Vadulla Venkata Rao Vs. Commissioner of Gift-tax - Court Judgment

Excerpt:
direct taxation - gift - section 2 of gift tax act, 1958 and section 122 of transfer of property act, 1882 - whether in terms of settlement deed dated 24.08.1963 and circumstances of case there was tenable gift of rs. 17757 in favour of assessee's sons - contention of assessee was that value of rs. 17757 of gifted property not liable to tax as donee was not entitled to possession and enjoyment of his interest in year of assessment - appellate assistant commissioner allowed appeal - income tax appellate tribunal restored assessment order - assessee contended that there was no right to donee to enjoy same till lifetime of father and mother - gift was admittedly by assessee in respect of immovable property - right in property has been vested in son, donee on same day when document was executed and right has accrued to him though his right to possess and enjoy property was postponed to later date - held, transfer of interest in settled properties in favour of son amounted to gift within meaning of section 2 (xii) of act taxable under act. - maximssections 2(xv) & 3(1) & (3): [v.v.s. rao, n.v. ramana & p.s. narayana, jj] ghee as a live stock product held, [per v.v.s. rao & n.v. ramana, jj - majority] since ages, milk is preserved by souring with aid of lactic cultures. the first of such resultant products developed is curd or yogurt (dahi) obtained by fermenting milk. dahi when subjected to churning yields butter (makkhan) and buttermilk as by product. the shelf life of dahi is two days whereas that of butter is a week. by simmering unsalted butter in a pot until all water is boiled, ghee is obtained which has shelf life of more than a year in controlled conditions. ghee at least as of now is most synthesized, ghee is a natural product derived ultimately from milk. so to say, milk is converted to dahi, then butter. scientifically or common sense point of view, even though ghee is not directly obtained from milk (which is certainly a product of cow/buffalo), it is certainly a product of a product of livestock i.e., cow or buffalo. it would be rather illogical or irrational to say that ghee is not a milk/dairy product or to say that it is not a product of livestock. section 2(x) and 2(iv) of the act used the plural products of livestock. the legislative intention is very clear that not only a product of livestock like milk (when notified by government), butter etc., are products of livestock but even derivative items (derived from a product of livestock) are intended to be product of livestock for the purpose of the act. thus the term ghee is to be interpreted on the basis of expression products of livestock as defined in section 2(xv) of the act. whatever products are declared as such by the government by notification, they become products of livestock for purpose of the act. consequently it was held that ghee is the product of livestock and by reason of power conferred under section 3(1) read with section 3(3) of the act on them it is competent for the government to declare ghee as product of livestock for the purpose of regulating its purchase and sale, in any notified market area. [per p.s. narayana, j,(dissenting)]if livestock or agricultural produce and the categories thereof had been specified in the statute itself by appending in the schedule or otherwise, that would stand on a different footing from the present provisions of the act which contemplate the issuance of notifications in accordance with the procedure ordained by the provisions specified supra. in view of the clear definition of the livestock and products of livestock, the ghee being derivative of butter or cream, if the language employed in definition to be taken as they stand, the only conclusion would be is that the ghee would not fall within ambit of the definitions aforesaid. sections 4 & 3: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] declaration of notified area held, it is only under section 3 that government are required to publish draft notification inviting objections and section 3(3) mandates to consider objections and suggestions before issuing declaration order. it is very conspicuous that section 4 does not contemplate any draft notification inviting objections and suggestions before either constituting market committee, establishing notified market area or declaring notified market area for the purpose of levy of market fees. thus, except ordaining government to issue preliminary/draft notification inviting objections at the time of issuing declaration order under section 3(3) of the act nowhere much less under section 4 contemplates issuing a notification inviting objections. when the legislature has chosen to exclude principles of natural justice, the court cannot introduce rule of audi alteram partem and render statutory provisions unworkable. in such a case, maxim, expressum facit cessare tacitum (when there is express mention of certain things, then anything not mentioned is excluded) would apply. section 7: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] levy of market fee element of quid pro quo - held, levying fees and tax are two forms of exercise of sttaes taxing power. there is no quid pro quo between tax payer and public authority as tax is a part of common burden. it is also well settled that fee is charge for special service or a benefit given to a class of individual fee payers and fee collected need not have correlation with actual service in exactitude but if it is shown that substantial portion of the fee is expended or the purpose for which it is levied, it would be justified. expressum facit cessare tacitum sections 4 & 3: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] meaning when there is express mention of certain things, then anything not mentioned is excluded. - the assessee himself was the first beneficiary till his lifetime and thereafter his wife was to enjoy the settled properties till her lifetime without any power of alienation and finally they should go to his son with absolute rights. krishnamurthy, the learned counsel for the assessee, contended that the transfer of interest in the settled property in so far as the son is concerned does not amount to 'gift' within the meaning of the act, as there was no right to the donee to enjoy the same till the lifetime of the father and mother, the beneficiaries. the assessee and his wife are given life interest to possess and enjoy the gifted property and thereafter the property passes to his son with absolute rights. the right to the property which is admittedly an interest in the property settled under the document has been transferred to his son with absolute rights on the very day of the execution of the document although the right to possess and enjoy the same has been postponed till the lifetime of the donor and his wife. in the circumstances, it cannot be successfully contended that there was no transfer of interest in the lands to the son on the date of the document simply for the reason that there was postponement of his right thereunder to possess and enjoy the same till the lifetime of the donor and his wife. the facts and circumstances would clearly establish that a right in the property has been vested in the son, the donee, on the same day when the document was executed and the right has accrued to him, though his right to possess and enjoy the property was postponed to a later date. (see section 2(xii) of the act). 9. in the circumstances, we are clear in our mind that the appellate tribunal was perfectly right and justified in law in holding that the transfer of interest in the settled properties in favour of the son amounts to gift taxable under the act. ' 12. the aforesaid observations, on which strong reliance has been placed by sri k. the son of the assessee in the instant case has really got a vested right under the document and a right to possess and enjoy the property with absolute rights after the death of his father and mother, although there is postponement of bis right to enjoy the property.kondaiah, j.1. this is a reference by the income-tax appellate tribunal, hyderabad, under section 26(1) of the gift-tax act (hereinafter called 'the act') at the instance of the assessee for the opinion of this court on the following question :'whether, on the facts and in the circumstances of the case, and in terras of the settlement deed dated 24th august, 1963, there was a tenable gift of rs. 17,757 in favour of the assessee's sons ?2. the material facts are: during the previous year relevant to the assessment year 1964-65 the assessee, an individual, had executed a deed of settlement on 24th august, 1963, whereby he settled certain lands obtained by him in the family partition between him and his son. the assessee himself was the first beneficiary till his lifetime and thereafter his wife was to enjoy the settled properties till her lifetime without any power of alienation and finally they should go to his son with absolute rights. the value of the lands gifted by the assessee was shown as rs. 42,935 which was not in dispute. the gift-tax officer had deducted rs. 12,453 towards the life interest of the assessee in those lands and determined the value of the reversionary interest of his wife at rs. 30,482, which is within the permissible exemption provided to a spouse under section 5(1)(viii) of the act. as in his opinion there was a gift in favour of the assessee's son which was liable to tax, its value was determined at rs. 17,757 after deducting rs. 12,725 representing the value of the life interest of the assessee's wife.3. the contention of the assessee that the value of rs. 17,757 of the gifted property was not liable to tax as the donee was not entitled to the possession and enjoyment of his interest in the year of assessment was rejected by the gift-tax officer, who subjected that gift to tax. on appeal the appellate assistant commissioner upheld the contention of the assessee and allowed the appeal. aggrieved by that decision, the gift-tax officer preferred an appeal to the income-tax appellate tribunal which reversed the finding of the appellate assistant commissioner and restored the assessment order. hence at the instance of the assessee, this reference has been made.4. sri k. b. krishnamurthy, the learned counsel for the assessee, contended that the transfer of interest in the settled property in so far as the son is concerned does not amount to 'gift' within the meaning of the act, as there was no right to the donee to enjoy the same till the lifetime of the father and mother, the beneficiaries. he relied upon the decision of the bombay high court in commissioner of gift-tax v. g. g.morarji in support of his plea. this claim of the assessee is resisted by sri p. ramarao, the learned standing counsel for income-tax department, contending, inter alia, that the transfer of the property in favour of the son is a gift within the meaning of section 2(xii) and the same has been rightly taxed in the instant case.5. in order to appreciate the respective contentions, it is necessary to refer to the definition of 'gift' in the act. section 2(xii) which defines 'gift' reads thus: '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 of any property deemed to be a gift under section 4'. the expression 'transfer of property' is defined under section 2(xii) thus :'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.' 6. we may notice the definition of 'gift' under the transfer of property act by section 122 which is as follows :'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.'7. the definition of 'gift' under the act is of wider import than the one under the transfer of property act. any transfer of existing property by one person to another made voluntarily and without consideration is 'gift' under the act. the definition of 'transfer of property' under clause (xxiv) of section 2(xii) is of very wide import, unlike the definition in section 122 of the transfer of property act. the acceptance of gift by a donee or some one on his behalf does not appear to be a specific requisite condition for a gift under the act. there must be two persons: one, the transferor, i.e., the donor, and the other, transferee, i.e., the donee. the transaction must relate to an existing movable or immovable property. it must have been made voluntarily and without any consideration in money or in money's worth. it takes in deemed gifts specified in section 4.8. in the light of the aforesaid discussion, we shall examine the present question. the gift is admittedly by the assessee in respect of immovable property. the beneficiaries under the settlement of gift are himself, his wife and his son. the assessee and his wife are given life interest to possess and enjoy the gifted property and thereafter the property passes to his son with absolute rights. the fact that the donor was having existing right in the property on the date of settlement is not in dispute. he was, therefore, entitled in law to make this settlement of gift in favour of himself, his wife and the son. the right to the property settled under the document has in fact passed on to him for life and to his wife till her death and, thereafter, to his son with absolute rights on the date of the execution of the document itself. the right to the property which is admittedly an interest in the property settled under the document has been transferred to his son with absolute rights on the very day of the execution of the document although the right to possess and enjoy the same has been postponed till the lifetime of the donor and his wife. in the circumstances, it cannot be successfully contended that there was no transfer of interest in the lands to the son on the date of the document simply for the reason that there was postponement of his right thereunder to possess and enjoy the same till the lifetime of the donor and his wife. the facts and circumstances would clearly establish that a right in the property has been vested in the son, the donee, on the same day when the document was executed and the right has accrued to him, though his right to possess and enjoy the property was postponed to a later date. as pointed out earlier, the transfer of property under the act is of wide import so as to take in the grant or creation of an interest in the property. (see section 2(xii) of the act).9. in the circumstances, we are clear in our mind that the appellate tribunal was perfectly right and justified in law in holding that the transfer of interest in the settled properties in favour of the son amounts to gift taxable under the act.10. in commissioner of gift-tax v. g. g. morarji, on which reliance has been placed by sri k. b. krishnamurthy, the question for decision was whether, on the facts and in the circumstances of that case, the assessee was entitled to the exemption under section 5(1)(viii) of the act to the extent of the value of the gift to his wife, if any. in that case, the assessee by a deed of settlement assigned to the trustees a sum ol rs. 1,00,000 comprised of two deposits for the benefit of his wife and son. the wife was entitled to the income from the trust funds during her life and the assessee claimed exemption for the gift under section5(1)(viii). in those circumstances, it was held by the bombay high court that theassessee was entitled to exemption under section 5(1)(viii) to the extent of the value of the gift involved in the settlement to his spouse as may be ascertained under the provisions of the law. it was further held that in order to claim exemption under section5(1)(viii) the donor's spouse need not have the capacity to dispose of the property, and that she should be the only donee.11. the learned counsel for the assessee relied upon the following observations of the learned judges of the bombay high court:'the interest whatever the children and others have in the trust property is a contingent beneficial interest which would come into existence on the happening of the event, namely, the death of indumati, there had been no transfer of interest as such in praesenti in favour of these persons in the year of assessment.'12. the aforesaid observations, on which strong reliance has been placed by sri k. b. krishnamurthy are obiter. that apart, we express our respectful dissent from such a view. the son of the assessee in the instant case has really got a vested right under the document and a right to possess and enjoy the property with absolute rights after the death of his father and mother, although there is postponement of bis right to enjoy the property. none the less there was a transfer of property or interest in immovable property belonging to the donor, the assessee, on the date of the document itself and for all practical purposes, it is a gift within the meaning of section 2(xii) of the act.13. for all these reasons, we are of the view that the question should be answered in the affirmative and against the assessee, who shall pay the costs of this reference to the commissioner of gift-tax. counsel's fee is fixed at rs. 250.