Income Tax Appellate Tribunal - Madras
A. Padmanabhan vs Gift-Tax Officer on 31 August, 1987
Equivalent citations: [1988]26ITD79(MAD)
ORDER
D.S. Meenakshisundaram, Judicial Member
1. This is an appeal objecting to the order of the AAC who confirmed the gift-tax assessment made on the appellant in respect of a settlement deed executed by him on 28-3-1981 by treating it as a gift for the asst. year 1981-82, for which the previous year ended on 31-3-1981. The assessee had filed a return for this year admitting 'nil' gift. But in the statement accompanying the return he admitted the value of the gift at Rs. 1,10,711 and the gift-tax paya,ble at Rs. 6,877. Subsequently he claimed exemption of the gift from the Gift-tax Act stating that the Explanation to Section 19 of the Transfer of Property Act provided that vested interest would not be defeated by the death of the transferor. He also relied on the decision of the Madras High Court in the case of CGT v. C. Thiruvenkata Mudaliar [1977] 107. ITR 661, wherein it was held that there was no gift made in the circumstances similar to the assessee's case. The GTO rejected these contentions and relying on the decision of the Andhra Pradesh High Court in Vadulla Venkata Rao v. CGT [1972] 85 ITR 249 and also on the decision of the Madras High Court in Ramaswamy Naidu v. M.S. Velappan [1979] II MLJ 88 assessed the value of the gift at Rs. 1,10,710 and brought the same to tax in the hands of the assessee.
2. The AAC to whom the assessee appealed, confirmed the assessment by holding that in the present case the interest in the property as vested in the son, the donee, on the same day when the document was executed, though his right to possess and enjoy the property was postponed to a later date and hence this would not make the document a will, since the transfer of the interest in favour of the son by the donor amounts to a gift taxable under the Act. This is being objected to by the appellant in the present appeal.
3. Shri V. Jagadisan, the learned Chartered Accountant for the appellant placed before us a copy of the deed of settlement executed by the appellant on 28-3-1981 and submitted that under the terms of this document there was no gift in praesenti in favour of the son, which would attract liability to gift-tax. He argued that the nomenclature of the document as a deed of settlement was not sufficient to create a right in favour of the son. He contended that there was no transfer of property in favour of the son and no rights were created in favour of the settlee under this document and that it was only a will. He particularly relied on Clauses (1) and (2) of the document and pointed out that the asses-see's son would get the property only after the lifetime of the settlor and till then he was not entitled to any right, title or interest in the property. In support of his submissions, the learned Chartered Accountant relied on the decision of the Madras High Court in the case of C. Thiruvenkata Mudaliar (supra). He further submitted that the departmental authorities have not correctly followed and applied the ratio of this decision to the facts of the present case. He further contended that the latest ruling of the Madras High Court in the case of P. Ayya Naidu v. CGT [1985] 152 ITR 499, which follows the decision in C. Thiruvenkata Mudaliar's case (supra) was directly in favour of the assessee. He submitted that on the authority of these two decisions, the document in question should be held to be only a will and not a deed of settlement giving rise to any gift-tax liability on the part of the donor, namely the appellant herein. The learned Chartered Accountant, did not press his objecting to the valuation of the property. He further stated that the Gift-tax Officer had allowed the relief due to the appellant under Section 18A of the Gift-tax Act and therefore, he was not also pressing the ground relating to this relief claimed by him in the grounds of appeal.
4. Shri R. Seshagiri Rao, the learned departmental representative, contended that the liability to gift-tax arose under the provisions of the Gift-tax Act in respect of gifts falling under the definition of 'a gift' in Section 2(xii) of the Gift-tax Act. He relied on Section 2(xxiv)(b) & (d) where transfer of property is denned and also to the provisions of Section 5(1)(x), whereby gifts under a will had been specifically exempted from gift-tax. Shri Seshagiri Rao argued that the two decisions relied on by the GTO in the assessment order fully supported the Revenue's case. He further argued that the decision of the Madras High Court in the case of C. Thiruvenkata Mudaliar (supra) did not support the assessee's contention but really supported the Revenue's case. He argued that the decision in the case of P. Ayya Naidu (supra) also did not help the assessee, as there is a transfer of property in praesenti under the deed of settlement to the son as could be seen from a reading of Clauses (1) and (2) of the settlement deed, which was irrevocable and on which stamp duty has been paid as a deed of settlement and registered under the Registration Act. Shri Seshagiri Rao particularly relied on paras 14 to 17 in the case of Ramaswamy Naidu (supra). He, therefore, submitted that the departmental authorities have acted rightly in bringing to tax the gift made by the appellant under the deed of settlement and that the same should be upheld.
5. We have carefully considered the submissions urged on both sides in the light of the materials placed before us and the authorities relied on by them. The appellant had executed a registered deed of settlement on 28-3-1981 in favour of his son P. Venkata subramanian with a view to provide for the settlee and out of natural love and affection reserving a life interest for himself without any powers of alienation for the settlor. We set out below Clauses (1) to (4) of the settlement deed for facility of reference :
Now this deed of settlement witnesseth :
1. That with a view to provide for the settlee of the second part and out of natural love and affection for him, the settlor of the first part, subject to the life interest in his favour, both hereby settle, transfer and grant and convey by way of settlement, the land, building and premises at No. 65/1, Bazullah Road, T. Nagar, Madras-17, more particularly described in the Schedule 'B' here-under, and hereinafter called the said property, to be taken absolutely by the settlee of the second part after the lifetime of the settlor of the first part.
2. The settlor of the first part shall be entitled to enjoy 'B' Schedule property for his life without any powers of alienation and after his lifetime the settlee of the second part shall be entitled to absolutely own and enjoy the 'B' Schedule mentioned property.
3. The settlee of the second part shall be liable to pay gift-tax, if any, which may be levied in respect of this settlement.
4. The settlor of the first part hereby declares that this settlement is irrevocable.
6. In our view this document has to be construed only as a settlement deed and not as a will, as it creates a life interest in favour of the settlor and further conveys the vested remainder in favour of the settlee on the date of execution of the document itself though the possession and enjoyment of the settled property to the settles is postponed after the lifetime of the settlor who has no power of alienation under the document. Further this document has been stamped as a deed of settlement by paying stamp duty of Rs. 3,770 on the value of the property settled at Rs. 1,45,000 as stated in Clause (5) of the deed and it is also registered. So we are unable to agree with the contentions urged on behalf of the appellant that this document should be construed only as a will and not as a gift, merely because the settlee is entitled to take the property only after the lifetime of the settlor in whose favour there is a life interest only without any powers of alienation.
7. In the case of C. Thiruvenkata Mudaliar (supra) their Lordships of the Madras High Court have held as follows at pages 668 and 669 of the reports :
Normally speaking, every document has to be construed with reference to the language it contained and, therefore, a decision construing one document cannot be an authority for construing another document except principles or guidelines. The only general principle or guideline that can be said to have been laid down in this behalf is that the document should be read as a whole and it is the substance of the document that matters and not the nomenclature, and what determines the charter of the document is the nature of the disposition contained therein as to whether it was intended to take effect in praesenti or it was intended to take effect on the death of the owner of the properties.
8. The decision of the Madras High Court in the case of Ramaswamy Naidu (supra) at page 92 lays down the important tests to be applied in such cases, which are quoted below :
14. While interpreting an instrument, particularly to find out whether it is of a testamentary character, which will take effect after the lifetime of the executant or whether it is an instrument creating a vested interest in praesenti in favour of a person, the question has to be examined with care, after looking into the substance of the document, the treatment of the subject by the settlor, the intention appearing both expressly in the instrument and by necessary implication, and the avowed intention of the settlor not to revoke the settlement at any time, making it also public by registering the document, under the appropriate law of the country. In Sellayya Pillai v. Devaraya Pillai, Raghavan, J. after referring to a series of decisions to wit : Thakur Ishri Singh v. Thakur Basdeo Singh, Reference by the Collector and Superintendent of Stamps, Bombay, Rajammal v. Authiammal; Venkata-chalam v. Govindasami ; Gangaraju v. Somanna ; Md. Abdul Ghani v. Fakhir Johan Begum ; Ignatio Britt v. Rego and Veerabadrayya v. Seethamma, summarised the acceptable tests laid down in those cases, to determine whether a document is a will or settlement. Some of the important tests laid down therein appear to be-
(i) the nomenclature used by the settlor in styling the document;
(ii) the express dispositive words used which touch upon the time when the vested interest is created ;
(iii) reservation of the power of revocation in the instrument;
(iv) the effect of the reservation of a life estate in favour of the executant under the instrument ;
(v) registration of the document under the appropriate law.
15. We may also add that it is the substa.nce of the instrument and the generous impulses which prompted a person to execute the document and not the form adopted, which should determine the real nature of the instrument.
16. It is convenient at this stage to consider the question whether the interdict created on the right of the first plaintiff to alienate the property is toy itself sufficient to make Exhibit A-1 a testamentary instrument. Section 19 of the Transfer of Property Act, reads as follows :
Section 19. Vested interest : Where, on a transfer of property, an interest therein is created in favour of a person without specifying the time when it is to take effect or in terms specifying that it is to take effect forthwith or on the happening of an event which must happen, such interest is vested, unless a contrary intention appears from the terms of the transfer.
17. A vested interest is not defeated by the death of the transferee before he obtained possession.
Explanation : An intention that an interest shall not be vested is not to be inferred merely from a provision whereby the enjoyment hereof is postponed or whereby prior interest in the same property is given or reserved to some other person, or whereby income arising from the property is directed to be accumulated until the time of enjoyment arrived, or from a provision that if a particular event shall happen the interest shall pass to another person.
At page 93 of the reports in paras 18 and 19, their Lordships have held as follows :
...The Explanation to Section 19 of the Transfer of Property Act providing that a vested interest is not defeated by the death of the transferee before he obtains possession, makes the legislative intent clear that such a vested interest, merely for the reason that it becomes vested after the lifetime of the settlor, would not make it a settlement not being in praesenti. We are therefore unable to agree with the content that the interest that Velappan, the first plaintiff, obtained under the instrument is not a vested one and that it could be defeated because it is postponed till after the lifetime of Meenakshi Ammal.
19. In the instant case the document itself is styled as a settlement deed. It has been registered. The right to enjoy the properties and secure the benefits and the temple honours as trustee under it have become a fait accompli even during the lifetime of Meenakshi Ammal....
Finally, in para 21 at page 94 of the reports, their Lordships held as follows:
21. One other factor which has a great impact upon the facts and circumstances of this case is that the instrument is expressly made not revocable. The accepted definition of a will is that it is an instrument whereunder a person makes a disposition of his property to take effect after his decease and which is, in its own nature, ambulatory and revocable during his life. So far as the other condition which is also thought of while interpreting an instrument for the purpose of deciding whether it is a will or a settlement namely, whether it was intended not to take effect until after the death of the donor, we have already referred to Section 19 of the Transfer of Property Act. Though the disposition may be postponed till the lifetime of the settlor and though prima facie it may appear that the disposition consummates only after his death, yet, such postponement not being illegal, if in a given instrument such as Exhibit A-l, there is a present disposition and a vesting of right in praesenti and if such a conclusion can be arrived at reasonably by reading the instrument as a whole, then a mere ambulation of interest during the lifetime of the settlor would not make it a testamentary one. Above all, the instrument is a registered one. Taking all the circumstances into consideration, Sethuraman, J. was right when he said that Exhibit A-1 was a settlement and not a will. Undoubtedly Meenakshi Amma.l desired that the document shall be effective from the date of the instrument. She was aware of the distinction between a will and a settlement. She caused the instrument to be registered. She would specifically impose a restriction on herself that she had no power of revocation of that instrument and, as we have seen already, even during the lifetime of Meenakshi Ammal, Velappan, the first plaintiff had secured a benefit under the instrument. For all these reasons we uphold the judgment of the learned Judge in so far as it relates to the relief of declaration sought by the first plaintiff as owner of the properties.
9. In our view the ratio of these two decisions of the Madras High Court are directly applicable to the facts of the present case and applying the tests laid down in these two decisions, we come to the conclusion that the document in question is an irrevocable deed of settlement, which creates vested remainder in praesenti in favour of the son of the appellant, though there is a postponement of the enjoyment of the rights by the son after the lifetime of the settlor.
10. In the decision of the Madras High Court in the case of P. Ayya Naidu (supra) the facts were entirely different as could be seen from the recitals of the document as well as the head note. In fact, at page 503 of the reports their Lordships have held as follows on a reading of the recitals in the said document:
Even a casual reading of the above recitals will clearly show that there are absolutely no words to indicate the present vesting of any interest in favour of the daughters and grandehildren of the vested remainder after the life interest of the assessee and his wife. On the other hand, the following specific recitals will clearly indicate that the assessee intended that the vested remainder granted in favour of the daughters and grandchildren should take effect only after the lifetime of his wife and himself :
Again at page 504 their Lordships have held as follows :
Thus, there is a specific recital that the vesting of the remainder interest should take effect after the lifetime of the spouse and on the next day of the death of the settlor. Hence, it is futile on the part of the Revenue to contend that the document contained recitals expressing the intention of the donor that the vested remainder should take effect from the date of the document.
The next contention of the Revenue that because the donor has undertaken not to change or revoke the document, the document amounts to a gift deed cannot be correct in Jaw, when it is found that the transfer of interest is directed to take effect only after the lifetime of the executant, as the executant has not deprived himself of his interest in the property during the interval, since it is open to him to dispose of any property before the vesting date. It is because of such a situation, the document can be treated only as a will and not as a gift deed. If the document is a gift deed, there should be a present vesting of interest though the entering into possession and enjoyment of the property may be postponed to a later date.
These passages do not support the contentions of the assessee but the contentions of the Revenue in the present case in the light of the recitals contained in the deed of settlement executed by the appellant which we have quoted in para 5 (supra).
11. Respectfully following the two decisions of the Madras High Court quoted above, we confirm the gift-tax assessment made on the appellant and dismiss the appeal.