Income Tax Appellate Tribunal - Madras
A. Packirisamy vs Wealth-Tax Officer on 25 April, 1996
Equivalent citations: [1982]1ITD157(MAD)
ORDER
Shri S. Rajaratnam, Accountant Member
1. This is an appeal filed by Shri A. Packirisamy, legal representative of late Smt. K. A. Kamakshi Ammal of Madras, objecting to an addition of Rs. 1 lakh to the wealth in the wealth-tax assessment for the assessment year 1976-77.
2. The assessee returned a wealth of Rs. 10,605 for valuation date relevant to the assessment year 1976-77. She had already gifted a sum of Rs. 1 lakh to her son-in-law, Shri S. Kannuswamy-Rs. 50,000 on 1-4-1975 and Rs. 50,000 on 16-8-1975. The assessee had more than Rs. 1 lakh in Aruna Trading Co., of which she was a partner. Her son-in-law was in debt with the same firm to the extent of Rs. 84,677. He was also a partner therein. An arrangement was evolved between the assessee, the donee and the firm, the effect of which was that the lady had donated Rs. 1 lakh to her son-in-law. In her own accounts, she debited her capital account and credited Aruna Trading Co. Aruna Trading Co. had debited her account and credited Shri Kannuswamy, her son-in-law, by the two amounts on the respective dates. Shri Kannuswamy also maintained accounts and he had made corresponding entries crediting himself and debiting the firm in his books by two amounts. Though the gift was effected by the book entries, it was the assessee's case that it was a tripartite arrangement and that there were funds to the credit of the assessee in the books of the firm. In fact, the assessee filed gift-tax returns and the amounts were assessed to gift-tax. All the same, the gift was ignored for the purpose of wealth-tax assessment and the WTO added this amount of Rs. 1 lakh purportedly under section 4(5A) of the Wealth-tax Act, 1957. The addition was confirmed in first appeal.
3. The learned representative for the assessee claimed that section 4(5A) had no application in the facts if the assessee's case. It was argued that the section applies only to a case where there is a mere book entry in the books of account of the assessee or the firm alone and not to such a tripartite arrangement. It was contended that there was a valid assignment of actionable claim in the facts and circumstances of the case. Section 4(5A) would come into play, according to the appellant, only where there is no credit balance. It was contended that it cannot come into play in the case of the assessee as the books of account of the firm were not maintained by her. There were also entries in the books of account of persons other than those noted in the sub-section. The entries were in pursuance of oral agreement between the parties. The learned representative relied upon three decisions, viz., [1976] 103 ITR 379 (Cal.). He also filed extracts from a book by Shri C. A. Gulanikar suggesting that all that is required is that there should be a change of both ownership and possession of gifted property so as to avoid the application of section 4(5A). The learned departmental representative, on the other hand, pointed out that these decisions do not say that it applies only to invalid gifts. In fact, there is no need for such a provision for invalid gifts, because invalid gifts will be ignored. Section 4(5A) ensures that even valid gifts can be ignored for wealth-tax purposes. He pointed out that the explanatory notes on the provisions of the Taxation Laws (Amendment) Act, 1975, mentions that the provision is intended as a device to counter tax avoidance by means of entries in the account books without really diverting any money to the alleged donee. He contended that the assessee's gift is merely by book entries and has to be ignored in view of section 4(5A), notwithstanding the legality of the gift and the consequent assessment for gift-tax purposes.
4. We have carefully considered the records as well as the arguments. We do find that it is a case of a gift by book entries in the books of the assessee, the firm and the donee. We find that it is a valid gift in law notwithstanding the fact that it is a gift by book entries only and that there was no cash balance in the firm's books. There were three persons who were parties to the agreement for transfer of Rs. 1 lakh from the assessee to the donee by way of gift. Even if we ignore the firm on the ground that it is not a legal entity, there were clearly two parties. There are entries in the books of both. There is acceptance by the donee by entries in his books. He has also acted in accordance with such acceptance for income-tax and wealth-tax purposes in his own case. The assessee has offered the amount for gift-tax purposes. Her conduct for wealth-tax purposes is consistent with her stand elsewhere. As for the firm, though it may not be a legal entity, all the partners have recognised the gift by treating partner Shri Kannuswamy as no longer owing to the firm while the assessee's credit in the firm was reduced by Rs. 1 lakh. In view of these facts, it will be futile to contend that there is no gift. In fact it is not the contention of the learned departmental representative that there is no gift. He merely says that even a valid gift would get hit by section 4(5A). Section 4(5A) reads as under :
"(5A) Where a gift of money from one person to another is made by means of entries in the books of account maintained by the person making the gift or by an individual or a Hindu undivided family or a firm or an association of persons or body of individuals with whom or which he has business or other relationship, the value of such gift shall be liable to be included in computing the net wealth of the person making the gift unless he proves to the satisfaction of the Wealth-tax Officer that the money has actually been delivered to the other person at the time the entries were made."
We do agree with the learned departmental representative that even a perfectly valid gift may get hit by section 4(5A). Hence, we are not in agreement with the learned representative for the assessee that the fact that the gifts are valid would help him. Hence, in this context the three cases cited by him are not of any help to him since these cases merely concluded that gifts in much lesser circumstances have been found to be valid. These were not cases decided under section 4(5A). However, if we were to hold that the valid gift gets hit by section 4(5A), the creditors for ignoring such a gift for wealth-tax purposes laid down in the sub-section have to be satisfied (sic). Section 4(5A) would ignore a gift from one person to another by entries in the books of account maintained by the donor or any person, including a firm, with whom he has other relationship. It may be noted that while mentioning the books of account of either the person making the gift or any other person, the word used is "or". What is clearly contemplated is gift by book entry in the books of one party only, whether it be the donor or any related person. It does not take into consideration a tripartite arrangement as in this case where there are book entries in the books of three persons including the firm. In other words, only a unilateral gift by book entries would get hit by section 4(5A) can not in a case like the present one (sic). In the facts and circumstances narrated in detail by us earlier, we find it extremely difficult to conclude that the facts in the present case relate to a gift made by book entries in the books of account of anyone of the parties mentioned under section 4(5A). We are satisfied that neither the letter nor the spirit of section 4(5A) can come in the way of our allowing this appeal. As pointed out by the learned departmental representative, section 4(5A) seeks to counter tax avoidance. Here is a case where the debt owed by the son-in-law to a firm is practically taken over by the donor without consideration and there is nothing to suggest that any tax avoidance is involved. We have merely to point out that the disputed assessment in the assessee's case merely takes the assessee's wealth to Rs. 1,10,605 after the addition of Rs. 1 lakh (sic). The net wealth in the hands of the son-in-law is slightly larger. No tax avoidance could have been intended under these circumstances. Hence, in any view, we find that there is no case for the addition. It is, accordingly, deleted. Since the wealth goes below taxable limit after the deletion the assessment is annulled.
5. In the result, the appeal is allowed in the manner indicated in the preceding paragraph.