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Commissioner of Income-tax Vs. Shyam NaraIn Mehrotra - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 147 of 1971
Judge
Reported in[1980]122ITR313(Cal)
ActsIncome Tax Act, 1961 - Sections 2(47), 45, 47, 52 and 52(1); ;Gift Tax Act, 1958 - Sections 2 and 4(1)
AppellantCommissioner of Income-tax
RespondentShyam NaraIn Mehrotra
Appellant AdvocateSuhas Sen and ;Ajit Sengupta, Advs.
Respondent AdvocateNone
Cases ReferredSee Bengal Immunity Co. Ltd. v. State of Bihar
Excerpt:
- .....as to whether section 47(iii) of the i.t. act, 1961, contemplated a gift as defined in the transfer of property act or a deemed gift as provided in the g.t. act, because in its opinion, the assessee was entitled to the relief on the ground that he had been taxed on this very amount in the proceedings under the g.t. act for that year. in the opinion of the tribunal, the department in respect of that transaction had treated it as a deemed gift. the assessee had paid the amount of gift-tax so determined. in the opinion of the tribunal, therefore, it would not be proper, in the interest of justice, to allow the revenue to impose any capital gains tax on that transaction and, in that view of the matter, the tribunal allowed the assessee's appeal.2. in the premises, under section.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference, we are concerned with the assessment year 1962-63 relevant to the financial year 1961-62. The assessee is an individual. During the relevant year, he sold 1,150 shares of Bharat Woollen Mills Ltd. to his brother, Sri P. N. Mehrotra, at the rate of Rs. 10 per share, for a sum of Rs. 11,500. The break-up value of those shares, on the basis of the balance-sheet, would have been Rs. 50,209 on the date of the transfer. The ITO was, therefore, of the opinion that the provisions of Section 52(1) of the I.T. Act, 1961, were applicable. It was contended on behalf of the assessee that under Section 47(iii) of the Act, a gift was not regarded as transfer of a capital asset and was not assessable to capital gains and the transaction was a deemed gift within the meaning of the definition of the G.T. Act, 1958, The ITO did not accept this contention. He, therefore, treated the difference of a sum of Rs. 46,126 in the value of those shares on the basis of the balance-sheet of the company and the price charged as capital gains, which amounted to Rs. 7,417 already declared by the assessee and included the remaining amount of Rs. 38,709 in the assessment. The assessee preferred an appeal to the AAC. The AAC agreed with the ITO and upheld the addition. The assessee, thereafter, preferred a second appeal before the Tribunal. The Tribunal did not go into the question as to whether Section 47(iii) of the I.T. Act, 1961, contemplated a gift as defined in the Transfer of Property Act or a deemed gift as provided in the G.T. Act, because in its opinion, the assessee was entitled to the relief on the ground that he had been taxed on this very amount in the proceedings under the G.T. Act for that year. In the opinion of the Tribunal, the department in respect of that transaction had treated it as a deemed gift. The assessee had paid the amount of gift-tax so determined. In the opinion of the Tribunal, therefore, it would not be proper, in the interest of justice, to allow the revenue to impose any capital gains tax on that transaction and, in that view of the matter, the Tribunal allowed the assessee's appeal.

2. In the premises, under Section 256(1) of the I.T. Act, 1961, the Tribunal has referred the following question to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 38,709 was not liable to tax as capital gains ?'

3. In order to consider this question, it would be proper to refer to the relevant sections. Section 2(47) of the I.T. Act, 1961, defines 'transfer' for the purpose of the I.T. Act as follows:

'2. (47) 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law.'

4. Section 45 of the I.T. Act, 1961, provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54B and 54D, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. Under sub-cl. (iii) of Section 47 nothing contained in Section 45 shall apply to 'any transfer of a capital asset under a gift or will or an irrevocable trust'. Section 52, so far as material for our purpose, provides as follows :

'52. Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under Section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer.'

5. In this connection, it would be necessary in order to appreciate the question, to refer to certain provisions of the G.T. Act, 1958. Section 2(xii) defines gift as under:

'2. (xii) '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.'

6. Section 2(xxiv) defines transfer of property as follows :

'2. (xxiv) '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, licence, power, partnership or interest in property;

(c) the exercise of a power of 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 donee 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.'

7. Section 4(1)(a) is to the following effect:

'4. Gifts to include certain transfers.--(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 date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor.'

8. Two questions, therefore, arise in this case, namely, whether the expression 'gift' used in Clause (iii) of Section 47 means gift as contemplated under the G.T. Act, 1958, or indicates gift as understood generally or in the light of the provisions of the Transfer of Property Act. If the expression 'gift' is understood in the light of the G.T. Act, 1958, only then the transaction in question being one which will be covered by the definition of Section 4(1)(a) of the G..T. Act would be outside the provisions of Section 45 of the I.T. Act, 1961, in this case. If, however, the expression 'gift' is understood in the general sense, then in terms of Section 47 read with Section 52 of the I.T. Act, 1961, the transaction would come under the purview of Section 45 of the Act in the instant case.

9. The second question that arises for consideration in this case is, whether having suffered taxation under the G.T. Act, 1958, in respect of the transaction in question, the assessee was liable to pay tax in respect of the same transaction under Section 45 of the I.T. Act, 1961. The Tribunal seems to have proceeded on the view that after having suffered taxation under the G.T. Act, 1958, it was not in the interest of justice that the assessee should be made to suffer taxation again.

10. It is, however, difficult to appreciate on what juristic principle this approach of the Tribunal was made. We, however, appreciate the attitude of the Tribunal that this decision was taken to avoid injustice in a particular case. But we are concerned here with the application of law. We agree that a certain amount of hardship will arise if a transaction is made i to suffer taxation twice. But that fate, in our opinion, cannot be avoided if it logically follows as a result of the provisions of the particular enactment. It is well-known that when income is earned that income suffers taxation. If out of that income a gift is made by the person concerned, then that gift again suffers taxation. These are two different taxable events. Therefore, one transaction may attract different taxable events under the different taxing laws. In such a case, no question of double taxation arises. As certain amount of doubt both on this aspect of the matter as well as on the theory of double taxation has arisen, it is better to remind ourselves of the principles that are applicable in deciding this question. There can be double taxation if the Legislature has distinctly enacted it. This is well-settled. (See the observations in Stevens v. Durban-Roodepoort Gold Mining Co. Ltd. [1909] 5 TC 402 and see also the observations of the Supreme Court in the case of Jain Brothers v. Union of India : [1970]77ITR107(SC) ). The Constitution does not contain any prohibition against double taxation. But it is also well-settled that when there are general words of taxation and these have to be interpreted, then these should not be so interpreted if possible as to tax the subject twice over to the same tax. This proposition, however, will have to be applied with caution in case where the language used by the appropriate Legislature is clear on this point. If the Legislature has clearly expressed an intention to tax twice the subject to the same tax, then such impositions cannot be considered to be illegal. But in construing, in case of doubt, presumption would be to avoid taxing the subject twice over to the same tax. But where one transaction is made subject to different taxable events under different statutes, though cognate in nature, this concept of double taxation has no application. In the case of Reid's Trustees v. IRC [1929] 14 TC 512. at page 521 of the report, Lord President Clyde observed as follows :

'There is a certain appearance of hardship in making the interest subject first to Estate Duty as capital, and then to income-tax as income ; but, while the same sum cannot be subject to the same tax twice, there is nothing inconsistent with the principles of taxation in making the same sum subject to different taxes.'

11. In Barkar v. Edgar [1898] AC 748, Lord Hobhouse observed that each enactment must be construed in that respect according to its own subject-matter and on its own terms. The aforesaid observation of Lord Hobhouse was relied on with approval by Mr. Justice Rankin, as the learned Chief Justice then was, in the case of Probhat Chandra Barua v. Emperor, AIR 1924 Cal 668 at page 678. In the case of Rajnit Prasad Singh v. CIT [1929] 4 ITC 264 (Pat), Mr. Justice Das quoting the aforesaid observations stated that though there was a presumption that the same sum should not be assessed twice on the same person yet there was no presumption that because a person has been assessed under the one statute, he was immune from taxation under another statute. Therefore, the fact that the assessee had suffered taxation under the G.T. Act, 1958, in respect of the transaction in question, does not, in our opinion, affect the question though we agree with the Tribunal that it causes a certain amount of hardship and perhaps in an appropriate case it may be that the Legislature should give some relief, as has been done in the case of the Estate Duty Act under Sections 50A and 50B of the said Act and other Acts.

12. So far, however, the first aspect of the question is concerned, the matter has been examined by several High Courts. In the case of ITO v. K.P. Varghese : [1973]91ITR49(Ker) , a Full Bench of the Kerala High Court has considered this question. The majority of the judges held that the expression 'gift' in Clause (iii) of Section 47 of the I.T. Act, 1961, should be understood in the ordinary sense and in the light in which it is understood in the Transfer of Property Act and should not be confined to gift as understood in the G.T. Act, 1958. The learned Chief Justice, who was in the minority, held to the contrary. For our present purpose, we may refer to one factor, in the views of the majority of the judges, which is important, that a similar expression was there like Clause (iii) of Section 47, in the old Section 12 of the Indian I.T. Act, 1922, and even before the G.T. Act, 1958, had come into effect. The first proviso to Section 12B of the Indian I.T. Act, 1922, excluded distribution, inter alia, of any capital asset 'under a deed of gift' from the mischief of capital gains tax. Therefore, this is a factor which has to be borne in mind in considering whether the expression 'gift' should be understood in the special meaning, that is to say, the meaning given under the G.T. Act, 1958, a factor which was taken into consideration by a Division Bench of the Andhra Pradesh High Court which we shall notice later. In the case of Shiv Shankar Lal v. CIT : [1974]94ITR433(Delhi) , the Delhi High Court had occasion to consider this aspect of the matter. The Delhi High Court observed that the transaction in question to the extent of the amount which was sought to be assessed under Section 45 in that case had already been treated as a gift and was assessed under the G.T. Act. The same amount, therefore, according to the Delhi High Court, was exempt from assessment under Section 45 of the Act. In other words, it seems to us that the Delhi High Court proceeded on the view that the word 'gift' in Section 47(iii) of the I.T. Act, 1961, should be understood in the light of the G.T. Act, 1958, which is a definition in a cognate statute, rather than in the light of the definition . given in the Transfer of Property Act. In the case of Addl, CIT v. M. Ranga Pai : [1975]100ITR413(KAR) , the Division Bench of the Karnataka High Court had occasion to consider this question. At page 423 of the report, the Division Bench observed that when the word 'gift' was I not denned in the Act, one had to look to the ordinary meaning and not to any definition given in the G.T. Act or any other Act. According to Webs-ters' International Dictionary, the word 'gift' means a 'voluntary transfer of real or personal property without any consideration or, more strictly, without a valuable consideration'. According to the Division Bench, when the capital asset was transferred without any valuable consideration, there was no question of any capital gains accruing or arising by the transfer, because capital gains had to be computed under Section 48 by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the cost of acquisition of the said asset. To a case of transfer made without valuable consideration, there was no question of capital gains tax being attracted at all and, as such, there was nopurpose served in providing for the exclusion of such transfer from the operation of Section 45. If the contention of the learned counsel for the department and the reasons of the majority judgment in the Varghese's case : [1973]91ITR49(Ker) [FB] were accepted as sound, according to the Division Bench, the provisions of Section 47(iii) excluding gifts from the purview of Section 45 would become otiose, according to the Division Bench. What then were the transfers intended to be excluded by Section 47(iii) The Karnataka High Court observed that the class of transfers involving understatement of consideration did not come under the class of gifts pure and simple. Therefore, the transfers, for inadequate consideration, which are considered to be deemed gifts in the light of the G.T. Act, 1958, should also be excluded. With respect it may, however, be pointed out that there may be gifts, apart from the gifts which are contemplated under Clause (a) of Section 4(1) of the G.T. Act. It appears to us that if the expression 'gift' in Clause (iii) of Section 47 is construed as meaning gift under the general law, this exclusion by that sub-clause would not become otiose. On the other hand, if the expression 'gift' is confined to the gift contemplated by the G.T. Act then Section 52 of the I.T. Act, 1961, would really become surplus or otiose for the purpose of application of Section 45 in this case.

13. Gift essentially is one parting with the property and another taking the same gratuitously. It is in that light gift is generally understood. In Mozley & Whitley's Law Dictionary, 9th edn., page 149, 'gift' is said to be as follows:

'Gift.--A conveyance which passes either land or goods. As to things immovable, when strictly taken, it was said to be applicable only to lands and tenements given in tail. This limitation of the word is, however, quite obsolete. Blackstone distinguishes a gift from a grant in that a gift is always gratuitous, without binding considerations, and therefore void in certain cases, whereas a grant is made upon some consideration or equivalent (Donatio Mortis Causa ; Grant)'

14. Section 122 of the Transfer of Property Act, 1882, defines gift as under:

Section 122 :

' 'Gift' is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.

Such acceptance must be made during the lifetime of the donor and while he is still capable of giving.

If the donee dies before acceptance, the gift is void.'

15. The question was considered in the case of CIT v. Rikadas Dhuraji : [1976]103ITR111(Mad) by the Madras High Court. There, at page 119 of thereport, the Division Bench of the Madras High Court observed that the words 'full value of the consideration' referred to in Section 48 related to the factual receipt of the consideration and had no reference to the adequacy or inad quacy of the consideration. In the case of a transaction for inadequate ns leration, the difference between the adequate consideration and the consideration actually received or accrued, though not received or accrued, was deemed by Section 52 as consideration. The Division Bench observed that Section 4 of the G.T. Act, 1958, treated that portion as a gift. In other words, a person might transfer his property for less than adequate consideration instead of writing two separate documents, one for adequate consideration and the other as a gift; so far as the portion of the gift was concerned, no consideration was received or accrued. Their Lordships, therefore, agreed with the view of the learned Chief Justice of the Kerala High Court in the case of ITO v. K. P. Varghese : [1973]91ITR49(Ker) on this aspect of the matter. The question was again considered exhaustively by the Division Bench of the Andhra Pradesh High Court in the case of ITO v. Buragadda Satyanarayana : [1977]106ITR333(AP) . There, the learned Chief Justice had pointed out that because of the clear expression in Clause (iii) of Section 47 of the IT. Act, it could not apply to gift as contemplated by the G.T. Act.

16. The following points, in our opinion, should be borne in mind. The definition of 'gift' in Section 2(xii) of the G.T. Act, 1958, is only for the purpose of that Act and not for the purpose of any other Act. This is nor-,ly so even without any specific mention and the definition clause says clearly. So does the deemed gift in Clause (a) of Section 4(1) because Section 4(1) prefaces the different clauses with the expression 'for the purposes of this Act'. Section 4(1) creates a legal fiction. The fiction is limited only for the purpose for which it is created. It is a well-known principle of construction in matters of statutory fiction that the fiction is limited only for the purpose for which it is created. See Bengal Immunity Co. Ltd. v. State of Bihar : [1955]2SCR603 . Secondly, in the Indian I.T. Act, 1922, similar expression was used as we have noticed and Parliament has continued to use the same expression as it did in Section 12B in the I.T. Act, 1961. As we have noted that in taxing a transaction over again there would not be any question of double taxation. Furthermore, we have noted that the definition of transfer, as defined in Section 2(47) of the I.T. Act, 1961, is an indication that the transfer contemplated in Section 45 and onwards cannot be confined to transfers as contemplated by the G.T. Act, 1958. We are in respectful agreement with the learned Chief Justice of the Andhra Pradesh High Court, in the views expressed on this aspect of the matter in the case of ITO v. Buragadda Satyanarayana : [1977]106ITR333(AP) . The other aspect of the matter adverted to in that case, namely,whether Section 52 was confined to a bona fide transaction or not, we are not called upon to decide in this case. We are, therefore, of the opinion that the expression given in Clause (iii) of Section 47 of the I.T. Act, 1961, is not only to exclude gift as contemplated under Clause (a) of Section 4 of the G.T. Act, 1958 but is meant to cover a transaction as understood generally and in the light of the Transfer of Property Act, 1882. In that view of the matter, the question must be answered in the negative and in favour of the revenue.

17. In the facts and circumstances of this case, there will, however, be no order as to costs.

Guha, J.

18. I agree.


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