SINT. P.R. SUNDARI ACHI VS COMMISSIONER OF WEALTH TAX
1999 P T D 3790
[237 I T R 464]
[Madras High Court (India)]
Before N. V. Balasubramanian and P. Thangavel, JJ
Sint. P.R. SUNDARI ACHI
Versus
COMMISSIONER OF WEALTH TAX
T. C. Nos.1128 to 1132 of 1983 (References Nos.580 to 584 of 1983), decided on 28/11/1997.
Wealth tax---
---- Gift---Gifts by means of book entries---Assessment under Gift Tax Act does not prevent W.T.O. from inquiring into validity of gifts---Cash balance insufficient to cover gifts---Conduct of donor showing that she had divested herself of cash---Gifts valid to extent cash was available---Balance amount includible in total wealth of donor---Indian Wealth Tax Act, 1957, S.4(1)(a)---Indian Gift Tax, Act, 1958.
Under the proviso to clause (a) of subsection (1) of section 4 of the Wealth Tax Act, 1957, if any transfer of asset is chargeable to gift tax, then, the value of such asset cannot be included in the net wealth of the individual. The expression "chargeable" in the proviso to clause (a) of subsection (1) of section 4 of the Act, would show that there must be a valid gift and A was chargeable under the provisions of the Act. A wrong order made by the Gift Tax Officer would not stop or prevent the Wealth Tax Officer from inquiring into the validity of a gift.
In order to constitute a valid gift, there must be existing property. For a valid gift by book entries, there must be an amount available with the firm family or company as cash on hand. To the extent the amount was available with the donor there can be a valid gift.
The assessee an individual made certain gifts to her minor children of a sum of Rs.12,000 each on March 31, 1969, March 31, 1970, and May 1, 1970, by transfer of book entries. The Gift Tax Officer accepted the return filed by the assessee and levied gift tax. The Wealth Tax Officer also for some subsequent years accepted the validity of the gifts made in some of the subsequent assessment years. The Wealth Tax Officer subsequently in the assessment proceedings for the assessment years 1973-74, 1974-75, 1975-76, 1976-77 and 1977-78 found that the gifts were made by making book entries in the assessee's own books of account maintained in her money-lending business, but the money was neither available, nor actually delivered by the assessee to the donees who were minors, or to the guardian of the minors. He also found that on the respective dates of the alleged gifts, the cash balances were only Rs.9,130, R.1 1,810 and Rs.6,810 which were insufficient to make valid gifts and the assessee had not made any attempt to deliver the amounts to the donees and, therefore, he held that there were no valid gifts at all and included the sum of Rs.36,000 in the wealth tax assessment for the said assessment years. This was upheld by the Tribunal. On a reference:
Held, that the proviso to clause (a) of section 4(1) of the Wealth Tax Act, had no application to the facts of the case. The powers of the Wealth 'far Officer were derived from the powers of assessment conferred-on him under the relevant provisions of the Wealth Tax Act and subsection (5A) of section 4 of the Wealth Tax Act, is an enabling provision for inclusion in the net wealth of the assessee where the assessee fails to prove before the Assessing Officer that the money was actually delivered to the donees. The fact that the credit entry was not made during the assessment year would trot prevent the officer from exercising his powers of assessment vested under the relevant provisions of the Act. However, there were valid gifts to the extent of Rs.9,130 Rs.11,810 and Rs.6,810 for the respective years. The fact that the cash to the extent mentioned above was available with the assessee was not disputed. It was also relevant to notice that when the donor made gifts by book entries in her own books of account, the donees were minor children and the assessee in pursuance of her own book entries had expressed her intention of making a valid gift by making necessary entries and filed the gift-tax return which had also been accepted by the Gift Tax Officer. The fact that the donor had filed the gift tax return and paid the gift tax clearly showed that she had divested herself of the money in question at least to the extent it was available in her own accounts. In the assessee's wealth tax assessment, the amount includible would only be the balance of the amount after adjusting the amount of the cash balances when the gifts were made on March 31, 1969, March 31, 1970 and May 1, 1970.
CIT v. Dr. R. S. Gupta (1987)165 ITR 36 (SC); CWT v. Hashmatunnisa Begum (1989) 176 ITR 98 (SC); CED v. V. S. Suryanarayanan (1978) 114 ITR 599 (Mad.); K. P. Varghese v. ITO (1981) 131 ITR 597 (SC); K. V. Iyer v. CIT (1995) 215 ITR 461 (Mad.) and Sukhlal Sheo Narain v. CWT (1973) 89 ITR 157 (P&H) ref.
P. P. S. Janarthana Raja for the Assessee.
C. V. Rajan for the Commissioner.
JUDGMENT
N. V. BALASUBRAMANIAN, J.---The assessee is an individual. The assessee made certain gifts to her minor children of a sum of Rs.12,000 each on March 31, 1969, March 31, 1970 and May 1, 1970 by transfer of book entries. The Gift Tax Officer accepted the return filed by the assessee and levied the gift tax. The Wealth Tax Officer also for some subsequent years accepted the validity of the gifts made in some of the subsequent assessment years. The Wealth Tax Officer subsequently in the assessment proceedings for the assessment years 1973-74, 1974-75, 1975-76, 1976-77 and 1977-78 found that the gifts were made by making bo6k entries in the assessee's own books of account maintained in her money-lending business, but the money was neither available, nor actually delivered by the assessee to the donees who were minors, or to the guardian of the minors. He also found that on the respective dates 6f the alleged gifts, the cash balances were only Rs.9,130, Rs.11,810 and Rs.6,810 which were insufficient to make valid gifts and the assessee had not made any attempt to deliver the amounts to the donees and therefore, he held that there were no valid gifts at all. He included the sum of Rs.36,000 in the wealth tax, assessments for the said assessment years.
The assessee preferred appeals before the Appellate Assistant Commissioner against the orders of assessment. The Appellate Assistant Commissioner noticed that gift tax was levied in respect of the above gifts, and, therefore, it is not open to the Wealth Tax Officer to challenge the validity of the gifts and levy tax once again under the provisions of the Wealth Tax Act causing jeopardy to the assessee. He further held that the provisions of section 4(5A) of the Wealth Tax Act which was introduced only with effect from April 1, 1976, have no retrospective operation and, therefore, the amounts cannot be included in the net wealth of the assessee.
Aggrieved by the order of the Appellate Assistant Commissioner, the Revenue preferred appeals before the Income-tax Appellate Tribunal. The Tribunal held that the gifts were not valid as on the respective dates the assessee did not have the requisite cash balance and the donor had not made available the cash to the donees and there is nothing to show that the gifts were accepted by and on behalf of the donees. Therefore, the Tribunal came to the conclusion that there were no valid gifts at all and the sum of Rs.36,000 is liable to be included in the net wealth of the assessee for all the years The Tribunal also held that the provisions of section 4(l)(a) of the Wealth Tax Act are not applicable as the gifts were not valid gifts and the gifts were not chargeable to gift tax and, therefore, the proviso to section 4(1)(a) of the Wealth Tax Act did not apply. The Tribunal came to the conclusion that the mere fact that gift tax assessments were wrongly made would not prevent the Assessing Officer to make proper assessment under the Wealth Tax Act. The Tribunal, however, did not agree with the contention of the Revenue that the provision of section 4(5A) of the Act was? retrospective in nature and held that the said provision is prospective in nature.
Aggrieved by the order of the Appellate Tribunal, the assessee has sought for and obtained a reference and pursuant to the directions of this Court ill T. C. P. Nos. 245, 284, 308 and 361 of 1981, dated April 19, 1982, the Appellate Tribunal has stated a case and referred the following question of law for the consideration of this Court:
"Whether the gifts made by the assessee on March 31, 1970 and May 1, 1970, to the minor sons are includible in the assessee's wealth tax assessment?"
Mr. P. P. S. Janarthana Raja, learned counsel for the assessee, submitted that under the proviso to section 4(1)(a) of the Wealth Tax Act, 1957 (hereinafter to be referred to as "the Act"), the amounts gifted cannot be included in the assessment of the assessee as the gifts were made during the period mentioned under the proviso and the gift tax was also levied by the Assessing Officer. Counsel for the assessee further submitted that it is not the case of the revenue at any time that the provisions of section 4 of the Act were not attracted and the Wealth Tax Officer cannot question the validity o_` the gifts in the wealth tax proceedings. It is submitted that it is only after the introduction of section 4(5A) of the Act, the Wealth Tax Officer has the jurisdiction to go into the question of validity of the gifts made by the transfer of books entries and since the gift tax was levied, it is not open to the Wealth Tax Officer to include the same amount in the hands of the assessee. He relied upon the decision of this Court in the case of K. V , lyer v . CIT (1995) 215 ITR 461, and the decision of the Supreme, Court in the case of. CWT v. Hashmatunnisa Begum (1989) 176 ITR 98. He further submitted that the Gift Tax Act, Wealth Tax Act and Income-tax Act are all integrated tax codes and when a tax has been levied under any one of the provisions, it is not permissible for the Revenue to invoke other provisions of the. Acts as per the decision of the Supreme Court in the case of K. P. Varghese v. ITO (1981) 131 ITR 597.
Mr. C. V. Rajan, learned counsel for the Revenue submitted that the provisions of section 4 of the Act were not invoked as the gifts were not valid gifts, and. it is open to the Wealth Tax Officer to include the amount in the hands of the assessee. He also submitted that since the provisions of section 4 of the Act were not invoked, the proviso to section 4(1)(a) of the Act has no application to the facts of the case. He also submitted that the levy of gift tax does not prohibit the Wealth Tax Officer to include the amount of the gifts as the gifts were found to be not valid at all, and the decision of this Court in K. V. lyer's case (1995) 215 ITR 461 has no application to the facts of the case as in that case, the proviso to section 4(1)(a) of the Act was applied. He relied upon the decision rendered by the Supreme Court in the case of CIT v. Dr. R. S. Gupta (1987) 165 ITR 36, and submitted that there are no materials to show that the gifts were valid and the entire amount is liable to be included in the net wealth of the assessee.
We have carefully considered the rival submissions of learned counsel. It is no doubt true that the gift tax was levied when the assessee transferred Rs.12,000 each by way of book entries to minor children on March 31, 1969, March 31, 1970 and May 1, 1970,. It is not disputed that the respective .cash balances on those dates were only Rs.9,130, Rs.11,810 and Rs.6,810. Though the gift tax (was levied), the Wealth Tax Officer held that there was no, valid gift as cash balances in the account books of the assessee were not sufficient to cover the transfer made by book entries. The Appellate Tribunal found that there was no valid gift at all of Rs.12,000 each aggregating to Rs.36,000, and, therefore, it is not possible to accept the contention of Mr. Janarthana Raja, learned counsel for the assessee, that since the gift tax has been collected from the assessee, it is not open to the Wealth Tax Officer to question the validity of gifts for a sum of Rs.36,000. The legal effect df holding that the transactions were invalid is that there were no valid gifts in the eye of law and the money continued to remain with the assessee. When that is the legal effect of a valid gift, we are of the view that a wrong order made by the Gift Tax Officer would not clothe a right on the part of the assessee to claim that the amount should not be assessed under the Wealth Tax Act. It is known that two wrongs cannot make a right. Similarly, when the gifts were found to be invalid by the Appellate Tribunal, the gifted amounts are liable to be included in the hands of the assessee.
Mr. Janarthana Raja, learned counsel for the assessee relied upon the provisions of the proviso to subsection (1)(a) of section 4 of the Wealth Tax Act and submitted that this Court in K. V lyer v. CIT (1995) 215 ITR 461, held that where an assessee is subjected to gift tax and the gift tax has been charged on the said gifts for any assessment year commencing after March 31, 1964, but before April 1, 1972, the amount is entitled to be excluded from the wealth tax. We are of the view that the decision relied upon by learned counsel for the assessee4tas no application to the facts of the case. It is not a case of application of section 4 of the Wealth Tax Act by which the asset in the hands of the transferee is included in the hands of the assessee. On the other hand, it is a case where the gifts were held to be void and because of the voidness of the gifts, the amount is included in the hands of the assessee on the ground that there was no transfer of assets by the assessee in favour of the minor children. It is well-established that a pre?requisite condition for the applicability of subsection (1) of section 4 of the Wealth Tax Act is a valio transfer to the assets in favour of the specific persons and when there is no transfer at all the question of applicability of section 4 of the Wealth Tax Act does not arise and, consequently, the proviso to section 4(1)(a) of the Act does not apply. The decision in K. V. lyer's case (1995) 215 ITR 461 (Mad.), is a case arising under subsection (1) of section 4 of the Wealth Tax Act and in that context, the proviso to subsection (1)(a) of section 4 of the Wealth Tax Act was held to be attracted. It is also relevant to notice the decision of the Supreme Court in the case of CWT v. Hashmatunnisa Begum (1989) 176 ITR 98, wherein the Supreme Court was dealing with a case of an interpretation of the proviso to subsection (1)(a) of section 4 of the Wealth Tax Act and the Supreme Court while holding that the expression, "for any assessment year" commencing after March 31, 1964, found in the proviso to section 4(1)(a) of the Wealth Tax Act would apply to gift tax assessment, held that where the assessee transferred certain assets before the notified date, which did not attract the proviso to clause (a) of subsection (1) of section 4 of the Wealth Tax Act, the amount was to be included in the wealth tax proceedings though the gifts were chargeable to gift-tax. The decision of the Supreme Court makes it clear that though the gift tax was levied in respect of certain gifts, still the amount is liable to be included under the relevant provisions of the Wealth Tax Act. It, therefore, cannot be stated as a general proposition of law that whenever there is a levy of gift-tax, the Wealth Tax Officer is precluded from levying wealth tax on the amount gifted, even if there was a valid gift.
Mr. Janarthana Raja, learned counsel for the assessee, submitted that under the proviso to clause (a) of subsection (1) of section 4 of the Act, if any transfer of asset is chargeable to gift-tax, then, the value of such asset could not be included in the net wealth of the individual. We have already held that the proviso to clause (a) of subsection (1) of section 4 of the Act has no application to the facts of the case. Secondly, that the gift tax was actually charged does not mean that the gift tax was chargeable and the expression, "chargeable" only contemplates a valid gift. Therefore, a wrong decision of the Gift Tax Officer would not estop or prevent the Wealth Tax Officer from coming to a right conclusion. Therefore, the expression, chargeable" in the proviso to clause (a) of subsection (1) of section 4 of the Act would show that there must be a valid gift and it was, chargeable under the provisions of the Act.
The next submission of Mr. Janarthana Raja, learned counsel for the assessee, is that only after the introduction of subsection (5A) of section 4 of the Act, it is open to the Wealth Tax Officer to go into the question of the validity of the gifts by book entries. We are of the view that the powers of the Wealth Tax Officer to include the amount in question are derived from the powers of assessment conferred on him under the relevant provisions of the Wealth Tax Act and subsection (5A) of section 4 of the Act is an enabling provision for inclusion in the net wealth of the assessee where the assessee fails to prove before the Assessing Officer that the money was actually delivered to the donees. The fact that the credit entry was not made during the assessment year would not prevent the officer from exercising his powers of assessment vested under him under the relevant provisions of the Act. Therefore, we are not able to accept the contention of learned counsel for the assessee that the Wealth Tax Officer has no power to determine the question whether there was a valid gift or not.
The next question that arises is whether the inclusion of Rs.12,000 each for all the three assessment years is valid in law. As already stated, at the time when the gifts were made by book entries on March 31, 1969, March 31, 1970 and May 1, 1970, there were cash balances of Rs.9,130, Rs,11,010 and Rs.6,810 respectively. The question regarding the validity of the gifts by book entries came up for consideration before the Supreme Court in the case of CIT v. Dr. R. S, Gupta (1987) 165 ITR 36 and the Supreme Court held as under (headnote):
"In order to constitute a valid gift, there must be existing property. Where the donor makes a gift of an amount by transfer entries from the credit account which he has with a firm, 'Hindu undivided family or company, and that amount is available with the firm, family or company as cash on hand on the date of the gift, then a valid gift by book entries is possible. But, where the firm, family or company does not carry on banking businesses and does not have any overdraft facilities and the amount is not available with it, mere book entries in the accounts will not effectuate a valid gift, even though there is acceptance of that gift. "
The decision of the Supreme Court makes it clear that for a valid gift by book entries, there must be amount available with the firm, family or company as cash on hand, that too, to the extent the amount was available with the donor there can be a valid gift. We are of the view that in the instant case, there were valid gifts to the extent of Rs.9,130, Rs.11,810 and Rs.6,810 for the respective years. Mr. C V. Rajan, learned counsel for the Revenue, however, contended that gifts were made by way of book entries in the assessee's own accounts and there is no indication that the donees have accepted the gifts and there was no delivery of goods in favour of them. In support of his submission, learned counsel for the Revenue relied upon a decision of the Punjab and Haryana High Court in the case of Sukhalal Sheo Narain v. CWT (1973) 89 ITR 157, and submitted that a distinction should be drawn between cases where entries are made in the books of account of the donor and in the books of account of the donees and cases where the donor proposed to effect transfer by making entries in his own books of account. He, therefore, submitted that since the donor is the proprietrix of the concern and entries were made in her own books of account, in the absence of any evidence to show that the donees have accepted the gifts, the gifts cannot be regarded as valid gifts even to the extent of cash available with the donor on the respective dates, when the book entries were made. However, we are unable to accept the contention of learned counsel for the Revenue. The fact that the cash to the extent mentioned above was available with the assessee is not disputed before us. It is also relevant to notice that when the donor made gifts by book entries in her own books of account, the donees were minor children and the assessee in pursuance of her own book entries had expressed her intention of a valid gift not only by making necessary entries and filed gift tax return which was also accepted by the Gift Tax Officer. The fact that the donor has filed the gift tax return and paid the gift tax clearly shows that she has divested herself the money in question at least to the extent it was available in her own accounts. Therefore, we hold that the view of the Appellate Tribunal that there is nothing to show that the donees have accepted the gifts and the donor had divested the money was arrived at without appreciation of the full facts of the case. The conduct of the donor clearly shows that the donor had divested herself of the money by delivering the same. In the decision in CED v. V. S. Suryanarayanan (1978) 114 ITR 599, this Court held that where there is a complete gift of money by making credit and debit in the proprietary concern of the donor and the money was available in the proprietary concern, and there was no restriction for the donor in the matter of disposal of the money and when there is no dispute about the acceptance of the gift by the donee, the gift was held to be valid. In the instant case, admittedly, though the donees have not expressly stated that they have accepted the gifts, the fact that the gifts were acknowledged by filing gift tai return and the payment of gift tax was also made would clearly show that there were valid gifts at least to the extent of the amount available to the proprietary concern of the donor. Therefore, we are of the view that the Tribunal was not correct in holding that there were no valid gifts at least to the extent available to the proprietary concern. In this view of the matter, though we uphold the order of the Appellate Tribunal that the-gifts made by the assessee on March 31, 1969, March 31, 1970 and May 1, 1970, are includible in the assessee's wealth tax assessment, the amount includible will only be the balance of the amount after adjusting the amount of the cash balances when the gifts were made on March 31, 1969, March 31, 1970 and May 1, 1970.
The question of law referred to us only refers to two gifts made on March 31, 1970 and May 1, 1970, and it appears that there is omission with regard to the gift made on March 31, 1969, in the question of law referred to us. Obviously, it is a typographical mistake and the question will be read by including the gift made by the assessee on March 31, 1969. Accordingly, we hold that the gifts made on March 31, 1969, March 31, 1970 and May 1, 1970, are includible in the assessee's wealth tax assessment, but only to the extent of the balance amount over, the cash balance at the time of gifts. We answer the question .of law accordingly. There will be no order as to costs.
M.B.A./4200/FC???????????????????????????????????????????????????????????????????? Question answered.