Judgment:
V.V. Kamat, J.
1. At the instance of the assessee, the following four questions expect our answer :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the rectification proceedings are-not time-barred ?
2. Whether the Bench is correct in law in coming to the conclusion that the amendment made to Section 34 of the Gift-tax Act on October 1, 1984, is procedural in nature and, therefore, the period for rectification which starts from March 31, 1984, will end with March 31, 1988 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that since the Gift-tax Officer has applied for rectification on December 10, 1987, prior to January 17, 1988, the rectification order passed by the Appellate Assistant Commissioner subsequent to January 17, 1988, is within time ?
4. Whether, on the facts and in the circumstances of the case, is not the order of the Tribunal wrong in upholding the rectification, since a specific direction has been given by the Appellate Assistant Commissioner in his order of January 17, 1984, after fully considering the implications of Section 50A of the Estate Duty Act ?'
The first three questions relate to the question of limitation regarding initiation of rectification proceedings and the last question relates to the upholding of the rectification order, considering the implications of Section 50A of the Estate Duty Act.
2. Since the assessee, at whose instance under Section 26(1) of the Gift-tax Act, 1958, this court has received the reference, did not choose to engage any advocate to have the other point of view, we requested Sri Firoz, advocate of this court, to assist us amicus curiae by our order dated September 17, 1996. We heard the matter yesterday.
3. Learned senior tax counsel as well as the learned advocate appointed amicus curiae took us through the material on record. On hearing learned counsel for the parties, in view of the merits of the rectification order and the decision of the Tribunal in regard thereto being unsupportable, we proceed to discuss the matter of rectification--subject-matter of question No. 4--with an inevitable position that in the event of our reaching the conclusion that rectification is not justified on the merits of the situation on the basis of factual peculiarities, it would be wholly unnecessary to dwell upon the question of limitation. This is because if the rectification does not get the support for the order of the Tribunal, the situation would go to the root of the matter even on the assumption that it is within the period of limitation. This being the position, we make it clear that no submissions were made with regard to questions Nos. 1 to 3 relating to the matter of the rectification being within the limitation. We further make it clear that for the purpose of answering question No. 4 we clearly proceed on the basis that rectification is within the limitation, making it clear that we have not considered the question of limitation in any way.
4. The late George Joseph made gifts of immovable properties to his children. One of them--Sri David Joseph--is concerned with this proceeding as an applicant. This was in pursuance of the deed of settlement dated May 22, 1972. The value of the property in question is Rs. 48,000. The authority under the Gift-tax Act, 1958, issued notice under Section 16(1) of the Act on January 16, 1979, which was served on January 22, 1979, on the present applicant who is the son and the legal heir of the late George Joseph. It appears that no return was filed in pursuance of the above notice. The Gift-tax Officer completed the assessment for the purpose of the Gift-tax Act, 1958, ex parte assessing the total taxable gift of Rs. 1,50,000. As per the statutory provisions of Section 5(2) of the Gift-tax Act, deduction of Rs. 5,000 was given and consequently taxable gift was determined at Rs. 1,45,000.
5. An appeal before the Appellate Assistant Commissioner was preferred and it is this order of the Appellate Assistant Commissioner dated January 17, 1984, that has become the subject-matter of rectification proceedings which is the subject-matter in question.
6. It is necessary to reproduce the observations in the above order of the Appellate Assistant Commissioner of Gift-tax, Trivandrum :
'3. This is an 'old' assessment. No useful purpose will be served by remitting it back to the Gift-tax Officer for the procedural irregularities pointed out by learned counsel. Counsel himself has conceded that the value fixed is not abnormally high. As such I shall sustain the assessment, but with the modification that the value of the gifted property shall be taken as Rs. 1,48,890 as fixed in the estate duty assessment (assessment order GTR No. G-369 dated February 27, 1976). Relief to the appellant Rs. 1,170.
4. I have gone through the estate duty assessment order which is available in the case records. I have satisfied myself the value of the subject-matter of this gift has been included in the estate passing on death. It would be seen that the duty referable to this asset has already been paid. In a normal case the gift-tax assessment would take place first and the estate duty assessment would come subsequently. In this case the position is the reverse. The estate duty assessment had already been completed. The gift-tax assessment took place only subsequently. Hence, the procedure laid down as a safeguard against the double taxation is not available as such for application to the facts of this case. The proper course in the circumstances appears to me is to give a direction to the Gift-tax Officer to collect the gift-tax due by adjustment from the estate duty already paid. I shall direct the Gift-tax Officer to take up the matter with the Assistant Controller of Estate Duty, Ernakulam, and do the needful in this regard.'
It would thus appear that, on the merits the value fixed is not abnormally high is an undisputed position. The assessment being old, remand is sought to be avoided with regard to the procedural illegalities. It is also ascertained from the estate duty assessment order which was available before the appellate authority in the case records. On the basis thereof it is also recorded that the value of the subject-matter of the gift in question--the subject-matter of the proceedings of the Gift-tax Act, has been included in the estate passing on death. It is also further undisputedly recorded that the duty referable to this estate had already been paid in the estate duty proceedings.
7. The factual peculiarity floats on the surface of the record when the appellate authority has observed that in a normal case the gift-tax assessment would take place first and the estate duty assessment would come subsequently ; but in this case the position is the reverse.
8. It is in this situation of factual peculiarity the appellate authority has adopted the proper course in the circumstances of the situation. The appellate authority has given a direction to the Gift-tax Officer to collect the gift-tax due by adjustment from the estate duty already paid. In this factual situation presenting peculiarity, the direction has to be appreciated, directing the Gift-tax Officer to take up the matter with the Assistant Controller of Estate Duty, Ernakulam, and do the needful in this regard.
9. To appreciate the course adopted by the appellate authority, the statutory provisions of Section 50A of the Estate Duty Act are required to be taken into consideration. The text is as follows :
'50A. Relief from estate duty where gift-tax has been paid.--Where tax has been paid under the Gift-tax Act, 1958 (18 of 1958), in respect of a gift of any property and the property also is included in the estate of the donor as property passing under this Act, then, notwithstanding anything contained in this Act, the estate duty payable under this Act shall be reduced by an amount equal to the amount of gift-tax paid in respect of any such property under that Act.'
A bare reading of the above statutory provision would show that the appellate authority was more than justified to observe the normal procedure to be adopted. If the normal procedure is adopted and the proceedings under the Gift-tax Act, 1958, see the end not only in fixing the amount of gift-tax, but also the payment thereof, the above statutory provision could be appreciated in the right perspective. The provision enacts that the estate duty payable under the Estate Duty Act will get reduced in the normal situation by an amount equal to the amount of gift-tax paid in respect of any such property under that Act. This would show obviously that the appellate authority was more than justified in expecting the normal procedure as has been recorded by him, resulting in a situation of payment of gift-tax first in point of time as compared to the situation of estate duty which is an event contemplated next in point of time thereafter. It is only in accordance with the observations of the appellate authority the above provision of the Estate Duty Act can be meaningfully understood. However, as has been noted, in this case the position is just the reverse.
10. Under Section 34 of the Gift-tax Act, 1958, assuming this position, to be a mistake apparent on the face of the record and to rectify the same, by an order (annexure-C), the Appellate Assistant Commissioner has directed the Gift-tax Officer to modify the gift-tax assessment.
11. The quarrel is with regard to the direction given to the Gift-tax Officer by the appellate authority. The direction given is to collect the gift-tax payable by adjustment of the estate duty paid, and this is considered to be a mistake of law, synonymously a mistake apparent on the face of the record. In the process of reasoning, particularly in paragraph 5 of the order granting rectification, it is observed that such a direction could not be given effect to in view of the statutory provisions of Section 50A of the Estate Duty Act, 1953, reproduced hereinbefore. It is observed that the said provision presupposes the payment of the gift-tax from the estate duty payable or paid. It is observed that in such a situation, to do the needful, the order of the appellate authority referred to hereinbefore requires substitution by the following passage :
'The proper course in the circumstances would be for the appellant to pay gift-tax determined in the assessment and the request for rectification of the estate duty assessment for refund of the gift-tax paid. The Gift-tax Officer is directed to modify the gift-tax assessment after giving effect to the reductions indicated in para. 3 of the appellate order.'
Reading the substitution it would be at once clear that the assessee would have to pay the gift-tax and then would have to apply for refund thereof.
12. In our judgment, factual peculiarities of reversing the order of procedure which is implicit in the statutory language of Section 50A of the Estate Duty Act, 1953, has been understood in such a fashion that the order expects the assessee to pay and apply for refund, instead of adopting the course as directed by the Appellate Assistant Commissioner.
13. In this context, in our judgment, considering the factual peculiarities a circuitous course of making the assessee to pay the amount of gift-tax determined although undisputedly the record shows that in the estate duty proceedings the subject-matter of the gift-tax proceedings has been included in the estate passing on the death and further that the duty referable has already been paid. In our judgment, when this is a situation reversing the course, making the assessee to pay and then to apply for refund, a circuitous method would not be the meaningful interpretation of the provisions of Section 50A of the Estate Duty Act. The provisions of Section 50A of the above Act no doubt speaks of a situation where the tax has been paid under the Gift-tax Act, 1958, in respect of a gift of any property. However, on the admitted and established facts of the proceedings before us, there is no dispute and it is so recorded by the appellate authority that the duty referable to this asset has already been paid in the proceedings under the Estate Duty Act. It is further recorded in unambiguous words that the value of the subject-matter of this gift has been included in the estate passing on death.
14. In our further judgment, this position is a complete satisfaction of the statutory provisions of Section 50A of the Estate Duty Act.
15. What remains is a problem of adjustment and in regard to this we feel that once, as to be found in paragraph 5 of the order (annexure C), the powers of the Appellate Assistant Commissioner are wide and there is no doubt in regard thereto, this does not spell out a case for rectification. There is no error apparent on the face of the record even after taking into consideration the statutory provisions of Section 50A of the Estate Duty Act, 1953.
16. In our judgment, the Appellate Assistant Commissioner of Income-tax, Trivandrum, in passing the order (annexure-C) trying to rectify the situation and also the order of the Income-tax Appellate Tribunal in regard thereto (paragraph 9 thereof) are specimens of error of law. The insistence that it is only when the gift-tax is paid it gets reducible from the estate duty payable is to be understood in the context of the situation showing payment of gift-tax admittedly and undisputedly in the estate duty proceedings.
17. For the above reasons, we sustain the order (annexure C) of the Appellate Assistant Commissioner and thereby direct the Gift-tax Officer, A-Ward, Trivandrum to act according to the directions therein.
18. For the above reasons, we answer the questions referred. Answers to questions Nos. 1 to 3 are unnecessary and we decline to answer them. Question No. 4 is answered in the affirmative, against the Revenue and in favour of the assessee.
19. A copy of this judgment under the seal of the court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.