, try and fathom what was in substance the nature of the transaction entered into by the parties. The court is not confined merely to looking to the form of the transaction. It is open to the court to ignore the form and ascertain the real nature of the transaction. But while it is open to the court to ignore the form, it is not open to the court to overlook or to ignore the true legal position that arises out of a document or documents in which the parties have chosen to embody the transaction or transactions. The court may even look at the surrounding circumstances in construing a document, but the court in looking at the surrounding circumstances must be anxious all the time to determine what is the true nature of the transaction. It has also been stated that the same result may be achieved by two entirely different transactions and it may be that whereas one transaction could be subjected to tax the other might not be and it is not open to the court to tell the assessee that he should rather have entered into a transaction which subjected him to taxation rather than a transaction which permitted him to escape taxation. A citizen is perfectly entitled to exercise his ingenuity so to arrange his affairs as may make it possible for him legally and lawfully not to pay tax, and if his ingenuity succeeds, however reluctant the court may be to acknowledge the cleverness of the assessee, the court must give effect to the letter of the taxation law rather than strain that letter against the assessee.'

15. Mr. Raval pointed out that the aforesaid decision of the Bombay High Court went up to the Supreme Court as reported in [1975] 32 ITR 190 (CIT v. Provident Investment Co. Ltd.). The aforesaid decision of the Bombay High Court as confirmed by the Supreme Court cannot be of real assistance to Mr. Raval. In the said decision it has been held that relinquishment was not exigible to capital gains under s. 12B of the I. T. Act as it stood then on the statute book. So far as we are concerned, we are governed by the relevant statutory provisions of the G. T. Act and we have to decide the matter accordingly.

16. We were then taken to the decision in CIT v. Dadabhoy G. Broacha : [1968]68ITR614(Bom) . The facts in the case before the Bombay High Court were that one B executed two documents of trust in 1941 transferring certain properties in trust to trustees. Under the trust deeds a life interest was given to D, the assessee, in the income from one-fourth of the properties transferred to the trustees and after the lifetime of D. his interest was to go to his widow and children. In 1954, D executed a document entitled 'assignment of life interest in favour of his wife and minor children' by which he assigned to them his right, title and interest in the trust fund and in the net income which might accrue or arise or might become payable from that trust fund. This deed recited : 'the assignor doth hereby release, surrender, assign and transfer by way of absolute gift unto the assignees all the share, right, title and interest of the assignor in the net income of the said trust fund.' The ITO held that the income payable to the wife and the minor children as a result of the deed of assignment was liable to be taxed under s. 16 (3) of the Indian I. T. Act, 1922, in D's hands on the ground that there was a transfer of assets by D to his wife and minor children. The assessee, D, contended that the document was merely a document of surrender or release by which the interest which D has was given up and the rights of the parties under the original trust deed executed by B were to that extent accelerated. Repelling the contention on behalf of the assessee it was held by the Bombay High Court in that decision that the life interest or the right to receive the income under the original trust was itself property or assets in the hands of D and what was in substance transferred by the deed of assignment executed by D was an asset or property of D and the income in future to be derived from that property. Upon these facts, sub-cls. (iii) and (iv) of s. 16 (3) (a) were clearly attracted and the income from the trust received by D's wife and children was rightly included in D's income. It must be noted at this stage that the Bombay High Court in the aforesaid decision had to consider the peculiar recitals in the assignment deed in question. By the said recitals, it appeared clear that the assignor was merely assigning to his wife and children his life interest in the property in question and had not surrendered his life interest in favour of the trustees. Thus, the document under consideration in Broacha's case : [1968]68ITR614(Bom) clearly established the fact that the life interest itself as transferred by the donor in favour of the donees and the trustees continued to remain liable to make good the life interest as assigned to the concerned assignees. It is in the light of the peculiar recitals of the document in question that the Bombay High Court came to the aforesaid conclusion against the assessee. As we have already discussed in detail earlier, so far as the operative provisions of the release deed in the present case are concerned, the conclusion is inescapable that the life interest was not transferred by the releasor in favour of the releasees, but on the contrary, it was destroyed by the very act of release and the concerned trustees were discharged from their obligation to make good the life interest during the remainder of the life of the releasor. Mr. Raval, however, contended that the aforesaid decision of the Bombay High Court showed that there was no bar against any person effecting gift or assignment of his life interest in favour of the remaindermen. That may be so. But so far as the clear recitals of the present release deed are concerned, the conclusion reached by the Bombay High Court in the aforesaid case in the background of different recitals of the document before them, cannot be applied to the facts of the present case. If the recitals in the present document had effected a transfer of life interest of the releasor in favour of the remaindermen with the corresponding right of the concerned doness to re-enjoy that life interest during the remainder of life of the donor and if the trustees under the settlement deed had remained liable to satisfy the remainder of the life interest as may have vested in the donees, the situation would have been different. But unfortunately for the revenue the recitals in the present release deed indicate to the contrary as we have already discussed in detail and, hence, the aforesaid decision of the Bombay High Court in Barocha's case cannot be of any avail to the revenue.

17. Mr. Raval then invited our attention to another decision of the Bombay High Court in CIT v. Neville N. Wadia : [1973]90ITR155(Bom) . In that case, one W had settled in 1947 certain shares on trust, under the terms of which the dividends, interest and income of the trust were in the first instance payable to the settlor's son, N (assessee), for the period of his life. After his death, the dividends, interest and income were directed to be divided in equal half for payment of half of the interest, dividends, and income to D, the daughter of W, for the period of her life and after her death for payment of W, for the period of her life and after her death for payment of half of the corpus and income to any child of D absolutely and if more than one child, in equal shares. It was further provided that the other half of the dividends, interest and income were to be paid to M, the son of N, for the period of his life and after the death of M, the moiety of the corpus and income were to be paid to any child of M absolutely and if M had more than one child, in equal shares to all the children. During the assessment year, 1958-59, N executed a deed, clause 1 of which provided 'he the releasor doth hereby surrender, release and yield up all that the interest in the said Neville Ness Trust Fund No. 2..... to the intent that the subsequent life estates of interest in the said Neville Ness Trust Fund No. 2 on the decease of the releasor may be accelerated and take effect in possession as from the date hereof to the entire exclusion of the releasor and of any benefit to him'. The question arose as to whether the income from the trust could be included in the total income of N under s. 16 (3) (a) (iii) of the Indian I. T. Act, 1922. It was held by the Bombay High Court in the aforesaid decision that (head note) :

'.... the operative clause in the deed executed by the assessee directly and clearly provided for complete surrender and release of all the interests the assessee had in the trust created by the original deed of settlement. Whatever came to the son and daughter of the assessee in consequence of the release deed was the result of the provisions made in their favour under the original deed of settlement and the release deed did not create any interest of any kind in their favour. The execution of the release deed did not, therefore, amount to a transfer of assets by the assessee in favour of his minor children within the meaning of s. 16 (3) (a) (iii) and the income from the trust accruing to the minor son and daughter of N could not be included in his total income'.

18. The recitals in the release deed in the present case also create a similar situation in which the interest of the remaindermen under the settlement deed of 1949 gets accelerated on account of self-effacement resorted to by the releasor, the assessee in the present case, qua the properties selected by her for the operation of the release deed in question. The decision of the Bombay High Court in Neville N. Wadia : [1973]90ITR155(Bom) instead of going against the assessee, in fact, supports her case.

19. We were then taken to another decision in CGT v. Mrs. Jer Mavis Lubimmoff : [1978]114ITR90(Bom) . In that case one J, the assessee, was the beneficiary under a trust deed. She was entitled to the income from the trust funds for her life. Under cl 2 (3) of the deed of trust, the trustees were to hold the trust funds 'from and after the death of the said J upon trust for the child or children or remoter issue of the said J upon such conditions with such restrictions and in such manner as the said J shall whether covert or sole by any writing or writings with or without power of revocation and new appointment or by will or codicil at any time or times without transgressing the rule against perpetuities appoint'. Clause 2 (4) of the trust deed laid down that the income and funds of the trust were to be held 'in default of such appointment if none and subject to such if any upon trust for all the children or any child of the said J...'. By a deed poll executed on February 25, 1958, the assessee exercise the power of appointment vested in her under clause 2 (3) of the trust deed in the following words :'I... do hereby irrevocably appoint to my said daughter Mrs. Elizebeth Anne Guhl the trust funds subject to my prior life interest.' On the next day, i.e., on February 26, 1958, the assessee executed a deed of release by which she surrendered, released and yielded up her life interest and all other rights under the settlement and the trustees were to hold the trust fund upon the trusts mentioned in sub-cls. (3) and (4) of cl 2 of the trust deed. The question arose whether the deed of poll and release deed executed by the assessee amounted to a gift within the meaning of the G. T. Act, 1958. Answering the said question in favour of the assessee, the Division Bench of the Bombay High Court, speaking through Kantawala C.J., on a consideration of the relevant provisions of the G. T. Act, observed (headnote) :

'It is quite evident from the language of section 3 of the Gift-tax Act, 1958, that it is only a gift as defined in this Act which is subjected to gift-tax. Having regard to the definition of the word 'gift' and the expression `transfer of property' it is clear that unless the transfer in question is a transfer of property within the definition given in section 2(xxiv), it is not capable of being a 'gift' within the meaning of the Act'.

20. The High Court also considered clause (c) of s. 2(xxiv) with which we are not directly concerned in this case and hence we need not refer to that aspect any further. But the Bombay High Court also referred to the he term 'disposition' in clause (xxiv) and the word 'disposition' is not a term of law. It has no precise meaning. Its meaning has to be gathered from the context in which it is used. In the context in which it is used in s. 2(xxiv), it cannot mean 'to dispose of '. In that provision it is used along with the words 'conveyance, assignment, settlement, delivery, payment or other alienation of property'. It is clear from the context that the word 'disposition' therein refers to a bilateral or multilateral act. The word 'transaction' in clause (d) of s. 2(xxiv) also refers only to a bilateral transaction and not a unilateral transaction. A transfer to which two persons are not parties can never amount to a gift. While interpreting the aforesaid provisions of s. 2(xxiv)(d), the Bombay High Court in the aforesaid case also relied heavily on the decision of the Supreme Court in Goli Eswariah v. CGT : [1970]76ITR675(SC) . The aforesaid decision of the Bombay High Court in Mrs. Jer Mavis Lubimoff : [1978]114ITR90(Bom) clearly supports the view which we have taken in the present case.

21. Mr. Raval then invited out attention to the decision in CGT v. Chhotalal Mohanlal : [1974]97ITR393(Guj) . In the aforesaid decision, this court had to construe the provisions of s. 2(xxiv)(d) of the G. T. Act. It was held in that connection by this court that clause (d) of sub-s. (xxiv) of s. 2 postulates that a transaction should have been entered into between two persons with the intention thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. We may recall here that we have already held while construing the relevant recitals of the release deed in question that even though by the said release deed the releasor had diminished a part of her existing life interest in the trust property, which was not made the subject-matter of the release by her and even though to that extent the value of the property of the beneficiaries had increased, even then, as the release deed did not reflect a transaction between more than one person and as it was not a bilateral or multilateral transaction, s. 2(xxiv)(d) can not be of any assistance to the revenue in the present case in the same manner as it was not found to be of any assistance to the revenue in Chhotalal Mohanlal's case : [1974]97ITR393(Guj) . It was noted therein that minors were admitted to the partnership and the said transaction was entered into by the guardian for the benefit of the minors, but it could be termed as a transaction entered into between the adult partners of the firm.

22. On the interpretation of s. 2(xxiv)(d) of the G. T. Act, we were also referred to a Full Bench decision of this court in Dr. A. R. Shukla v. CGT : [1969]74ITR167(Guj) . The Full Bench was there concerned with a case where an individual coparcener impressed his separate property with the character of joint family property. The question was whether the said transaction amounted to a gift within the contemplation of the G. T. Act. It was held that there was no 'gift' within the meaning of s. 2(xii) of the G. T. Act when an individual coparcener impresses his separate property with the character of joint family property. A contention was raised before the Full Bench on behalf of the revenue seeking reliance on s. 2(xxiv)(d)2(xxiv)(d) of the Act and it was submitted that the transactions would be covered by this provision. While repelling that contention, it was observed by the Full Bench (p. 179).

'Section 2(xxiv), clause (d), includes within the category of 'transfer of property' any transaction entered into by any person with intent thereby to diminish the value of his own property and to increase the value of the property of another person. This clause applied to any transaction entered into with the specified intent.'

23. It was also observed in the connection (p. 180) :

'The words used in clause (d) are 'any transaction entered into by any person'. These words clearly contemplate a bilateral transaction - a transaction entered into by the donor with some other person.... What clause (d) requires is that the donor must not `enter in to a transaction' and that can only be with some person. We cannot equate the words `enter into a transaction' with `do an act or abstain from doing an Act'. We must give due effect to the words `enter' and `transaction' and if we do so, it is clear that what clause (d) is intended to bring within the net of taxation is not a unilateral act or omission of the donor but a bilateral transaction, a transaction between the donor and some other person.'

24. The Supreme Court had also an occasion to consider the provision of s. 2(xxiv)(d) in the case of CGT v. N. S. Getti Chettiar : [1971]82ITR599(SC) . It was observed (p. 606) :

'The 'transaction' in clause (d) of section 2(xxiv) takes its colour from the main clause, viz., it must be a transfer of property in some way. This conclusion of ours gets support from sub-clauses (a) to (c) of clause (xxiv) of section 2, each of which deals with one or the other mode of transfer.'

25. Thus, the concept of bilateral transaction being the legal requirement of s. 2(xxiv)(d) was streamlined by the Supreme Court in the aforesaid decision. We may mention in this context that we have already held on the interpretation of the relevant recitals in the release deed in question that no bilateral or multilateral transaction was involved when the releasor released her life interest.

26. Mr. Raval also invited our attention to a division of the Kerala High Court in Mrs. Kunjharam Joseph v. CGT : [1973]88ITR207(Ker) in support of his submission that a gift of life interest can be validly effected by the donor. There is no dispute on this settled position of law. But the question is whether, in the present case, such a gift is effected by the releasor, consequently, the aforesaid decision of the Kerala High Court need not detains any further.

27. Mr. Raval then invited our attention to the Supreme Court judgment in Pushpa Devi v. CIT : [1977]109ITR730(SC) . In the aforesaid decision, the Supreme Court was concerned with the question whether a female member of an HUF can throw her personal property into the joint family hotchpotch amounting to blending in the eye of law. The Supreme Court held that the right to blend was limited to coparceners and a female member of the joint family could not blend her separate property. Mr. Raval submitted that he was relying upon this decision on account of the observations of the Supreme Court on the second question posed for their consideration and which arose out of the supplementary statement called for from the Tribunal in that case. The Supreme Court in that connection observed that there was no serious controversy that by the declaration dated September 1, 1961, the appellant must be deemed to have made a gift of the items mentioned therein to the undivided family, of which she was a member. The aforesaid observations of the Supreme Court based on the relevant terms of the declaration dated September 1, 1961, in that case cannot be of any assistance to the revenue in the present case as we have to confine ourselves to the recitals in the release deed in question for their correct interpretation.

28. Mr. Raval also invited our attention to the decision of the Supreme Court in CED v. Kantilal Trikamlal : [1976]105ITR92(SC) . There, the Supreme Court was concerned with the interpretation of the term 'disposition' as used in s. 2(15) of the E. D. Act, 1953. In that case, the facts were that by an instrument styled release deed executed on November 16, 1953, between a father and his son, who formed a joint Hindu family, a sum of Rs. 1 lakh was taken by the father in lieu of his share in the joint family properties, which share was valued at Rs. 3,44,068 and he relinquished his interest in the remaining properties of the joint family which were declared to belong to the son as his absolute property. The son also correspondingly relinquished his interest in the sum of Rs. one lakh. Within two years thereafter, on June 3, 1955, the father died. The question was whether, where on a partition of an HUF property, a coparcener takes less than his share, there is a 'disposition' within the meaning of Expln. 2 to s. 2(15) of the E. D. Act, 1953, by him of that part of his share which he relinquishes and on his death within two years of the partition whether that part of his share would be property that was deemed to pass under s, 9 (1) read with s. 27(1) and EXpln. 2 to s. 2(15). It was held that the term 'disposition' is not a term of art nor legalese but a plain English word of wide import. What is more, the word has acquired, beyond its normal ambit, an extended meaning on account of the special definition in s. 2(15) with Expln. 2 super-added. Explanation 2 is deliberately designed to take into its embrace what otherwise may not be disposition or conform to its traditional concept. It is, therefore, clear that the decision of the Supreme Court in Kantilal Trikamlal's case : [1976]105ITR92(SC) turns on the express language of expln. 2 to s. 2(15) of the E. D. Act, 1953. The said Explanation had been reproduced at p. 97 of the report and it reads :

'The extinguishment at the expenses of the deceased of a debt or other right shall be deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression 'property' shall include the benefit conferred by the extinguishment of the debt or right.'

29. Mr. Raval urged that the wording of Expln. 2 to s. s (15) of the E. D. Act with which the Supreme Court was concerned in that case can be effectively compared with the wording of s. 2(xxiv)(d) of the G. T. Act with which we are concerned in the present case. It is difficult to accept this submission of Mr. Raval. On the peculiar wording of Expln. 2 to s. 2(15) of the E. D. Act, it was found that extinguishment of any right by a deceased was deemed to be a disposition made by the deceased. There is no such deeming provision in s. 2(xxiv)(d) of the G. T. Act. The charging provision, if any, is found in s. 4(1)(c) of the Act to which we have already referred in the earlier part of this judgment. Hence, the aforesaid decision of the Supreme Court, which was based on the peculiar wording of Expln. 2 to s. 2(15) of the E. D. Act, cannot be effectively pressed into service by Mr. Raval for the revenue in the present case.

30. Mr. Raval also invited our attention to a decision of the Madras High Court in S. R. Chockalingam Chettiar v. CGT : [1968]70ITR397(Mad) . The question before the Madras High Court was as to whether right to obtain a specified number of rights shares under s. 81 of the Companies Act in a fresh issue of capital was a tangible right which can be made the subject-matter of a gift. It was held by the Madras High Court in that case that such a right is not an interest in a future property but in an existing property as defined in the G. T. Act and the Tribunal was right in directing the officer to levy gift-tax on 'the market quotations of the rights'. We fail to appreciate how this judgment can be of any help to Mr. Raval in the present case. It is no doubt true that life interest is an existing interest in property which can be legally made the subject-matter of gift if the donor chooses to do so. But unfortunately for the revenue, in the present case, the releasor has not chosen to do so, on the contrary, she has completely surrendered her life interest and has got it wiped off so far as the shares mentioned in the second schedule are concerned. Under these circumstances, the decision of the Madras High Court in the aforesaid case can be of no avail to the revenue.

31. As a result of the aforesaid discussion, it must be held that, in the present case,the release deed in question did not effect any gift, bilateral or multilateral, between the parties as contemplated by s. 2(xii) read with s. 2(xxiv)(d) of the G. T. Act nor was the revenue able to show by arriving at any positive finding that the said transaction was not a bona fide one and hence was a deemed gift within the meaning of s. 4(1)(c) of the Act. Once it is held that the release deed in question was not covered either by the first part of the definition of gift as envisaged by s. 2(xii) of the G. T. Act or by the inclusive part of the said definition, the conclusion is inevitable that the charging provision of s. 3 of the Act cannot be pressed into service by the revenue for covering such a transaction under the relevant provisions of the G. T. Act. It, therefore, necessarily follows that the Tribunal was justified in the view which it took on the clear recitals of the release deed in question. Hence, the question referred to us for our opinion is required to be answered in the negative, that is, in favour of the assessee and against the revenue. The Commissioner of Gift-tax shall pay costs of this reference to the assessee.


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