T. Saraswathi Achi vs Commissioner of Income Tax

V. Ramaswami, J.—This is .a reference u/s 27(1) of the Wealth-tax Act, 1957. For the assessment year 1965-66, the relevant valuation

date being June 30, 1964, the Wealth-tax Officer sought to include the value of a gift of 20,000 shares in Rajendra Mills made on July 22, 1960,

by the assessee in favour of her two minor unmarried daughters u/s 4(1)(a)(ii) of the Act. The assessee contended that by virtue of the proviso to

Section 4(1)(a) which was introduced by the Wealth-tax (Amendment) Act, 1964, which came into force with effect from April I, 1965, the value

of the shares gifted to the two minor unmarried daughters are not liable to be included in the total wealth of the assessee. The Wealth-tax Officer,

the Appellate Assistant Commissioner and the Tribunal held that the proviso would apply to only those gifts which are chargeable to gift-tax in any

assessment year commencing after the 31st day of March, 1964, under the Gift-tax Act and those gifts which are not chargeable u/s 5 of that Act

and it will not apply to a case where the gift was made as in this case on 22nd July, 1960. At the instance of the assessee the following two

questions have been referred ;

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expression "" for any assessment

commencing after the 31stdayof March, 1964"" occurring in the proviso to Section 4(1)(a)(ii) of the Wealth-tax Act, 1957, had reference to the

assessment under the Gift-tax Act, 1958, and not to the assessment under the Wealth-tax Act, 1957 ?

(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 6,20,000 was properly included in the net wealth of the assessee for

the assessment year 1965-66 ?

As the construction of the proviso is involved in this reference, we may usefully set out that provision as it stood in the relevant assessment year :

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

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

(ii) by a minor child, not being a married daughter of such individual, to whom such assets have been transferred by the individual, directly or

indirectly, otherwise than for adequate consideration, or......

whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise :

Provided that where the transfer of such assets or any part thereof is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958), or is

not chargeable u/s 5 of that Act, for any assessment year commencing after the 31st day of March, 1964, the value of such assets or part thereof,

as the case may be, shall not be included in computing the net wealth of the individual.

The argument of the learned counsel for the assessee is that the words ""for any assessment year commencing after the 31st day of March, 1964

referred to the same assessment year which is contemplated u/s 3 of the Wealth-tax Act and that, therefore, irrespective of the date of gift for

wealth-tax purposes for any assessment year commencing from 1st day of April, 1964, the assets transferred in favour of a minor child or

unmarried minor daughter shall not be deemed to be held by the trans-feror-assessee. According to the learned counsel the fiction of treating an

asset transferred in favour of such minor children as belonging to the individual created by the main part of the section was made inapplicable as

and from the assessment year 1964-65 by the proviso. On the other hand. learned counsel for the revenue contends that the words ""for any

assessment year commencing after the 31st day of March, 1964"" qualifies the Chargeability or exemption of a particular gift under the Gift-tax Act

and not to the assessment year referred to in Section 3 of the Wealth-lax Act.

We must state that the section is plausible of both these constructions, but having given a careful consideration we think chat the construction

placed by the learned counsel for the revenue is more reasonable and acceptable. Normally, chargeability to gift-tax or the exemption thereof is to

be understood with reference to an assessment year under the Gift-tax Act. Otherwise, we think that changeability to gift-tax or the exemption

thereof under the Gift-tax Ace, 1958, could not be precisely defined. Further, an exemption under Section. 5 of the Gift-tax Act could obviously

be only with reference to an assessment year because Parliament might take away the exemption in a subsequent year. Thus, the said words should

be understood as a reference to the assessment year under the Gift-tax Act and not the assessment year under the Wealth-tax Act, This conclusion

is also supported by two other circumstances. In the first place, we see that the gift-tax which was about 8% when the value of the total assets

gifted exceeded Rs. 1,45,000 was increased to 40% as and from the assessment year 1964-65. Further, in that assessment year by Finance Act,

1964, aggregation of the gifts made to the same donee during a certain period was also provided. The maximum race of wealth-tax payable on

wealth was about 2.5% at that relevant period. We, therefore, presume that Parliament might have intended that when the gift made suffers a tax to

the extent of 40% under the Gift-tax Act, it might be exempted from wealth-tax, It is further to be noted that the property had already been

transferred to the minor children and the transfer itself is not invalidated u/s 4 of the Wealth-tax Act, Thus the transferor is a person who pays gift-

tax at higher rate and also wealth-tax if the proviso had not been introduced. We are also of the opinion that the proviso could not have been

intended to make a wholesale exemption of the gifts made at any time subsequent to the introduction of the Gift-tax Act. It should also be borne in

mind that in respect of gifts made prior to 1st April, 1963, they would have been properly included in the net wealth Of the transferor-assessee. If

the construction of the assessee on the proviso is to be accepted, such assets will have to be excluded as and from the assessment year 1964-65.

Learned counsel for the assessee was not able to state why such assets which were originally included in the net wealth of the assessee was sought

to be excluded under the proviso. On the other hand, we feel that the steep upward revision of the gift-tax rates by the Finance Act, 1964, was the

more probable reason for introducing the proviso. But the learned counsel for the assessee pointed out that not only the gifts which are chargeable

to gift-tax under the Gift-tax Act are brought in within the proviso, but also those gifts which are not chargeable u/s 5 of that Act. Therefore, the

high upward revision of the rates alone could not have been the reason for introducing the proviso. But the learned counsel forgets that at or about

the same time by the Finance Act, 1964, the aggregation also was provided and, therefore, even a transaction which was not chargeable u/s 5 of

the Act if it bad been made to the same donee would be subject to aggregation and thereby the gift-tax may be attracted. Further, we only gave

the probable reason for excluding the transactions falling within the assessment year commencing on 1st April, 1964, and the section itself does not

in specific terms give any reason for such exemption.

Learned counsel for the assessee also contended that the construction which we placed on the section might lead to some discrimination. He

argued that an asset which was transferred by gift and not chargeable u/s 5 of the Gift-tax Act prior to April 1, 1964, would be liable to be

included in the net wealth of the transferor-assessee whereas if a similar transaction takes place after April 1, 1963, the said asset would not be

liable to be included in the net wealth of the assessee u/s 4(1)(a)(ii), resulting in a discrimination. Therefore, we should construe the provision in

such a way as not to create any discrimination and if so construed the words ""for any assessment year commencing after the 31st day of March,

1964"" should be read as referring to the assessment year under the Wealth-tax Act. The argument of the learned counsel is attractive but we are

unable to accept it. Parliament has fixed a date with reference to which net wealth is to be ascertained in a particular manner and that provision

would apply equally to all persons. The benefit of the provision will be applicable to the assessee as well and the assessee cannot be said to have

been discriminated against. A similar contention was repelled by the Supreme Court in Jain Bros. and Others Vs. The Union of India (UOI) and

Others, . One of the points for consideration in that case was whether Section 297(2)(g) offends Article 14 of the Constitution. The argument

placed before the Supreme Court was that in respect of an offence falling u/s 28(1)(c) of the Indian Income Tax Act, 1922, if the return had been

filed prior to the Income Tax Act, 1961, the penalty is leviable under the old Act, whereas if the return was subsequent to the commencing of the

new Act, i.e., April 1, 1962, the penalty is leviable under the new Act. The argument advanced was that the fixing of the date, April 1, 1962, is

arbitrary and discriminatory. Repelling this contention the Supreme Court observed as follows:

The date, 1st April, 1962, which has been selected by the legislature for the purpose of Clauses (f) and (g) of Section 297(2) cannot be

characterised as arbitrary or fanciful. It is the date on which the Act of 1961 actually came into force. For the application and the implementation of

the Act of 1961, it was necessary to fix a date and the stage of the proceedings which were pending for providing by which enactment they would

be governed. According to Hatisingh Mfg. Co. Ltd. and Another Vs. Union of India (UOI) and Others, ., the State is undoubtedly prohibited from

denying to any person equality before the law or the equal protection of the laws but by enacting a law which applies generally to all persons who

come within its ambit as from the date on which it becomes operative no discrimination is practised. In that case although a distinction had been

made with reference to Section 25FFF(1) of the Industrial Disputes Act, 1947, as inserted by Act 18 of 1957 between employers who had closed

their undertakings on or before November 27,1956, and those who had done so after that date, it was held that article 14 had not been violated,

We do not, therefore, agree with the learned counsel on this part of the argument.

We may also notice that at or about the same time in Section 33(1) of the Estate Duty Act, 1953, Finance Act, 1965, introduced Section 33(1)

(o) which reads as follows :

(1) To the extent specified against each of the clauses in this subsection, no estate duty shall be payable in respect of property of any of the

following kinds belonging to the deceased which passes on his death--......

(o) property taken under any gift made by the deceased to the spouse, son, daughter, brother or sister, beyond a period of five years before his

death:

Provided that the property is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958), or is not chargeable u/s 5 of that Act, for any

assessment year commencing after the 31st day of March, 1964.

Parliament used the identical language in this provision also as in the proviso to Section 4(l)(a), A reading of Section 33(1)(o) makes it clear that

the words "" for any assessment year commencing after the 31st day of March, 1964"" in that provision refers to the assessment year wider the Gift-

tax Act, the Estate Duty Act itself not contemplating any assessment year as such. The result of the foregoing discussion is that the words"" for any

assessment year commencing after the 31st day of March, 1964"" qualify the gift made and chargeable or not chargeable with reference to that

assessment year under the Gift-tax Act and not to any assessment year under the Wealth-tax Act. If that is so, only gifts made in the relevant

assessment year commencing after the 31st March, 1964, or subsequent assessment years will be excluded from the net wealth of the individual.

Accordingly, we answer the questions referred to us in the affirmative and,against the assessee, with costs. Counsel''s fee Rs. 250.