| SooperKanoon Citation | sooperkanoon.com/61445 |
| Court | Income Tax Appellate Tribunal ITAT Ahmedabad |
| Decided On | Oct-31-1985 |
| Judge | K Thakore, K Dixit |
| Reported in | (1986)18ITD279(Ahd.) |
| Appellant | M.K.S. Shivrajsinhji |
| Respondent | Gift-tax Officer |
2. The material facts briefly are that the assessee is the younger son of the ruler of Gondal State who expired in 1952. It appears that during the lifetime of that ruler he had expressed a desire to give Rs. 50 lakhs to the assessee. The assessee made that claim from his elder brother, dispute arose thereupon and the assessee was about to take proceedings in that respect. This was stopped at the intervention of the assessee's mother who gave a letter dated 14-5-1953 to the assessee a free English translation of which is as follows : Your father had spoken about giving you Rs. 50 lakhs before many people and so in order that his word may be honoured and for my peace of mind I am writing to you that if your brother Vikramsinhji Maharaja of Gondal does not pay you the full amount, then it is my sincere desire that you should get the balance unpaid amount from my property. Accordingly, I am recommending to Vikramsinhji also that amount has to be paid to you.
3. Thereafter in 1956 the elder brother Vikramsinhji paid a sum of Rs. 20 lakhs to the assessee who then made a claim of Rs. 30 lakhs from his mother pursuant to her said letter dated 14-5-1953. In 1959 the mother transferred from her London-assets war stock of the nominal value of 1,25,000 and of the market value of about Rs. 11 lakhs and agreed to hand over certain ornaments to him on or certain terms in full settlement of all his claims under the said letter of 14-5-1953.
Thereafter a further dispute arose between the assessee and his mother regarding implementation of this understanding. This was settled by intervention of friends and relatives on 22-2-1962 and, ultimately, on 15-7-1962 an agreement was arrived at and reduced into writing which states as follows : That in pursuance of the said letter dated 14th May, 1953 and the arrangements in respect thereof arrived at on the 12th September, 1959 and 22nd February, 1962 between the parties at the intervention of their certain near relations and with a view to implement and effectuate the same and in consideration of the said transfer of 31/2 war stock of the nominal value of 1,25,000 (One lakh and twenty five thousand) on or about 12th September, 1959 and in consideration of payment partly by cheque and partly by transfer of shares and securities of the aggregate value of Rs. 10,00,000 (Rupees ten lakhs) the said Prince Shivrajsinhji doth hereby release and discharge Her Highness her heirs, executors and administrators forever from all his claims either under the letter of 14th May, 1953 or otherwise and whatever property which remains with Her Highness shall belong to her solely and absolutely, with liberty to her to gift it inter vivos or by will to whomsoever she please.
4. Another agreement was entered into between the assessee and his mother on the same date regarding gift-tax liability of the mother in respect of payment of the aforesaid sums of Rs. 11 lakhs and Rs. 10 lakhs. She agreed to bear that liability up to Rs. 3 lakhs and the excess, if any, was to be borne equally by herself and the assessee. It was also agreed that in case there was no gift-tax liability or it was then Rs. 3 lakhs that sum of difference was to ensure for the benefit of the parties equally. The assessee received a sum of Rs. 1,50,000 from the executorix and the trustae of the estate of his mother being 50 per cent of the said amount of Rs. 3 lakhs. He, accordingly, passed a receipt stating that this was in full and final settlement of all his claims against the estate of his mother and that he had no further claims.
The assessee's mother had made a claim in her wealth-tax assessment that on the valuation dates 31-12-1959, 31-12-1960 and 31-12-1961, a sum of Rs. 19 lakhs payable to the assessee was a debt and ultimately in the year 1979 the Supreme Court held that the said amount became enforceable liability on 12-9-1959 when the mother transferred war stock equivalent to Rs. 11 lakhs and agreed to hand over certain ornaments in settlement of the assessee's claim s.
The wealth-tax assessment in the case of the assessee for the assessment years 1957-58 to 1962-63 was reopened in respect of amount of Rs. 30 lakhs. The assessee objected to this and, inter alia, stated that his mother had merely expressed a desire to pay him the balance amount not paid by his elder brother and that there was no consideration for it and, hence, there was no legally enforceable claim of the assessee as a result. The matter ultimately came before the Tribunal which directed the WTO to value the assessee's claim by discounting it as stated in that order.
5. The GTO relying on the aforesaid decision of the Supreme Court in the case of mother held that the amount of Rs. 9 lakhs was an actionable claim of the assessee which was surrendered by him to his mother and levied gift-tax on that amount applying the provisions of Section 4(1)(c) of the Gift-tax Act, 1958. The Commissioner (Appeals) has confirmed that order.
6. The learned counsel for the assessee put forward the following arguments: (i) When the assessee entered into agreement with his mother on 12-7-1962 the Supreme Court had not decided the matter and so the assessee settled and compromised his claim with his mother. On that date the existence of the mother's liability was not a certainty.
(ii) The GTO has merely invoked the Section 4(1)(c) without giving a definite finding regarding lack of bona fide of the assessee which was necessary according to the decision of the Gujarat High Court in the case of CGTv. Smt. Ansuya Sarabhai [1982] 133 ITR 108. He also relied upon the decision in the case of CGT v. Indo Traders & Agencies (Madras) (P.) Ltd. [1981] 131 ITR 313 (Mad.).
(iii) In the circular issued by the Board in connection with the section it was necessary that there should be collusion between the parties.
iv) Although the Tribunal in the assessee's wealth-tax assessment has held that the assessee's claim should be discounted for the purpose of valuation that value actually comes less than the amount for which the assessee had ultimately settled his claim with his mother.
He submitted that we have to ask ourselves a question whether the assessee had an enforceable claim against his mother and if so what was its value. Secondly, whether the assessee had surrendered that claim and if so whether that act was bona fide. According to him, the first two questions, namely, enforceably of the claim and its value were settled by the Supreme Court decision in the case of mother's wealth-tax assessment in CWT v. H.H. Vijayaba, Dowager Maharani Saheb of Bhavnagar Palace [1979] 117 ITR 784. He submitted that this decision of the Supreme Court was binding and so it was no longer open to the assessee to argue or for the Tribunal to go into the question regarding the enforceability of the claim of its value.
Therefore, according to him, it could no longer be contended that the value of that claim was less than the amount for which it was settled. The assessee himself had put the value at Rs. 19 lakhs and, therefore, no question of valuation arose.
8. The assessee in his letter dated 25-7-1960 to the ITO had stated that an amount of Rs. 6 lakhs was paid to him by his father and another amount of Rs. 2 lakhs was also paid to him by his mother in 1953. On the basis of these amounts and the subsequent amounts received which have been stated above, it was argued on behalf of the assessee that he had received full amount of Rs. 50 lakhs and so there was no gift.
9. In reply to this the learned departmental representative stated that if this full amount was received there was no need for an agreement between the assessee and his mother for settlement, showed that the aforesaid two sums of Rs. 2 lakhs and Rs. 6 lakhs were not to be taken into account. He submitted that the agreement with the assessee's mother showed that on the date of the agreement the amount of Rs. 9 lakhs was outstanding and the assessee had surrendered it. Regarding the absence of finding by the GTO that the gift was not bona fide, the learned departmental representative replied that invoking Section 4(1)(c) clearly implied such a finding. He also argued that this was an agreement between the mother and son and not at arms length. He further pointed out that nowhere in the agreement was it stated that the claim was doubtful. He pointed out that in the wealth-tax assessment the assessee had taken the stand that the claim against mother was not legally enforceable which was contradictory and it was a reflection on the assessee's conduct. Regarding the decision in the case of Smt.
Ansuya Sarabhai (supra) the learned departmental representative stated that the circumstances there were different. In that case there was an unilateral surrender while in this case there was an agreement.
Regarding other cases he stated that they were under Section 4(1)(a) and so they were not relevant for our purpose.
10. The assessee's counsel in rejoinder again emphasised that the agreement was made in 1962 when the Supreme Court decision was not known. Regarding the assessee's conduct in taking a different stand for his wealth-tax assessment he submitted that this was a legal argument based on advice. He pointed out the meaning of the word 'bona fide' in Sampath Iyengar's Work on Gift-tax Act and also contended that it was not sufficient to make a reference to Section 4(1)(c) but the basis of the finding regarding bona fides had also to be stated.
11. To us the most important consideration is the circumstances under which the settlement of 1962 with the assessee's mother took place. On that date the Supreme Court decision was yet to come 17 years after.
There was no telling when the decision would come and what it would be.
From the year 1952 when the assessee's father expired there were disputes with his elder brother and later on with his mother. The mother gave a letter to him in 1953 expressing a desire to pay and making recommendation to her elder son to that effect. It was not until more than six years thereafter, i.e., in 1959 that the first substantial sum of money, i.e., Rs. 11 lakhs was received by the assessee from his mother. At that time there was promise to give certain ornaments, that too on certain terms and even they were not given. It was about three years thereafter that this settlement took place with the mother. It was in this background of partial payments after long periods of waiting, promises made and not honoured, continuous disputes with his mother, calling for the intervention by friends and relatives, that the ultimate settlement took place. One has only to ask whether any reasonable person in that position and with that experience would not make a settlement by foregoing some part of it for ready cash. It is hardly even necessary to refer to any case law to come to the conclusion that this was a genuine settlement and not a case of surrender or gift. In this connection the learned departmental representative's argument that the Supreme Court decision in the mother's case is conclusive, is not tenable because the question is not whether the gift was made after the Supreme Court gave its decision in 1979 but whether the gift was made in 1962. It is equally untenable to say that the assessee had himself put down the claim at Rs. 19 lakhs because that is but a claim. The question really is what was the worth of that claim and in hard cash on the date when the settlement took place. The future was uncertain, vague and none rosy looking to the attitude of the assessee's elder brother and his mother. It is true that the amounts of Rs. 6 lakhs and Rs. 2 lakhs were received by the assessee from his father and mother, respectively, before the agreement with the mother and so technically this amount of Rs. 8 lakhs has to be kept out when claculating the amount due form the mother. However, when arriving at a settlement, this amount would reasonably by taken into account which would make up the total sumof Rs.50 laksh because the starting point of the assessee's clain was the wish of his father. The nother's letter dated 14-5-1953 refers to it and is written because of that. The reasoning the assessee should have Rs. 50 lakhs and it was the fulfilment of that wish with which they were concerned. Therefore, the amounts which were recived earlier should be taken into account.
12. As stated baove the arguments and counter-arguments have been addressed to us regading the question of finding of lack of bona fides by the GTO and ofcourse the Gujarat High Court in the case of Smt.
Ansuya Sarabhai (supra) has stated that such a finding is required.
However, it is unnecessary for us to go into that question because even if such a finding had been given it would have been clearly worng. The assessee entered into the settlement to put and end ot the uncertainty of realisation of his claim. There is no question os surrendering any part of his claim becasue the parties form 1953 onwards in which friends and realtions had to intervene and so it cannot be said that the settlement was not genuine or was lacking in any bona fides. The relations between the parties militates against any such suggestion. It cannot be said that a person who was presssing his claim for a period of 9 years would surrender a claim as large as Rs. 9 laksh without any cosideration. Therefore, we hold that the settlement was genuine. In the circumstances it must be said that the assessee genuinely wanted to get the maximum he could immediately rather than risk his claim on a future uncertainty. Therfore, we hold that there has been no gift in this case.
13. Further, is has been stated by the assessee' counsel and not controverted by the learned departmental representative that hte discounted value of the claim to ascertain the market value, has been found to be less than the amount for which it has been settled. Taking this into account there would be no element of gift.