Orissa High Court
Polaki Buchi Babu vs Commissioner Of Gift-Tax on 20 January, 1987
Author: R.C. Patnaik
Bench: R.C. Patnaik
JUDGMENT H.L. Agrawal, C.J.
1. The Income-tax Appellate Tribunal, Cuttack Bench, has stated a case under Section 26(3) of the Gift-tax Act, 1958 (for short, "the Act"), and has referred the following question of law for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the transaction of throwing a sum of Rs. 2,45,599 on March 31, 1972, into the common hotchpot constituted a gift as defined by the amending Act so as to be liable to tax thereunder for the assessment year 1972-73 ?"
2. During the accounting year 1971-72 (ending on March 31, 1972), the petitioner, Polaki Buchi Babu, was a partner in the firm, M/s. Polaki Srirangam and Sons. On March 31, 1972, he put his share capital of Rs. 2,45,599 in the common hotchpot of the joint family consisting of himself, his wife and children. He, however, did not submit any return under the Act under the impression that it did not amount to a gift within the meaning and mischief of Section 4(2) of the Act. The Gift-tax Officer, however, issued notice to the petitioner under Section 16(1) and another notice under Section 15(4) of the Act and completed the assessment under Section 15(5) holding that the blending of the share capital in the joint family account amounted to a gift within the meaning of Section 4(2) of the Act, and the share of the five members of the petitioner's family being Rs. 2,04,670 was liable to be assessed to gift-tax. Accordingly, by his order dated December 7, 1976, he assessed the said amount to gift-tax.
3. The petitioner challenged the order before the Appellate Assistant Commissioner of Income-tax, Berhampur. But save and except a reduction of Rs. 5,000, being the extent of the initial exemption under Section 5(2) of the Act, he failed. He also failed before the Tribunal and his attempt for making a reference to this court also failed. Accordingly, he made the present application under Section 26(3) of the Act and a statement was called for. The Tribunal has referred the above question of law for the opinion of this court.
4. Before referring to the relevant provisions of the Act, I may indicate that the whole argument of the petitioner is based upon the fact that on March 31, 1972, when the petitioner blended his share capital in the common hotchpot, the amending Act had not come into force and, therefore, the transfer of his share capital did not amount to making of a gift.
5. Let us now see the relevant provisions of the Act. Section 2(xii) of the Act defines "gift" in these words:
"'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 or conversion of any property referred to in Section 4, deemed to be a gift under that section)."
6. The bracketed portion in the definition was substituted for "and includes the transfer of any property deemed to be a gift under Section 4" by the Finance (No. 2) Act, 1971, with effect from April I, 1972.
7. This brings us at once to Section 4 of the Act. In Section 4, which enumerates certain transfers to be held as gifts, Sub-section (2) was added by the said amending Act of 1971 with effect from the same date, i. e., April 1, 1972, and it reads as follows :
"4. (2) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family (such property being hereafter in this sub-section referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, for the purpose of computation of the taxable gifts made by the individual, the individual shall be deemed to have made a gift of so much of the converted, property as the members of the Hindu undivided family other than such individual would be entitled to, if a partition of the converted property had taken place immediately after such conversion." (emphasis* supplied)
8. It is by virtue of this amendment that the assessing authorities have held that the blending of the share capital in the common hotchpot was a taxable gift within the meaning of the Act. It is worthwhile to notice that the Finance (No. 2) Act, 1971, is Act No. 30 of 1971, the provisions of which were enforced with effect from April 1, 1972. But it purported to give effect to the financial proposals of the Central Government for the financial year 1971-72. Nobody, therefore, can be said to be taken by surprise as, although the Act was made enforceable with effect from April 1, 1972, it was very much published in the Gazette of India on August 10, 1971.
9. The main contention of Mr. Mohanti is that on March 31, 1972, when the petitioner blended his share capital, the act of blending did not amount to an act of making a gift by the petitioner as, on that day, according to the definition of "gift", this did not amount to a gift within the meaning of Section 2(xii) of the Act. Learned counsel further submitted that inasmuch as the amending Act was not made retrospective and was only prospective, it would not apply to any transaction of gift which had taken place prior to the date of coming into force of the amending Act.
10. In order to appreciate this submission, it is relevant to see Section 3, the charging section, which reads as follows :
"3. Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the 1st day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the first day of April, 1957) at the rate or rates specified in the Schedule."
11. It is clear that under Section 3, gift-tax is charged for every "assessment year" in respect of the gift made in the " previous year "commencing on and from the 1st April of that year. April 1, 1972, being the relevant date when the amending provisions had come into force, on the face of it, for the previous year which ended on March 31, 1972, the transaction of blending by the petitioner of his share capital became exigible to gift-tax. When a certain provision is made applicable to a certain assessment year, it automatically means that it had applied to the events of the previous year and no further enactment is necessary for that purpose because that intention is quite clear from the charging section (Section 3) of the Act. Inasmuch as the Legislature did not intend otherwise, obviously Section 4(2) would hit all transactions made during the previous year relating to the assessment year 1972-73, read with Section 3 of the Act by express language as well as by necessary implication. I find full support for this view from the case of Salam Abood v. GTO [1971] 81 ITR 688 (AP).
12. The scheme of Section 3 of the Gift-tax Act, being similar to that of Section 4 of the Income-tax Act, some cases under the Income-tax Act may also be noticed which are relied upon by learned standing counsel for the Department.
In the case of CIT v. Isthmian Steamship Lines [1951] 20 ITR 572, while dealing with the case under the Income-tax Act, the Supreme Court held as follows (p. 577) :
"It will be observed that we are here concerned with two datum lines : (1) the 1st of April, 1940, when the Act came into force, and (2) the 1st of April, 1939, which is the date mentioned in the amended proviso. The first question to be answered is whether these dates are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. The first datum line therefore affected only the assessment year of 1940-41, because the amendment did not come into force till the 1st of April, 1940. That means that the old law applied to every assessment year up to and including the assessment year 1939-40."
13. In the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262, the Supreme Court held that the Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment of that year.
14. In the case of Reliance Jute and Industries Ltd. v. CIT [1979] 120 ITR 921, the Supreme Court reiterated the same view and held that it is a cardinal principle of tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication.
15. Taking into view all the facts and circumstances of the case, the authorities and the scheme of the Act, it must be held that the Tribunal has taken a correct view of the law in holding that the blending of Rs. 2,45,599 by the petitioner on March 31, 1972, with the joint family assets was a gift within the meaning of Section 2(xii) of the Act and thus liable to gift-tax under Section 3 read with Section 4(2) of the Act for the assessment year 1972-73. The answer to the question must, therefore, be given against the assessee and in favour of the Department.
16. Accordingly, the question is answered against the assessee. Since the dispute raised by the petitioner-assessee is a frivolous one, he must pay costs to the Department. Hearing fee is assessed at Rs. 250 (Rupees two hundred fifty).
R.C. Patnaik, J.
17. I agree.