Income Tax Appellate Tribunal - Cochin
Azad Rahim vs Gift-Tax Officer on 19 November, 2001
Equivalent citations: [2003]84ITD671(COCH)
ORDER
K.P.T. Thangal, Judicial Member
1. This appeal by the assessee relates to the assessment year 1996-97.
2. The appeal is delayed by 30 days and the delay is explained on account of the following circumstances : The assessee is a donee in the gift-tax assessment for the assessment year under consideration, the said assessment having been made on the assessee's mother, Smt. Fathima Rahim vide order dated 22-3-1999. Smt. Fathima Rahim filed an appeal against the said order and the same was dismissed by the CIT(A), Trivandrum, by his order dated 9-11-1999. The assessee along with other donees who were responsible to make the payment of tax due from Smt. Fathima Rahim approached the Hon'ble High Court of Kerala on receipt of a notice issued by the Assessing Officer on 19-11-1999 directing them to pay Rs. 26,23,721 together with interest as they are liable to make the payment by virtue of the provisions of Section 29 of the Gift-tax Act, 1958. In the meanwhile, assessee's mother, Smt. Fathima Rahim fell ill and was admitted in the intensive care unit at Benziayar Hospital, Kollam and later to the Medical College Hospital, Trivandrum. The treatment was going on. Under these circumstances, the assessee could not comply with the notice. Anticipating harsh actions from the Assessing Officer, the assessee filed an O.P. before the Hon'ble High Court of Kerala and the High Court while disposing of the O.P. granted six weeks time from 19-1-2000 to enable the petitioner-assessee to file an appeal before the Income-tax Appellate Tribunal. The assessee's learned counsel submitted that the delay was caused on account of the illness of the assessee's mother and requested to condone the delay in filing this appeal.
3. We have heard the learned departmental representative as well. Considering the facts brought on record and also the further fact that the assessee had approached the Hon'ble Kerala High Court and the High Court granted six weeks' time to enable the assessee to file an appeal before the Income-tax Appellate Tribunal and the attendant circumstances, we feel that the delay of 30 days in filing this appeal is to be condoned. We do so.
4. The assessee has urged as many as five grounds in this appeal. First and fifth grounds are general in nature and, therefore, they do not call for any specific dealing as such.
5. The second ground is a ground which was not directly urged before the learned first appellate authority. The assessee's learned counsel sought permission of the Bench to argue this ground as an additional argument in support of the assessee's contention. The ground is directed against the order of the learned CGT (Appeals) by which the assessee's learned counsel submitted that the authorities below had failed to determine whether there was a valid gift or not. This is so, because no transfer of property has taken place in respect of the 'B' Schedule properties allotted to the assessee. According to the assessee, the properties were already given by the assessee's mother to "Malik Dinar Educational Trust" in 1984 wherein the above trust was running "Fathima College of Pharmacy". The buildings and the equipments also belonged to the trust. Hence, according to the assessee there was no property left to be gifted to the assessee.
6. The facts leading to the present appeal as appearing in the orders of the Revenue authorities are as under : The assessee's mother, Smt. Fathima Rahim filed a return of gift on 25-2-1997 declaring taxable gift at 'nil'. There was no response to the hearing posted on 28-1-1998. Thereafter, for determining the fair market value of the gifted property, the matter was referred to the Valuation Cell on 2-9-1997. After further hearing, the assessment was completed under Section 15(3) of the Gift-tax Act, 1958 on 22-3-1999 determining the taxable gift at Rs. 74,80,750 for the assessment year 1996-97 under appeal. As per the document No. 1606 dated 20-4-1995, the properties belonging to the assessee and her husband, Sri A.A. Rahim, were gifted to their children and a minor grand-child. The document was jointly executed by the above two parties along with all the donees. It was the argument of the assessee that the settlement deed is not a valid gift according to Mohammedan Law and since the Transfer of Property Act, 1882 does not apply to the assessee and the donees, even the registered document does not establish a taxable gift.
7. Since Sri Azad Rahim, the assessee in this appeal, is one of the signatories to the settlement deed, the Assessing Officer issued a notice dated 19-11-1999 directing him to pay Rs. 26,23,72.1 together with interest thereon under Section 32(2) of the Gift-tax Act, 1958 immediately. The notice was issued to the assessee, since the donees were jointly and severally liable to pay gift-tax due from the donors by virtue of the provisions of Section 29 of the Gift-tax Act and for the further reason that the demand was outstanding for quite sometime. On receipt of the notice of the Assessing Officer, the assessee before us, viz., Sri Azad Rahim, approached the Hon'ble High Court of Kerala by way of an O.P. and the Hon'ble High Court stayed collection of the outstanding demand and directed the assessee, Sri Azad Rahim to file an appeal before the Tribunal within six weeks' time from 19-1-2000. Hence this appeal before the Tribunal.
8. While completing the assessment for the assessment year 1996-97 in the case of the assessee's mother, Smt. Fathima Rahim, the Assessing Officer noticed that as per settlement deed No. 1606 dated 20-4-1995, the assessee and her husband Sri A.A. Rahim had settled certain properties owned by them in favour of their children including a minor-child as aforesaid. Of these items, the Assessing Officer enumerated in the assessment order four items of properties gifted to four children including Sri Azad Rahim, the assessee in the appeal before us. The Assessing Officer noticed that all the properties specified in the assessment order had been acquired by the assessee's mother, Smt. Fathima Rahim by way of sale and she was the absolute owner. The gifts made were also subject to the condition that during her life time the properties gifted cannot be sold without her consent. He also found that the properties gifted were also intended for the absolute benefits of the donee without reserving any benefit to the donor. The assessee objected before the Assessing Officer for assessment of the impugned gifted property vide her letter dated 19-2-1999 for the following reasons :
There is no gift involved in the transaction. There is no gift of properties as per Mohammedan Law.
There is a clause in the Partition deed that during the life time of the assessee and her husband, A.A. Rahim the allottee shall not assign the properties without their consent and if so done that alienation would be void.
The transaction does not satisfy the conditions laid down for Muslim gifts. There is no declaration of gift which is necessary to constitute Muslim gift. There should also be complete relinquishment by the donor of ownership. But here in this case there is a clause prohibiting complete alienations without consent and treating such alienation as void. Hence it is not a true and valid Muslim gift.
In view of the above it is submitted that as the ingredients of a valid gift are absent, there is no element of gift involved in the transaction carried out by the assessee. The gift-tax proceedings may please be dropped.
The Assessing Officer overruled the objections raised by the assessee holding that the contention of the assessee that there is no gift of properties as per Mohammedan Law is not relevant to the assessee's case and that the value of the properties gifted is exigible to gift-tax irrespective of the religion to which the donor belongs. The Assessing Officer also held that Smt. Fathima Rahim was the absolute owner of the properties which were gifted to the children and that the donees concerned would be the absolute owners from the date of gift and they had the right to alienate the properties if they so desired. As aforesaid, the properties in question were referred to the Valuation Cell of the Department and the Valuation Officer estimated the value of the property gifted to the assessee, Sri Azad Rahim and others at Rs. 75,10,750 and after allowing the basic exemption of Rs. 3,00,000 arrived at the taxable gift at Rs. 74,80,750. Aggrieved by the above order, the assessee, Smt. Fathima Rahim approached the learned first appellate authority.
9. It was contended before the learned first appellate authority that Section 2 of the Transfer of Property Act, 1882, did not apply to Muslims who are governed by Mohammedan Law in the matter of gift. The learned representative of the assessee placed reliance on the Section 2 of the Transfer of Property Act, 1882 to contend that the ingredients of a valid Mohammedan gift were absent in this case. The learned CIT (Appeals) overruled this objection. He held that though the document is called "Dhanabishchayadharam", it was in fact, not so. It was clearly stated in this document that the "Dhanabischayadharam" was in consideration of the natural love and affections the donor had to the donees and not otherwise. It was because of this, the gift was made. However, there was a rider left to this gift that the property can be alienated during the life time of the donor only with the consent of the donor. But it was in unambiguous terms made clear that the properties were delivered with full freedom to enable the donees in whatever manner they would like to enjoy the properties except alienation. The assessee's representative further contended before the learned first appellate authority that the assessee is exempt from gift-tax by virtue of Section 5 of the Gift-tax Act, 1958. The learned CGT (Appeals) overruled this objection also. He held that the Assessing Officer was legally correct in completing the assessment under the Gift-tax Act, 1958.
10. As stated above, the Assessing Officer directed the assessee before us, viz., Sri Azad Rahim to pay the demand of Rs. 26,23,721 i.e., after passing the order by the learned first appellate authority on 9-11-1999 in the case of his mother, Smt. Fathima Rahim. Sri Azad Rahim, the assessee before us in this appeal approached the Hon'ble High Court and the Hon'ble Court while staying recovery of the demand directed the assessee, Sri Azad Rahim to file an appeal before the Tribunal. It is on the premises of the above facts that the assessee, Sri Azad Rahim has filed the present appeal before the Tribunal.
11. The case of the assessee is that even as per the facts available to the Department, there is no valid gift in so far as 'B' Schedule properties are concerned. It is because of the fact that late Sri A.A. Rahim, who founded the charitable trust, "Malik Dinar Educational Trust" in 1977 had set apart 'A' and 'B' Schedule properties, which were in the possession and enjoyment of the above trust. The object of the trust was to establish an Industrial Training Institute and other educational institutions for imparting education for the members of the backward communities and Muslims in particular. The board of trustees were the founder, Sri A.A. Rahim, the assessee and others. The 'B' Schedule properties said to have been gifted to Sri Azad Rahim, the assessee, were already in the possession and enjoyment of the trust at the time when the alleged gift was made. The building and the equipments were also owned and maintained by the said trust for running the educational institutions. Thus, the properties were already in the possession of the trust. The assessee's case is that in the above circumstances, there cannot be a transfer of the impugned properties subsequently and there cannot be an acceptance of the gift.
12. Further, it is the case of the assessee that there are shop buildings and the Valuation Officer should have adopted rent capitalisation method for fixing the value under Schedule III of the W.T. Rules, 1957. The learned counsel for the assessee submitted that the trust was founded in the year 1977 and the trust started Malik Dinar Industrial Training Institute in the year 1977 in A Schedule properties allotted to Sri Ansar Rahim, another donee and Fathima College of Pharmacy in 1984 in B Schedule properties allotted to Sri Azad Ansar, the assessee in this appeal. In 1995 there was a family partition. Some of the properties belonging to late A.A. Rahim and the mother of the assessee were included in the partition, which were, in fact, said apart for the trust. Both the above educational institutions were assessed to tax even prior to the date of assessment made in the hands of the assessee's mother. In the light of the above facts, the assessee's learned counsel for the assessee submitted that in the ratio of the decision of the Hon'ble High Court of Kerala in the case of Pokker v. Khadiya [2000] (1) KLT 430 since there was no declaration of gift, there was no acceptance of the gift by the donee. There was no delivery of possession. Hence none of the conditions required for a valid Mohammed gift is satisfied in this case and therefore the order of the Assessing Officer is liable to be set aside.
13. The learned departmental representative submitted that the argument advanced by the assessee that there was no property left to be gifted by the donor or to be received by the donee as the properties were already set apart for the trust which was running the educational institutions is contrary to facts. There may be an educational institution, but the fact emerges is that late A.A. Rahim was getting Rs. 6,000 per annum as annuity from the property which was offered to tax and was in fact taxed also. Since the trust is a private trust it is not exempt from tax. The assessee has not been granted any benefit under Sections 12A or Section 22 or 23 of the I.T. Act. Hence, the case of the assessee now advanced by his learned counsel that there cannot be a valid Mohammed gift is contrary to the established facts.
14. The learned departmental representative submitted that the argument advanced on behalf of the assessee that the provisions of the Transfer of Property Act, 1882 are not applicable to Muslims and, there-fore, the document, though registered, is invalid and registration effected by such invalid document cannot be made the basis for a charge of gift, etc., is not equally tenable. What is to be seen is that reliance was placed by the assessee on Section 2 of the Transfer of Property Act, 1882 for the proposition that nothing in the Second Chapter of Transfer of Property Act shall not be deemed to affect any rule of Mohammedan Law. The learned departmental representative submitted that the above contention of the assessee is not at all relevant and that the Transfer of Property Act does not come into picture at all in this case. He submitted that the issue in this appeal falls under Gift-tax Act. It is a special Act and, therefore, the subsequent special legislation have precedence over the older and general provisions. The only question is, or the important question is whether the property has been transferred from one individual to another without any consideration. The modalities adopted for a transfer are not of much consequences. The transfer had taken place during the previous year. Therefore, the assessee who was a party to the document executed cannot now say that the document is unsustainable in law. The trust is a private trust without any exemption from tax. The learned department representative, relying on the decision of the Hon'ble Kerala High Court in the case of Makku Rawther's Children v. Manahapara Charayil AIR 1972 Ker. 27, submitted that a gift made for pious purposes or to pious persons by a Muslim for securing spiritual benefit, falling into well recognised categories familiar in his religion such as a gift to a person who is required to recite Quran for the good of the donor's family may be saved by Section 129 of the Transfer of Property Act, but not a secular gift. In this case, the Hon'ble High Court of Kerala held that secular gifts in order to be valid, require registration under the provisions of Section 17 of the Registration Act. Hence, the learned departmental representative pleaded that the gift in the present case is exigible to tax. The learned departmental representative submitted that there is no doubt there is a gift. He further submitted that the mere wording Bhagapatbram does not alter the character of the gift. Only the father and mother of the assessee were holding rights of the properties as the properties were self-acquired properties. Their children and the minor grandson were having no preexisting legal rights even to a portion of the property said to be partitioned. The alleged transfer or partition was voluntary and without any consideration and therefore, it is nothing but a gift. The children and grandson cannot deny that they had not accepted the gifts they were also signatories to the document, by whatever name the document was described. The deed further assigns the institutions located in the gifted properties to the specified donees from that day giving them ownership rights. The argument of the assessee that there were no recitals in the deed handing over the properties is incorrect. The condition that if the donees desire to alienate the property during the life time of the donors they should obtain the consent or approval of the donors is a condition that has no sanctity, but such condition fail and not the gift. The applicability of Schedule III of the Wealth-tax Act resorting to rent capitalisation method is also without any merit.
15. In the case of a gift, the Gift-tax Act tells the mode of valuing the gifted property. Reference to the Valuation Officer of the Department was made in this case under Section 15(6) of the Gift-tax Act, 1958. The assessee was not responding to the notices issued by the Assessing Officer. Therefore, the learned departmental representative submitted, that the order of the Assessing Officer was rightly confirmed by the CIT(Appeals) and no interference is called for.
16. We have heard rival submissions and gone through the orders of the Revenue authorities, the relevant papers produced before the Bench and the decisions cited.
17. First of all, it is to be noted that Malik Dinar Educational Trust is a private trust and its income has not been exempted under Section 12A of the Income-tax Act, 1961. It is seen in the assessment order of Fathima College of Pharmacy run by Malik Dhinar Educational Trust, that the said institution has been collecting donations and charging fees with a view to make substantial profit. As per the trust deed it is seen that the trustees is allowed to sell or alienate any property as and when they deem it necessary. In other words, the trust can alienate the trust properties.
18. It is relevant to go through the alleged partition deed, which the assessee now contends, is invalid, as the properties had already been handed over to the trust. At page 4 of the partition deed 20-4-1995 it is mentioned -
The joint right, title and interest of persons named 1 to 7 and minor Muhammed Alim with all liabilities are extinguished and partitioned by this deed and from this day onwards each sharer shall separately possess and enjoy each schedule of property by payment of tax effecting mutation etc., as per this deed. Sharers shall pay the municipal tax, panchayat tax, current charge, water charge etc., duly charged to their names and enjoy the shop rooms and godowns in separate possession. They shall have all rights of conveyance as per the schedule and shall possess and enjoy the same accordingly for ever. The property in A schedule which is aforesaid Malik Dinar Industrial Training College, building, equipments and other assets shall be fully owned and occupied by the third named in his complete responsibility he shall continue the functioning with all income and expenditure dealt with by himself and all profits taken for him. He shall have all rights of conveyance, charge etc. in the buildings and property of Malik Dinar Industrial Training College with absolute right to be enjoyed for ever. The Fathima College of Pharmacy, equipments, buildings and all property therein belong to the 4th named with all rights of enjoyment, income, expenses enjoyment of profit and liabilities and rights of conveyance and the College of Pharmacy shall be in his absolute enjoyment for ever.
19. The case of the assessee is that the properties are not in the possession and enjoyment of the individuals, but in the hands of the trust. The first and second named in the partition deed have no rights to hand over the properties nor the donees have received the properties as the properties were already vested with the trust. It is difficult to accept this contention. Page 31 of the assessee's book, which is marked as Annexure 'O' is a certificate issued by the assessee's mother, Smt. Fathima Rahim dated 7-10-1986 as follows:
To Whomsoever it may concern :
This is to affirm that the property belonging to me in Survey No. 3308 at Kallumthazham, Kilikolloor. P.O. has been leased to Fathima College of Pharmacy, managed by the Malik Dinar Educational Trust, Kollam, for the functioning of the institution.
This would only indicate that the property in question has been leased out to the trust and the other party is at liberty to cancel the lease at any time. It is also the submission on behalf of the Revenue that the first named in the deed was getting Rs. 6,000 per annum as annuity. These all would go to show that the claim of the assessee that there is no property in the possession of the first and second named to hand over such a property by a deed of gift, nor the donees could accept such gift as the properties were already vested with the trust is a difficult proposition to accept.
20. Coming to the argument that the Transfer of Property Act does not apply to any rule of Mohammedan Law or override any part of the Mohammedan Law is also a very difficult proposition to accept. Section 2 of the Transfer of Property Act is a saving clause. It saves certain enactments, incidents, rights, liabilities etc. When the Act was introduced it was made applicable to Hindus, Buddhists and Muslims. But by an amendment in the year 1929, the words "Hindu" and "or Buddhist" were omitted retaining the word "Muslims." Section 2 of the Transfer of Property Act, 1882 further says that nothing in the second chapter of this Act shall be deemed to affect any rude of Mohammedan Law. (Emphasis supplied). The reason for this provision is that some of the rules relating to Mohammedan Law differ from the general rules as to the transfer of property enacted in Chapter II of the Transfer of Property Act, 1882. As per Mohammedan Law a property may be settled in perpetuity for the benefit of his/her descendants provided there is an ultimate gift in favour of charity. Under the Mohammedan Law, writing is not essential to the validity of a gift, but delivery of possession or of such possession as the subject-matter of the gift is susceptible of is necessary for a transfer by way of gift. Further, Section 2 of the Transfer of Property Act, 1882 saves some of the rules of Mohammedan Law. It does not necessarily follow that the general rules in Chapter II of the Transfer of Property Act cannot be made applicable to Mohammedan transfers at all. These rules are excluded only if there is an inconsistent rule of Mohammedan Law. Where there is no inconsistency between the laws, Section 2 in Chapter II applies proprio vigore, for all that Section 2 says is that nothing in Chapter II shall be deemed to affect any rule of Mohammedan Law.
21. As per Mohammedan Law, three conditions are to be satisfied to make a gift valid, such as -
(i) declaration of the gift by the donor;
(ii) acceptance of the gift, express or implied by or on behalf of the donee; and
(iii) delivery of possession of the subject-matter of the gift by the donor to the donee.
As mentioned in Section 150 of the Mohammedan Law. Delivery of possession or taking over of possession by the donee may be either actual or constructive. In the instant case of the assessee, it is to be seen that, in fact, the properties are self-acquired properties of the first and second named in the deed. Others are their children and a grandson. They had no rights whatsoever over the properties. It is mentioned in the deed that these properties are partitioned due to natural love and affection of the donors to the donees. There is no other consideration. Only because it is named as a partition deed, we are at a loss to understand how truly it becomes a partition. For a true partition there should be legally/necessarily conveyance of rights to the other parties and in the case before us, other than the first and second named, others have no any clear right in the properties, which is the subject-matter of the deed. As such, the mere statement - whether it is a partition or gift - or whatever it means, it is only a gift. What is to be seen is the reality and not the mere wording as the wording cannot defeat or circumvent the reality. The next point is whether there is a right for the first and second named in the properties so as to gift the properties. The second limb of the same question is, whether the parties named 3 to 8 could take possession of the properties or accept them. It is under these circumstances it is to be seen that Mrs. Fathima Rahim was in receipt of Rs. 6,000 per annum as annuity from lhe property transferred to the trust. The trust was only in possession of the property as a tenant. Even otherwise, the trust is a private trust and if all the trustees so desire, they can either sell the property or transfer it. The case of the assessee is that the gift in question is not in fact a gift at all because there was a rider attached to the gift, i.e. if parties 3 to 8 named in the partition deed desire to sell the property they shall do so after obtaining the consent or permission of the first and second named in the deed as they also should be made signatories to the deed, along with 3 to 8 named.
22. In this connection, it is relevant to read Section 164 of the Mohammedan Law, which is as under :-
164. Gift with a condition.- When a gift is made subject to a condition which derogates from the completeness of the grant, the condition is void and the gift will take effect as if no conditions were attached to it.
In the case of Muhammed Raza v. Abbas Bandi Bibi [1932] 59 IA 236, quoted by the learned author, Mulla on Principles of Mohammedan Law (Sixteenth Edition) [1968], at page 156, it is made clear that-
In the case of a gift, a restrict against alienation, whether absolute or partial, is void. In the case of a transfer for a consideration, it is valid if the restraint is partial, as where it is provided that the transferee shall not sell the property to any one but the members of the transferor's and transferee's family, but void if the restraint is absolute.
Here, in the instant case, it is only a restriction. Even if the condition is valid, because it is partial restriction, the gift does not become void. If this restriction is treated as absolute, then such condition is void. In either case, on the basis of the facts, it cannot be said that there is no gift in the instant case of the assessee. In this case, all the three ingredients are fulfilled.
23. It is to be seen, in the partition deed No. 1606/1995 dated 20-4-1995 there is no absolute prohibition of alienation of the properties. It only says that, if the signatories 3 to 8 to the document intend to alienate any property during the life time of the first and second named, these two persons should be made parties to such alienation. There is no absolute prohibition of alienation. The condition restricting the alienation is void and not the gift. We have, therefore, to hold that the above condition would mean that the first and second named should be made parties to the alienation and nothing more, since the properties with all rights have been received and accepted by the donees, they being signatories 3 to 8 of the deed. In extreme case it can be said that the condition is invalid. Therefore, we are unable to accept the proposition that there was no recital of the gift, that there was no property in the hands of the first and second named as the property was already in the possession of the trust and consequently 3 to 8 named in the deed could not and did not receive possession of the property said to have been gifted. It is also to be seen that Gift-tax Act is a code in itself. It is a specific law. The case of the assessee that: the properties should be valued under Schedule III of the Wealth-tax Act was rightly rejected by the learned first appellate authority. Section 6 of the Gift-tax Act, 1958 provides the mode for determination of the value of the gift and Section 15(6) of the Act states,-
Notwithstanding anything contained in Section 6, for the purpose of making an assessment under this Act, where under the provisions of Section 6 read with Schedule II, the fair market value of any property transferred by way of gifts is to be taken into account in such assessment, the Assessing Officer may refer the valuation of such property to the Valuation Officer,-
We, therefore, find no flaw in the action of the Revenue authorities in not accepting the assessee's claim that the valuation should have been done on rent capitalisation method as provided in Schedule III of the Wealth-tax Act.
24. Since we have already noticed that all the three conditions are satisfied in this case to make the gift valid, we find that the decision of the Kerala High Court relied on by the assessee's learned counsel in the case of Pokker (supra), is not applicable to the facts of the assessee's case. We therefore find no merit in the assessee's appeal.
25. In the result, the appeal is dismissed.