A. Vimalan Vs. Commissioner of Gift-tax - Court Judgment

Ramanujam, J.

1. One Appavoo Pillai made a gift of three buses to his son, Vimalan, the assessee, under a registered settlement deed dated June 17, 1967. Under that deed the value shown for the three buses was Rs. 20,000. The Gift-tax Officer found that the written down value of the buses on the date of the transfer was Rs. 31,688. He, therefore, estimated the value of the buses at Rs. 31,688. In addition he also estimated the value of the route permits on which the buses were plying at the time of the transfer at Rs. 75,000 and computed the gift-tax payable on that basis.

2. The matter was taken in appeal by the assessee to the Appellate Assistant Commissioner. It was contended by him that the route permits had not been transferred as they could not be transferred without the order of the Regional Transport Authority, and that, therefore, the value of the buses alone should be taken into account for computing the gift-tax. The Appellate Assistant Commissioner rejected this contention on the ground that the routes had actually been transferred in favour of the assessee on the joint application of the transferor and transferee, and that the assessee in fact had carried on the business of plying the buses on the routes in question and enjoyed the income therefrom.

3. There was a further appeal to the Tribunal. Before the Tribunal, in addition to the submissions made before the Appellate Assistant Commissioner, it was also contended that the valuation of the bus routes at Rs. 75,000 was excessive. The Tribunal took the view that there is definite monetary value for a route depending upon the earning capacityin the particular line and that it was futile to contend that the route permits were of no value at all. In support of that view the Tribunal referred to the decision of this court in G. Vijayaranga Mudaliar v. Commissioner of Income-tax, : [1963]47ITR853(Mad) . Before the Tribunal it was also contended that the decision of the Tribunal in wealth-tax proceedings in respect of the same assessee holding that these bus routes could not be valued for the purpose of the Wealth-tax Act applies to gift-tax proceedings as well. On the applicability of its decision rendered under the Wealth-tax Act to the gift-tax proceedings, the Tribunal has stated that the definition of ' asset' in Section 2(e)(1)(v) of the Wealth-tax Act excludes any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee and it is with reference to that 'provision the route permits which enured only for a period of three years were held to be not coming within ' the definition of 'asset' under that Act, and that in the Gift-tax Act there being no such provision that decision had no application. On the question of the quantum of the estimated value of the route bus the Tribunal felt that the assessee did not produce any evidence to show that the actual value of the bus routes was anything lesser than what the Gift-tax Officer had fixed, that the Gift-tax Officer had based his estimate on a comparable basis and that, therefore, there is no reason to interfere with the estimate made by the Gift-tax Officer.

4. At the instance of the assessee the Tribunal has referred to this court the following question:

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Appavoo Pillai was liable to be taxed under the Gift-tax Act by including the route permits referable to the buses gifted to Vimalan and Jayathilakan, as property forming the subject of the gifts and including the same in the assessments and estimating the value thereof at Rs. 75,000 '

Mr. Swaminathan, learned counsel for the assessee, contends that under the gift deed the assessee got only three buses and that permits had not been transferred in his name as permits could be transferred only by the Regional Transport Authority. The learned counsel also contends that even if there had been a gift of the bus routes in favour of the assessee unless the Regional Transport Authority permits such a transfer and transfers the permits in favour of the assessee, there cannot be a legal transfer of the permit. In our view, it is not possible to accept the said contention. For one thing the gift deed describes the three buses as :

Rs.Bus No. MDS. 3127 running between Dharmapuri to Erode via Salem valued at10,000Bus No. MDS. 2723 runningbetween Salem to Thali via Dharmapuri, Osur valued at5,000Bus No. MDS. 2776 running between Thalito Salem via Osur, Dharmapuri valued at5,000

and there is also the following provision :

' Hereafter you shall own and enjoy the buses with all absolute rights and be entitled to run the said buses in the routes operated by them and enjoy the income derived therefrom...... I shall apply to the RegionalTransport Officer, Salem, to change the permits in your name.'

Having regard to the above extracts from the gift deed it is not possible to say that the buses alone had been transferred to the assessee and not the bus routes. The above extracts clearly show that it is not only the buses but also the right to ply them on particular routes that have been conveyed under the documents. Section 59 (1) of the Motor Vehicles Act provides that a permit shall not be transferable from one person to another except with the permission of the transport authority which granted the permit and shall not without such permission operate to confer on any person to whom a vehicle covered by the permit is transferred any right to use that vehicle in the manner authorized by the permit. Section 61 provides for transfer of the permit on the death of the holder and the person succeeding to the possession of the vehicle covered by the permit can use the permit as if it had been granted to himself for a period of three months and thereafter apply to the transport authority for transfer of the permit in his name. Thus it is seen that there is no absolute prohibition of transfer of a route permit but it is only made subject to the permission of the transport authority which granted the permit. It is not in dispute that subsequent to the gift the requisition permission from the transport authority had been obtained on a joint application filed by the transferor and transferee and that in fact the assessee as a transferee is running the buses on the said routes and enjoying the income therefrom. In these circumstances, it is idle to contend that there was no transfer of the bus routes as such by the transferor to the assessee.

5. Then coming to the question as to whether the route permits had any value, we have to say that in this case as per the terms of the gift deed the buses have been transferred along with the route permits and that the value of the buses along with the route permits should be taken to be the value of the gifts. As pointed out by this court in G. Vijayaranga Mudaliar v. Commissioner of Income-tax:

' Neither the provisions of the statute nor the rules framed thereunder actually prohibit the receipt of consideration for a transfer of permit. It may be that the competent authorities under the Motor Vehicles Act may not allow a permit to be transferred for value lest it should encourage trafficking in permits. Buses have little value shorn of their permits to ply on particular routes. It is an open secret that when buses are transferred, the consideration paid by the purchaser of the vehicles is only commensurate with their earning capacity which is intimately connected with the routes on which they operate. But nevertheless no transferor admits having received any consideration for transfer of the permits and the transferee also never acknowledges that he paid any amount for annexing the routes along with the buses. We must observe that this pretence of non-payment of consideration for transfer of permits is nothing short of sheer hypocrisy. We can almost take judicial notice of the fact that whenever a bus with a permit is transferred a fair portion of the consideration would represent the value attributable to the pecuniary gain derived by operating on the routes.'

Mr. Swaminathan refers to the decision in Commissioner of Income-tax v. Krishna and Sons, : [1968]70ITR733(SC) to show that the question whether a right to ply a carriage under a permit granted by the transport authority is property or not has been left open by the Supreme Court. It is true the Supreme Court has not recorded its opinion on the question as to whether a route permit will be ' property '. But as we have taken the view in this case that on the terms of the gift deed there has been a transfer of buses with route permits, there cannot be any dispute that the gift was of 'property'.

6. The assessee's learned counsel, however, contends that, if the gift is taken to be that of buses along with the route permits, then it is not possible for the Gift-tax Officer to value them separately as has been done in this case. The learned counsel refers to the decision in State of Kerala v. P. P. Hassan Koya, A.I.R. 1968 S.C. 1201. In that case the Supreme Court said that the method which is generally resorted to in determining the value of the land with buildings especially those used for business is the method of capitalization of return actually received or which might reasonably be received from the land and the. buildings. Reference was also made to a decision of this court in Gouthamchand Galada v. Commissioner of Wealth-tax, : [1972]86ITR292(Mad) where this court held that, in respect of a property consisting of land and buildings, the land and the building cannot separately be valued and if it is possible its capitalised value should be adopted based on the actual income yielded by the property. In this case, though the Gift-taxOfficer has added Rs. 75,000 as the value of the routes to the written down value of the buses, it can only be taken that the officer felt that the value of the three buses with the route permits should be increased by Rs. 75,000. We, therefore, consider the estimate made by the Gilt-tax Officer at Rs. 1,06,390 as a composite one for the three buses along with the route permits. There is no material placed by the assessee in this case that the capitalised value based on the income from the concerned routes will be less than the aggregate sum estimated by the Gift-tax Officer.

7. We, therefore, answer the reference in the affirmative and against the assessee. The revenue will have its costs from the assessee. Counsel's fee Rs. 250.