Income Tax Appellate Tribunal - Ahmedabad
Gift-Tax Officer vs Rajmata Shanta Devi P. Gaekwad on 1 February, 2001
ORDER
Shri R.K. Bali, Accountant Member
1. These two cross appeals; one by the Revenue and the other by the assessee are directed against the order dated 25-11-1982 passed by the learned Commissioner of Gift-tax (Appeals), Baroda.
2. Briefly the facts are that the assessee is an individual assessed to tax with the Assessing Officer, Central Circle-II, Baroda. During the previous year relevant to the assessment year 1973-74 the assessee made several gifts and he filed a return of taxable gift at Rs. 4,32,224. The Assessing Officer, however, made the assessment of total gift at an amount of Rs. 1,36,48,110. On appeal, the learned Commissioner of Gift-tax (Appeals), Baroda allowed relief in the valuation of taxable gift to the extent of Rs. 84,87,837 and upheld the value of taxable gift at Rs, 50,12,163. Against the order of the Commissioner (Appeals), the Revenue as well as the assessee both have filed these appeals.
3. The difference between the value of taxable gift returned and those assessed by the GTO, and relief allowed by the Commissioner (Appeals) have been for the following reasons :
4. By four Gift Deeds dated 30-3-1973, the assessee made gifts of certain properties to two donees concomitantly vesting certain properly rights with the first Donee - a Private Limited Company and vesting, absolute rights to obtain certain specified sums of money with the second Donee - the Charitable Trust under each of the Gift deeds. The assessee under each of the Gift Deeds gifted certain sums lying in his credit in the partnership firm M/s. Gaekwad Real Estate Traders in which he was a partner. Thus it appears that the actionable claim was gifted to a Company and a Charitable Trust concomitantly. The Donee Company was given the possessory rights absolute, of whole of the actionable claim so gifted and the Charitable Trust was vested with the right, title and interest in certain sums that the Company should pay annually to it. Such payment to be made by the Company to the Charitable Trust is provided by the Donor -the assessee as an obligation cast upon the Company while making the gifts causing it to be an onerous gift in the hands of the Company. The Company which is the first Donee under the Gift Deed has accepted such gift alongwith the obiigations; the Charitable Trust which is the second Donee has been vested with rights to enforce the annual payments to be made by the Company even through the legal processes of Court proceedings.
5. The allocation of stamp duty payable between the two Donees, was proportionately provided in proportion of the quantum of gifts that each Donee was to receive under the Gift Deed. As to the present value of the gifts to each of the two Donees, the actuarial valuation was made. The details of the properties gifted, the names of the Donees and the value of gift received by each Donee as per the return of gift filed are as under :
Property Gifted Donees Value of the Gift received by each Donee (as per the Actuarial Valuation Report)
1.
Rs. 30,00,000 standing to the credit of Shrimant P.P. Gaekwad with M/s. Gaekwad Real Estate Tinders
(i) M/s.
Anjana Dealers (P.) Ltd.
(ii) M/s. Shaniadcvi Gaekwad Charities Rs. 97,161 Rs. 29.02,839 2, Rs. 30,00,000 standing to the credit of Shrimant P.P. Gaekwad with M/s. Gaekwad Real Estate Traders
(i) M/s- Samar-Man Made Fibers Pvt. Ltd.
(ii) Sir Sayajirao Gaekwad Charities Rs, 97,161 Rs. 29,02,839
3. Rs. 30,00,000 standingShrimant F.P. Gaekwadwith M/s. Gaekwad Real Estate Traders
(i) M/s. Praiap Inv. (P.) Ltd.
(ii) Sir Praiapsinhrao Gaekwad Charities Rs. 97,161 Rs. 29,02,839
4. Rs. 17,50,000 standing to the credit of Shri H.P. Gaekwad with M/s. Gaekwad Real Eslaie
(i) M/s. Gaekwad Agencies (P.) Ltd.
(ii) Sangrarnsinh Gaekwad Rs. 56,677 Rs. 16,93,323
5. Rs. 17,50,000 standing to the credit of Shri F.P. Gaekwad with M/s. Gaekwad Real Estate Traders
(i) M/s. Gaekwad Agencies (P.) Ltd.
(ii) Ranjitsinh Gaekwad Rs. 56,677 Rs. 16,93,323
6. Rs. 10,00,000 standingto the credit of Shri F.P. Gaekwad with five
(i) Alaukik Trading and investment Pvt. Ltd.
(ii) Gaekwad Foundation Rs. 32.387 Rs. 9,67,613 The value of property gifted to the Charitable Trusts which arc enjoying exemption under section 80G of the I.T. Act are claimed as exempt under section 5(1)(v) of the Gift-tax Act, 1958. The GTO however adopted the value of the respective credit balances transferred by the assessee to the Donee Companies as the value of gifts involved and declined to reduce such value by the values, if any, for the stipulations, in regard to the payments made to the Charities. According to the GTO, the stipulations in regard to the payments to the Charities were mere promise and were not existing properties. By referring to the definition of "gift" as per the Transfer of Property Act and the Gift-tax Act, the GTO inferred that under the law, gift was possible only that of an existing property and hence there was no gift to the Charities in the eyes of law. The GTO as well as the Commissioner (Appeals) have taken into consideration one of the Gift Deeds as a sample and applied their reasoning to all other Gift Deeds which were similarly drafted. In the case of gifts made by the assessee to M/s. Pratap Investment (P.) Ltd., the gift was of credit balance of Rs. 30,00,000, out of a credit balance of Rs. 1,20,00,000 lying to the credit of Donor's account with the firm M/s. Gaekwad Real Estate Traders the partnership firm. The stipulations contained in para-3(i) alongwith sub-clauses (a) and (b) thereof are relevant and they are as under :
"3(i) In consideration of the premises, the Donor hereby stipulates and the Donee hereby covenants with the Donor that-
(a) For a period of five accounting years from 1st April, 1973, an amount equal to the entire annual net income accruing or arising from or by virtue of the said properties shall be paid by the Donee to Sir Pratapsinghrao Gaekwad Charities subject, however, to a maximum of Rs. 2,10,000 (Rupees Two lakhs ten thousand only) per annum; and
(b) For a further period of fifty accounting years thereafter a sum of Rs. 1,80,000 (Rupees one lakh eighty thousand only) every years shall be paid to Sir Pratapsinghrao Gaekwad Charities provided that if and when the net annual income accruing or arising from or by virtue of the said properties exceeds Rs. 1,80,000 (Rupees One lakh eighty thousand only) a further sum equal to such excess upto Rs. 30,000 (Rupees Thirty thousand only) shall also be paid by the Donee to Sir Pratapsinghrao Gaekwad Charities."
Similarly para-4 is also relevant which is in the following terms :
"4. The payment to be made by the Donee to Sir Pratapsinghrao Gaekwad Charities shall form a first charge and claim on the entire income accruing or arising to the Donee from all the assets of the Donee."
From these stipulations, the learned Commissioner (Appeals) inferred that there was over-riding title in favour of the Charities in respect of the amounts stipulated to be given to the Charities. The Donee Company was under an obligation to make stipulated payments to the Charities and hence it was not a case of clean gift of credit balance of Rs. 30,00,000. The stipulations of payments to the Charities were accepted by the Donee Company and what is really important is that the acceptance of the terms and stipulations of the gift tax deed is recorded in the Gift Deed itself on behalf of the concerned Charities viz. Sir Pratapsinghrao Gaekwad Charities. Accordingly, the learned Commissioner (Appeals) held that the stipulations of payments to the Chanties are binding on the Donee and they have been accepted as such by the Donee and the Charities and the payments stipulated for the Charities would constitute over-riding title. The Commissioner (Appeals) then proceeded to quantify the value of gift to the Chanties in the Gift Deed relating to M/s. Pratap Investments (P.) Ltd. with the stipulations of payments to Sir Pratapsinghrao Gaekwad Charities. The value of gift to the Charities has been laken at Rs. 29,04,000 leaving the balance of Rs. 96,000 as value of taxable gift to the Company and it is mentioned in the Gift Deed that stamp duty is paid on that basis. In support of such valuation the assessee has filed a Valuation Report dated 21-4-1973 from Shri P.B. Agashe. In the said valuation report the gift to Charities has been valued at Rs. 29,02,839 leaving the taxable element of gift to the Company at Rs. 97,161. The relevant portion of the Valuation Report dated 21-4-1973 is extracted by the Commissioner (Appeals) in his order as under :
"Since the Donee has accepted the gift with the stipulated conditions, he must be confident of getting a minimum yield of Rs. 1,80,000 per annum on the Fund Property which is required to keep the corpus of the Gift Property intact. We may, assume, therefore, that the corpus of the gift property will never be required to be drawn upon to meet the future annual payments. Further in the absence of any past experience to guide and taking a long term view I do not think that net income would exceed Rs. 2,10,000 per annum. The Donee is not, therefore, likely to get any portion of the future net income from the gift fund. Thus the corpus of the Fund only is likely to come into the hands of the Donee at the end of 55 years. Assuming that there is neither appreciation nor depreciation in the Gift property at the end of 55 years and assuming a rate of interest of 6-1/2 per cent per annum for discounting the value of the gift to Donee will come to Rs. 97,161. The value of the gift to Sir Pratapsinghrao Gaekwad Charities will be the balance i.e. Rs. 29,02,839."
The Commissioner (Appeals) however held that Shri P.B. Agashe has not taken into consideration para-3(iii)(c) of the Gift Deed which reads as under :
"3(iii)(c) For the purpose of this deed, any income which accrues or arises to the Donee but is not received by the Donee during the accounting year shall not be deemed to have accrued or arisen but credit thereof shall be taken in the accounting year in which the same is actually received."
According to the Commissioner (Appeals), Shri P.B. Agashe has not taken into consideration the impact of this clause of the Gift Deed on the valuation. Accordingly, the Commissioner (Appeals) requested Shri K.C. Patel, Advocate, the assessee representative who appeared before him to get the valuation of the gift to Charities re-done particularly in view of the fact that for several years the money originally stipulated to be passed on to the Charities did not actually pass on to the Charities by the Companies in view of clause 3(iii)(c). Accordingly, the asscssee furnished another Valuation Report by Shri K.A. Pandit who gave the report as under :
"Shri Pandit fixed the value of charitable portion at Rs. 27,37,127, leaving the balance of Rs. 2,62,873 as the portion of taxable gift to the Company. To the main report, he gave an addendum in the following terms :
'I hereby certify that the value of the gift assuming that no income is paid during the first five years, would work as Rs. 18,86,186'."
Thereafter, it appears that the assessee sought more time for filing further Valuation Report and it did file the Valuation Report dated 9-9-1982 from Shri V.H. Vora. According to that report the value of gift to the Charities came to Rs. 29,27,381 and the taxable gift to the company came to Rs. 72,619. After the receipt of this report, (he Commissioner (Appeals) required the assessee to produce Mr. V.H. Vora to find out the basis of his report and as to why, although he has referred to the report of Shri K.A. Pandit, he has not given any basis for ignoring the report of Shri Pandit. For some reasons or the other, Shri V.H. Vora was not produced before the Commissioner (Appeals) and the learned Commissioner (Appeals) thereafter proceeded to dispose of the appeal on merits taking into consideration the four sets of Valuation Reports by observing as under in paras 9 and 10 of the impugned order :
"9. On merits, the position is that now we have four sets of valuation reports all done by qualified Actuaries and all furnished by the appellant. The relevant figures in respect of the deed we are considering in detail may be recapitulated in a tabular form as below :
Sr. No. Observation of AO Contention of appellant company 1 2 3 Ownership of the Assets
1.
There was no genuine sale of equipments and several terms of the lease agreements are contrary to the claim of absolute ownership.
Sale and lease-back is one of the recognised and legally accepted modes of raising finance. By purchasing the assets from Electricity Boards and paying the agreed consideration, the assessee became the legal owner of the assets. The transactions were subjected to sales-tax assessment. All the legally recognised attributes of ownership vested with the assessee. The terms of the lease agreement, found by the AO to be contrary to the claim of absolute ownership were intended to protect the assets which in fact go to prove the absolute ownership of the assets by the assessee.
2. All the risks and rewards of ownership are vested in the lessees.
It was the assessee who enjoys the rewards of ownership by receiving the lease rentals. The risk of ownership was well protected by the assessee by making the lessee responsible to take proper care of the assets.
3. Sec. 26 of the Sale of Goods Act envisages that risks of ownership must pass with the property and in the instant case the purchasers of the equipment from SEBs had not assumed any risks of ownership. In fact, all losses in respect of the said equipment were to be borne by the lessee.
The provisions of s. 26 of the Sale of Goods Act applies at the time of sale of equipment by the SEBs to the assessee and the risks were passed on to the assessee after purchase of the assets. The lease agreement casts certain duties and liabilities on the lessee for use of the equipment as a bailee of the equipment which is as per the second proviso to s. 26 of the Sale of Goods Act. The transactions of the purchase of the assets by the assessee and leasing of the assets to the Electricity Boards are different transactions. The rights of ownership acquired by the assessee by means of purchasing the assets cannot be mixed up with the obligations cast on the lessees as per the lease agreement.
4. Owner must give warranty for At the time of purchase of the assets it
10. I have very carefully considered the comparative merits of the valuation reports given by the three learned Valuers. Mr. P.B. Agashe and Mr. V.H. Vora, whose reports are more favourable to the appellant, have proceeded really to determine (he market value of the gift to the principal donee which is M/s. Pratap Investment Pvt. Ltd. in the case which we are considering in detail. Actually what is needed is the determination of the value of gift to the Charities because the value of the gift to the principal donee is admittedly Rs. 30 lakhs in the term we are considering in detail. In other words, the learned Valuers, Mr. Agashe and Mr. Vora are approaching the problem not directly but by a circuitous route. For doing so, they had to further presume that the main donee M/s. Pratap Investment Pvt. Ltd. in the case under consideration would not be left with any income at all for those 55 years for which the payment to Charities subsists. Those learned Valuers had fa propound such a theory because they in my opinion started at the wrong end. What was really required was the determination of market value of the gift element to the Charities. This is the primary difference in approach for whatever difference it makes in the quantum of values determined. On the other hand. Shri K.A. Pandit has proceeded directly to determine the value of the gift to charities and in his report he has given more detailed reasoning and the precise formula which he had adopted for determining that value. The learned Valuers, Shri V.H. Vora has in the preamble of his report slated (hat he has seen the report of Shri K.A. Pandit. In spite of this he has not tried to indicate what is wrong with the report of Shri K.A. Pandit. After merely observing that he has seen ihe report of Shri K.A. Pandit he has proceeded to bring in his own theories and views. He could have and should have, in my opinion, indicated how and why he did not agree with the report of Shri Pandit. As indicated earlier, in my opinion, the basic approach adopted in Shri Pandil's report is preferable in so far as he has proceeded to determine the value of the gifts to the Charities rather than follow the circuitous way of determining the present market value of the gift to the main donee. Apart from this basic approach, it is pertinent to note that Shri K.A. Pandit's report is more detailed and more precise even to the extent of reasoning being given for each and every thing and precise formula is also indicated in the report. Therefore, in principle, the methods and parameters adopted in Shri Pandil's report have to be preferred and hence the inferences drawn by him have to he preferred to the inferences drawn by the other two learned Valuers, namely, Shri Agashe and Shri Vora."
Accordingly, the learned Commissioner (Appeals) relying on the second valuation report of Shri K.A. Pandit, re-computed the taxable gift at Rs. 50,12,163 as against the value adopted by the GTO at Rs. 1,35,00,000 as under :
the fitness, suitability, etc. of the equipment. In the instant case, however, the lease agreements stipulate that the lessor does not make any representation or warranty, was the Electricity Boards who gave warranty for the fitness, suitability, etc. of the equipment as they were the owners at that point of sale.
Immediately thereafter the assessee acquired ownership of the assets and leased them back to the Electricity Boards. Therefore, it was only an idle formality for the assessee to give warranty for the fitness, suitability, etc. of the assets. In any case, it was mentioned in the lease agreements that the lessees i.e. SEBs. were satisfied with regard to the fitness, suitability, etc. of the equipment leased.
5 Under s. 151 of the IndianContract Act, the hirer is only responsible for taking as much care of the goods hired by him as a man of ordinary prudence would under similar circumstances. However, in the instant case, any loss or damage to the equipment is to be borne by the lessee and in the event of total loss/damage, the lessees would have to replace the equipment at its own cost and the lease will continue.
A lease is a contract of bailment andthe parties to the contract are free to bind themselves in respect of rent, maintenance, risk on account of use, etc. as they deem fit. Accordingly, it will be appreciated that there are various terms in the lease agreement which deal with rent, maintenance, risk on account of use, etc. Sec- 152 of the Indian Contract Act provides that 'the bailee' in the absence of any special contract is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of its described in s. 151.' It will be appreciated that the lease agreement in this case is a special contract between the bailor and the bailee and accordingly, the provisions contained in the lease agreement with regard to rent, maintenance, risk on account of use. etc. would prevail.
True lease agreement or not 1 If any option to buy the equipment is given in the lease agreements.
the agreements would not be true lease agreement.
In this case no option to buy the leasedequipments is given to the lessee in the lease agreement. It is only a power of attorney given in favour of the Secretary, PSEB, authorising to negotiate and sell these equipments to any intending purchaser at a price not less than minimum mentioned in the
6. Besides this main controversy, there was dispute relating to the taxability of the following gifts :
(i) Amount due from Mr. Ranjitsingh Gaekwad Rs. 36,314
(ii) Amount due from H.H. Maharani Padmavati Devi Rs. 1,16,792 Rs. 1,53,106 These amounts were due to the assessee for more than three years and these were written off by order dated 7-3-1973 by the assessee by passing Huzur Order dated 7-3-1973. The GTO however, held that this writing off tantamounted to gift and he included these two sums also in the value of taxable gift. The learned Commissioner (Appeals) upheld the action of the Assessing Officer by observing in para-12 of the impugned order as under :
"12. The only other dispute is about the following two amounts:
(i) Amount due from Mr. Ranjilsingh Gaekwad Rs. 36,314
(ii) Amount due from H.H. Maharani Padmavatidevi Rs. 1,16,792 Total Rs. 1,53,106 To appreciate the point, it would be belter to reproduce the relevant Huzur Order dated 7-2-1973 :
No. 39/1972-73 Khangi Independent Regarding Loans & Advances writing off, donations etc. amounting to Rs. 2,78,105.97 The undermentioned three loans/advances have been outstanding for more than 3 years :
Name Amount (1) Maharaja Fatesingh Museum Trust Rs. 1.25,000.00 (2) Her Highness Maharani Padmavati Devi Gackwad of Boroda Rs. 1.16,791.53 (3) Sririmanl Rnnjilsingh P Gaekwad Rs. 36,314.44 Rs. 2,78,105.97 Shrimant Falesinghrao P. Gaekwad has been pleased to order that the amount of Rs. 1,25,000 advanced to Maharaja Fateshingh Museum Trust be treated as donation to the corpus of the Trust and the remaining total amount of Rs. 1,53,105.97 be written off.
Indumali Mahal, Sign Manual
Baroda
7th March, 1973.
Remarks
Copies of the Huzur Order are sent as under :
1. The Superintendent, Investments & Taxes
2. Khangi Accounts Branch
3. Khangi Audit Branch
True Copy
Sd/-
Superintendent
Obviously, both the amounts involved were due from the appellant's very near relatives and it was decided by the appellant in the previous year relevant to the assessment year under consideration that he would not lake back those amounts from them. I agree with the GTO that they are clearly liable to gift tax. Addition of these two amounts of Rs. 1,53,106 is upheld."
7. Before us, the learned AR of the assesses submitted that the Commissioner (Appeals) ought to have held that the entire gifts made to the various Donee Charities were entitled to exemption under section 5(1)(v) of the Gift Tax Act. The Id. AR of the assessee further submitted that the Commissioner (Appeals) ought to have held that inasmuch as each ol the various chanties were entitled to receive the entire income from the gifted properties in the previous year relevant to the assessment year when the various amounts were gifted lo the respective companies, the gifts were made solely to charily and hence (he said gifts were exempt from the gift-tax under the provisions of section 5(1)(v) of the Gift Tax Act. The Id. AR of the assessee further submitted that the Commissioner (Appeals) ought to have held that inasmuch as in the relevant previous year the Companies to whom the gifts were made did not have any beneficial interest in the said properties or the income thereof, the entire amount of gift was exempt under section 5(1)(v) of the Act.
7.1 The learned AR of the assessee further submitted that the Commissioner (Appeals) has misconstrued the provisions of clause 3(iii)(c) of the Deed of Gift dated 30-3-1973, in favour of Pratap Investment P. Ltd. and that the effect and construction of the said clause read with clause 3(i)(a) is that the entire income which was received by the said Company (viz. Pratap In v. P. Ltd.) for the initial period of 5 years should be paid over to Sir Pratapsinghrao Gaekwad Charities (which is admittedly a charitable trust which is exempt under section 11 of the Act) subject to a maximum of Rs. 2,10,000 per annum.
7.2 The learned AR of the assessee also submitted that the Commissioner (Appeals) failed to appreciate that the effect of clause 3(iii)(c) on which he relied so heavily was only to dcffer or postpone the charities entitlement to the income for the five years. It did not mean that the charity can at all be kept out of the income, if any, accruing in the first five years as the charily was enlitled lo assert it right to such income in the year of receipt.
7.3 The learned AR of the assessee further submitted that the Commissioner (Appeals) failed to appreciate that the provisions of clause 3(iii)(c) did not in any manner deviate from the intention to make over the income of the gifted properties for charitable purposes, for a period of 55 years as provided for in the Deed of Gift.
7.4 The learned AR of the assessee submitted that the Commissioner (Appeals) erred in rejecting the reports of the Valuers Mr. Agashe and Mr. Vora on the ground that their approach was not correct. The Commissioner (Appeals) failed to appreciate that the method adopted by the said Valuers was the only correct method as what one had to return was the taxable gift, i.e. the non-charitable gift.
7.5 The Id. AR of the assessce further submitted that the appeal filed by the assessee against the order of the GTO dealt with the issue whether any deduction from the total value of the gifted properties was required to be made while arriving at the value of the taxable gift and did not deal with the issue regarding the proportion of the gift to be regarded as a gift made for charitable purposes. Having decided the issue in appeal (i.e. the question whether any deduction was to be made), in favour of the assessee, the jurisdiction of the Commissioner (Appeals) came to an end. The Id. AR submits that the action of the Commissioner in determining what portion of the value of the gifted properties was for charitable purposes, and hence was exempt from tax being beyond the scope of the appeal before the Commissioner (Appeals), and the action of the Commissioner in going into and deciding upon the aloresaid question was in excess of jurisdiction.
7.6 The Id. AR of the assessee further submitted that the Commissioner (Appeals) erred in holding that the appellant had made taxable gifts in relation to the gifts in question to the extent of Rs. 50,12,163. He further submitted that the Commissioner (Appeals) erred in concluding that the value of the gift to public charities was only Rs. 84,87,837 and not as claimed by the appellant in his return of gift-tax and has further erred in holding that the total value of these taxable gifts in question amounted to Rs. 50,12,163 as worked out by him in the annexure to the order under appeal.
7.7 The Id. AR of the assessee further submitted that the Commissioner (Appeals) erred in interpreting the provisions of paragraph 3(iii)(c) of the Gift Deed and has further erred in holding that the Gift Deed itself authorised the Donee Company not to pay any amount in certain years and that this aspect could have been anticipated or taken into account for the purpose of valuation on the dale on which the gift was made.
7.8 The Id. AR further submitted that the Commissioner (Appeals) has further erred in interpreting clause 3(iii)(c) and has erred in taking into account subsequent events and developments for the purpose of adjudicating upon position as obtained on the dale of execution of gift deed.
7.9 The Id. AR further submitted that the Commissioner (Appeals) has further erred in drawing unwarranted inference from various aspects such as credit balance in the name of the Donor in the books of the partnership firm in question, the possession thereof, value of the closing slock of the firm, chances of the property being sold and various aspects mentioned in paragraph 10 of the order under appeal.
7.10 The Id. AR further submitted that the Commissioner (Appeals) erred in concluding that the valuation should have been made on the footing that the income would not have been passed on to the Charitable Trust in the first 5 years and that the Commissioner (Appeals) has proceeded on the erroneous assumption that all four sets of the valuation reports were "furnished" by the appellant. He further submitted that the Commissioner (Appeals) has further erred in not accepting Mr. P.B. Agashe's report according to which the value of the gift to the chanty was worked out at Rs. 29,02,839 leaving the balance of Rs. 97,167 as the value of the taxable gift to the various companies. The Id. AR of the assessee pleaded that the Commissioner (Appeals) ought to have accepted the value of the gift to charity at Rs. 29,04,000 leaving the balance of Rs. 96,000 as the value of the taxable gift to the Company namely Pratapshingh Investments Pvt. Ltd. as mentioned in the Deed of Gift bearing appropriate stamp duly. The learned AR of the assessee submitted that the addendum of the report of Shri K.A. Pandit being passed on various assumptions not warranted by the clear terms of the gift could not have been relied upon for the purpose of arriving at the value of the taxable gift at Rs. 11,12,814 consisting the Gift Deed executed in favour of Pratapshingh Investments P. Ltd. In any event, it was submitted that on a correct interpretation of the relevant clause of the Gift Deed, the Charitable Trust could not be kept out of the income accruing in the said years and the Charitable Trust was entitled to assert its right to such income.
7.11 The Id. AR of the assessee submitted that the Commissioner (Appeals) was not correct in observing that for some reason or the other, the assessee prolonged the proceedings. Instead of calling upon the GTO to file his report, the Commissioner (Appeals) called upon the assessee to file a report on the basis of certain assumplions as required by the Commissioner (Appeals) which were contrary to the provisions of the Gift Deed. The learned AR of the assessee accordingly pleaded that the order of the Commissioner (Appeals) is unwarranted on facts, against the evidence of record and in the absence of any legal evidence adduced by the Revenue in rebuttal, the assessment ought to have been made on the basis of return of gift submitted by the assessee.
7.12 As regards the other two gifts of Rs. 36,314 to Shri Ranjitsingh Gaekwad and Rs. 1,16,792 to H.H. Maharani Padmavatidcvi, the learned AR of the assessee submitted that the Commissioner (Appeals) erred in confirming the finding of the GTO and the documentary evidence relied on by the assessee is not properly appreciated and the addition of Rs. 1,53,106 is required to be deleted.
8. The learned DR strongly relied on the order of the GTO and submitted that the Commissioner (Appeals) has erred in law and on facls in accepting the assessee's contention that by virtue of Gift Deeds there were two Donees, the first Private Limited Company and the second Charitable Trust. It was pleaded that the gift to the so called Charities was a mere promise and in fact no amount was intended to pass on to the Charities, It was submitted that the Commissioner (Appeals) has erred in holding that the discounted value of the amount payable to the Charities for 55 years was deductible from the aggregate value of the gifts made to the Companies and arriving at the taxable gift at a much lesser figure than the figure adopted by the GTO. It was submitted that the Commissioner (Appeals) has erred in holding that the value of the amounts to be paid to the Charities for 55 years constituted the existing property and would be covered by deeming provisions of the G.T. Act so as to be a deemed gift to the Charities. He accordingly prayed that the order of the Commissioner (Appeals) should be reversed and that of the GTO restored as far as the taxability of the gift relating to the Private Limited Company in terms of the four Gift Deeds were concerned.
9. We have considered the rival submissions and have also gone through the orders passed by the GTO as well as that of Commissioner (Appeals). The GTO has rejected the assessee's claim for deduction of any amount whatsoever in relation to the part of the property gifted to the Charities in terms of Gift Deeds by arguing that the gift as such is possible of an existing property only and as far as the gift to Pratapshingh Investments P. Ltd. is concerned, the existing property of credit balance of Rs. 30 lakhs has been gifted by the asscsscc to the Donee Company and further stipulations regarding the payments to Charities do not create any existing properly which can be regarded as gift to the Charities out of the said gift of credit balance of Rs. 30 lakhs. The Assessing Officer has also observed that in terms of section 124 of the Transfer of Properly Act where a gift comprises of both existing and future property, gift as to the future property is void. The Assessing Officer has also observed that the Gift Deeds arc not registered. In this connection we arc of the opinion that the Gift-tax Act is a complete code in itself and there is no provision in the Gift-tax Act corresponding to the provisions of sections 123 and 124 of the Transfer of Property Act. Therefore, consideration arising from the definition of gift in the Transfer of Property Act cannot and must not be imported while construing the provisions of the Gift-tax Act. Further, section 4 which defines gifts by an inclusive definition deemed certain transfers as gifts. While under the Transfer of Properly Act and the General Law, gift would be possible only of existing property; the Gift-tax Act envisages deemed gift. The deemed gifts are the items which would not be gift in the General Law but would be regarded as gift for the purpose of Gift-tax Act. Though the first part of the definition of gift in clause (xii) of section 2 of the Gift-lax Act docs talk of existing, movable and immovable properties but it also specifically lays down that the items of deemed gift covered by section 4 would also be regarded as gift under the Gift-tax Act. Many acts and transactions which do not amount to gift under the Transfer of Properly Act, amount to gift under the Gift-tax Act because the concept of gift under the Gift-tax Act is much wider. In the present case, prima facie clause (c) of sub-section (1) of section 4 of the Gift-tax Act would be relevant but we need not be, for the purpose of the case before us, be very specific and precise about it and suffice it to say that in case if the owner of certain property were to stipulate to pay income of that property for a number of years to some relation of his by charging the stipulated payment for stipulated period on the property itself as first charge, the Department would attempt to levy gift tax arising from the said covenants and in such a situation the value of gifted properly would be found out on actuarial valuation in the form of what is commonly known as discounted value. In such a situation it would be difficult for the donor to claim that he was not affecting any gift of any existing property as relevant covenants were mere promises for the payment of income etc. arising in future. In our considered opinion on a parity of reasoning it has to be held that the stipulations of payment to the Charities in the four Gift Deeds in the case before us will have some value. If so to the extent of that value, the gift is in effect made to the Charities and since the gift made lo the Charities is exempted from gift tax, what could be charged to gift tax in this case will be the net gift which would be Rs. 30 lakhs as reduced by the present value of the stipulations of payment to the Charities. Accordingly we hold that the Assessing Officer's inference that there was no valid gift to the Charities which would go to reduce the amount of taxable gift in the hands of the assessee in relation to the Gift Deeds, cannot be upheld. Accordingly, we uphold the order of the Commissioner (Appeals) to the extent that laxable gift in the hands of the assessee will have to be calculated by reducing the amount of credit balance gifted by the assessee to the various Companies/first donees by the amount represented by the present value of the stipulations of payment to the Chanties.
10. Now, coming to the quantification of the value of gift, it is seen that the assessee has furnished four valuation reports which have been mentioned by the Commissioner (Appeals) in para-9 of the impugned order which we have also extracted in this order at page 7. We agree with the reasoning and conclusion of the learned Commissioner (Appeals) that the records of Shri P.B. Agashe and Shri V.H. Vora do not correctly deal with the situation because what is required to be done is the determination of the value of gift to the Charities, as the gift to the principal Donee i.e., the Donee No. 1 in the four Gift Deeds is admittedly the specified sum of money. In the case of Pratapsingh Investment P. Ltd. the said sum is admittedly Rs. 30 lakhs. Shri P.B. Agashe and Shri V.H. Vora, the Id. Valuers have approached the problem by assuming that the main donee Pralapsingh Investment P. Ltd. would not be left with any income at all for those 55 years for which the payment to Charities subsists and therefore they have valued the gift to the principal donee by taking the present value of Rs. 30 lakhs which will be available to Pralapsingh Investment P. Ltd. after 55 years without any encumbrances. However, what is required to be done is the determination of the market value of the gift clement to the Charities which is the approach adopted by Shri K.A. Pandit and to this extent we agree with the finding of the Commissioner (Appeals). However, the Commissioner (Appeals) has further opined that the effect of clause 3(iii)(c) is also required to be taken into consideration for valuation and since at the lime when the Commissioner (Appeals) passed the order for about 5 years practically very little payment (Rs, 5.099.61) have been made by the principal donee i.e., Pratapsingh Investment P. Ltd. to the Charities in the first five years from the date of gift and accordingly the Commissioner (Appeals) called for a valuation report from Shri K.A. Pandit on the assumption that no payment was required to be made by the principal donees to the Charities for five years and then he calculated the net value of gift to the principal donee on the basis of that report. We are unable to subscribe to the reasoning of the Commissioner (Appeals) in this regard because he has taken into account the subsequent events and developments for the purpose of adjudicating upon the valuation of gift as obtained on the date of execution of the Gift Deeds. The Gift-tax Act and the rules framed under it do not permit either the assessee or the Department to rely on subsequent happenings and what is taxable under the Gift-tax Act is the market value of the net gift as on the date of execution. Any attempt to lake into consideration the subsequent events is fraught with danger and will lead to endless inquiries that cannot properly be held by the authorities under the Act. Accordingly we direct the GTO to determine the value of gift made by the assessee to the principal donee viz. donee No. 1 in all the four Gift Deeds on the basis of valuation report of Shri K.A. Pandit dated 24-3-1982 without taking into consideration the further stipulations that no amount in fact was paid by the principal donee to the Charities for live years. Thus, the value of taxable gift to Pratapsingh Investment P. Ltd. in terms of the report of Shri K.A. Pandit comes to Rs. 2,62,873 and the value of gift to the Charities at Rs. 27,37,127. We direct that the remaining gifts should also be valued accordingly on the basis of the report of Shri K.A. Pandit.
11. As regards the ground relating to other two gifts of Rs. 36,314 to Shri Ranjitsingh Gaekwad and Rs. 1,16,792 to H.H. Maharani Padmavati Devi is concerned, we are of the opinion that the Id. Commissioner (Appeals) was perfectly justified in upholding the action of the Assessing Officer in treating these amounts as deemed gift because under the provisions of section 4(1)(c) the value of a debt in case of release, discharge, surrender etc. becomes liable to gift lax in so far as the said release, discharge, surrender, etc. is not bona fide. "Bona fide" means good faith implying the absence of fraud, unfair dealing or acting, whether it consists in simulation or dissimulation. In order that the transaction is bona fide, it must be shown that everything was done in an open and straight-forward manner. The language used in the clause has been so drafted so as to throw onus on the assessee for establishing to the satisfaction of the GTO that the transaction in question was bona fide. In the case before us both the persons viz. Shri Ranjitsingh Gaekwad and H.H. Maharani Padmavati Devi are brother and wife of the assessce and both of them are Income-tax and Wealth-tax assessees and it cannot be argued that they arc not in a position to repay the debts to the assessce. The Huzur order date 7-2-1973 passed by the assesses late Maharaja Shri Fatehsingh Gaekwad which has been extracted by the Commissioner (Appeals) in para 12 of the impugned order which we have also reproduced at page 9 of this order, do not give any reason as to why the amount due from Shri Ranjitsingh Gaekwad and H.H. Maharani Padmavati Devi were written off. On the other hand, item No. t in the order referred to above indicates that the amount of Rs. 1,25,000 due from Maharaja Fatehsingh Museum Trust was treated as donation by the assessec and as such it is perfectly justified to hold that the other two amounts should also be treated as donations/gifts in terms of section 4(1)(c). Accordingly we will uphold the order of the Commissioner (Appeals) in this regard.
12. In the result, the appeal filed by the revenue is dismissed and the appeal filed by the assessment year is partly allowed.