Income Tax Appellate Tribunal - Mumbai
Nusli N. Wadia vs Assistant Commissioner Of Income-Tax on 26 February, 1996
Equivalent citations: [1996]58ITD365(MUM)
ORDER
M. K. Chaturvedi (JM)
1. This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals) VIII, Bombay, and pertains to the assessment year 1984-85.
2. Briefly the facts : By an Indenture dated the 30th January, 1947, Sir Nusserwanjee Nowrosjee Wadia (also known as "Sir Ness Wadia") created an irrevocable trust for the benefit of Neville Ness Wadia and his children by settling 1001 fully paid ordinary shares of Bombay Dyeing and Manufacturing Co. Para 2 of the Trust Deed reads as under :
"2. THE TRUSTEES shall stand and be possessed of the Neville Ness trust Fund No. 2 and of the dividends interest and income to be derived therefrom upon the following trusts that is to say -
(a) Upon trust in the first place to reimburse themselves and to pay and discharge all costs, charges and expenses incurred in or about the administration of the trusts of these presents;
(b) Subject thereto to pay the residue to such dividends, interest and income of the said Neville Ness son of the Settlor for the period of his life;
(c) After the death of the said Neville Ness Wadia upon trust to divide the Neville Ness Trust Fund No. 2 into as nearly as possible two equal moieties and to hold the same upon trust."
3. The composition of the trust asset from the beginning to end was placed before us vide page 96 of the paper book. This is reproduced here as under :
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Sr. No Date No. of shares Face value of
shares
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Rs.1. 13-1-1947 1001 250
(Dt. of settlement) 2. 30-3-1957 4004 250 (Dt. of release by Mr. Neville Wadia) 3. 1-1-1964 40040 25 (Conversion in lower denomination) 4. 10-11-1966 48048 25 (Bonus issue 1:5) bonus shares 8008 5. 21-12-1967 52857 25 (Bonus issue 1:5) 4000 shares sold between 4 & 5) 6. 18-11-1976 51570 25 (Bonus issue 1:5 9882 shares sold between 5 & 6) 7. 18-11-1976 61884 25 (Bonus issue 1:5) 8. 23-8-1979 123368 25 (Bonus issue 1:1) 200 shares sold between 7 & 8) 9. 28-5-1981 176468 25 (Rights issue :
55500 shares) 2400 shares sold between 8 & 9
10. 3-1-1983 (above split into 2 moities - one for Diana & one for Nusli) Mr. Nusli's Moitey 87162 25 2144 shares sold between 9 & 10 11. 8-7-1985 83504 25 (Trust come to end by transfer 3658 shares sold between 10 & 11)
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It was stipulated in the Trust Deed that on the demise of Sir Ness Wadia, the trust fund will be divided equally between Diana Claire Wadia and Nusli Wadia and the trust would come to an end.
4. Vide Release Deed dated 30-3-1957, Shri Neville Wadia (Releaser) extinguished his life interest in the said trust.
5. When son of the Settlor surrendered his life interest to his children, question arose whether in amounts to transfer of property of property by son to his children. The Hon'ble Bombay High Court in the case of CIT v. Neville N. Wadia [1973] 90 ITR 155, has held :
"The operative clause in the deed executed by the assessee directly and clearly provided for complete surrender and release of all the interests the assessee had in the trust created by the original deed of settlement. Whatever came to the son and daughter of the assessee in consonance of the release deed was the result of the provisions made in their favour under the original deed of settlement and the release deed did not create any interest of any kind in their favour. The execution of the release deed did not, therefore, amount to a transfer of assets by the assessee in favour of his minor children within the meaning of section 16 (3)(a)(iii) and the income from the trust accruing to the minor son and daughter of N could not be included in his total income."
6. The assessee declared in his wealth-tax return till the assessment year 1983-84, the value of his life interest in the trust at Rs. 7,39,830, being the cost of acquisition as on 1-1-1964.
7. During the relevant assessment year, assessee sold the life interest for a consideration of Rs. 21,70,000 vide Agreement dated 19-3-1984, to M/s. Kapadia Trading Co. Ltd. and another. The assessee filed Profit and Loss and Balance Sheet. Loss on account of business was reflected at Rs. 1,267. It was found that loss was mainly due to motor-car expenses. In the computation sheet, assessee appended a note wherein the factum of the sale of life interest was mentioned. It was claimed that the amount is not exigible to tax as the cost of acquisition of the assessee was 'Nil'. The assessee relied on the decision of the Apex Court rendered in the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) and the Income-tax Appellate Tribunal decision in the case of Gopaldas T. Aggarwal v. ITO [1983] 6 ITD 451 (Bom.). The A. O. sought direction under section 144A of the Income-tax Act, 1961. As per the directions of the IAC, the amount was added.
It was contended before the CIT (A) that since 'life interest' was acquired by the assessee from his father, by way of release deed, and without and cost, capital gains tax cannot be levied. CIT (A) held that the Settlement Deed by Neville Wadia in favour of Nusli Wadia amounted to gift. Therefore, cost of acquisition is to be determined in terms of sec. 49 (1)(ii). The amount in question was held exigible to tax.
8. Smt. Shobha H. Jagtiani, learned counsel for the assessee, appeared before us. It was vehemently contended that the Bombay High Court in the case of Neville N. Wadia (supra) has held that execution of Release Deed did not amount to a transfer of assets by the assessee in favour of his minor children within the meaning of section 16 (3)(a)(iii) of the I. T. Act, 1922. According to the learned counsel without transfer there cannot be any gift. Transfer is an essential ingredient for making a gift. Ordinarily transfer without consideration are known as gifts. In the instant case, assessee released his life interest. It was not a case of transfer. It was unilateral act. For transfer bilateral act is sine qua non. Our attention was invited on the decision of the Apex Court rendered in the case of Goli Eswariah v. CGT [1970] 76 ITR 675 (SC), wherein it was held that a transaction entered into by one person with another contemplated by clause (d) of sec. 2 (xxiv) of the Gift-tax Act, 1958, cannot apply to an unilateral act. The act must be one to which two or more persons are parties.
9. It was stated that where a life interest holder releases by an unilateral transaction, his life interest in certain properties in favour of certain chosen remaindermen who are also parties, to the Release Deed, there is a grant of interest in the property in favour of the releaser. Such transaction squarely falls within the scope of the Gift-tax Act. Such transaction amounts to a gift. But if a life interest holder releases by a unilateral act, his interest in favour of the remaindermen, there is no transfer involved due to lack of bilateral transaction.
10. Alternatively, it was argued without prejudice to the aforesaid contention that the value of the asset was not correctly taken. Assessee took the right issues consequent upon 1-1-1964. Assessee also got the bonus shares. Therefore, the cost is to be determined with reference to the correct amount.
11. Shri Ahmad Fareed, the learned Departmental Representative appeared before us. It was vehemently contended that the amount in question is exigible to tax. The act of release of life interest, according to the learned Departmental Representative was a gift. Our attention was invited on the provisions of section 49 (1)(ii) of the I. T. Act, 1961. The learned DR took us through the facts of the case discussed in Neville N. Wadia (supra) in the case of Neville N. Wadia. It was stated that the matter was not viewed in the context of gift. Further the Hon'ble High Court construed it not a 'transfer' in relation to section 16 (3)(a)(iii) of Indian Income-tax Act, 1922. This decision, according to the learned DR, cannot be applied in the facts of the present case. The matter whether it is a gift or not is to be looked into with reference to the definition of the gift as given under section 2 (vii) of the Gift-tax Act, 1958.
12. The learned DR further invited our attention to section 4 (1)(c). It was contended that where a tenant in life surrendered or relinquishes his property without consideration, the value of the interest so surrendered can be deemed to be a gift made by such person.
13. In regard to the alternative argument, apropos the ascertainment of correct amount of cost of acquisition, ld. D. R. raised no objection.
14. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon.
Section 49 of the Income-tax Act speaks about the cost with reference to certain modes of acquisition. It is stipulated in the section that where a capital asset became the property of the assessee -
(i)........
(ii) under a gift or will,
(iii)(a) by succession, inheritance or devolution, or.......
(iv) the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.
15. The CIT (A) was of the opinion that the capital asset became the property of the assessee under a gift. As such, it was held exigible to tax. The ingredients of gift can be enumerated as under :
(1) there must be a transfer by one person to another;
(2) the transfer should be of any existing movable or immovable property; (3) the transfer must be made voluntarily; and (4) the transfer must be made without consideration in money or money's worth.
If all these essentials are fulfilled, then there will be a gift.
Section 122 of the Transfer of Property Act, 1882 coining a definition of the expression "gift" reads as under -
"122. 'Gift' is the transfer of certain existing movable or immovable property made voluntarily and without consideration by one person, called the donor, to another called the donee, and accepted by or on behalf of the donee."
Under section 2 (xii) of the Gift-tax Act, gift is defined as under :
"'Gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or moneys worth and includes the transfer or conversion of any property referred to viz., sec. 4, deemed to be a gift under that section."
16. On a comparison of the above definition of the 'gift' with that contained in the Transfer of Property Act, it appears that the definition of gift under the Gift-tax Act is of wider import than the one under the Transfer of Property Act. Any transfer of existing property by one person to another made voluntarily and without consideration is 'gift' under the Gift-tax Act. The definition of 'transfer of property' under the Gift-tax Act is of a very wide import. The acceptance of gift by a donee or someone on his behalf does not appear to be a specific requisite condition for a gift under the Gift-tax Act. Thus, the definition of the expression 'gift in section 2 (xii) of the Gift-tax Act, differs substantially from the definition given in sec. 122 of the Transfer of Property Act, 1882.
17. The element of acceptance of the gift by a donee is lacking in the definition of the expression 'gift' under the Gift-tax Act, whereas the element is present in the definition given u/s. 122 of the Transfer of Property Act. On a comparison of the phraseology of the two provisions, one may argue that in order to constitute a valid gift under the gift-tax Act, it is not essential that the donee should have accepted the gift. Such an argument cannot be accepted especially in view of the definition of 'donee' [section 2 (viii)] "as a person who acquires any property under a gift". The meaning of the word 'acquire' is given in Chambers' Twentieth Century Dictionary is 'to gain; to attain to, Shorter Oxford English Dictionary gives the meaning as "acquires : (1) To receive to come into possession. This connotes that the person concerned should have a positive mental attitude "to gain", "to get as one's own", to receive or to come into possession of. Moreover, under section 29 of the Gift-tax Act, a donee can be called upon to pay the tax if the Assessing Officer is of the opinion that the same cannot be recovered from the donor. It does not seem to be, that the intention of the Legislature was to make a person liable for tax in respect of a transaction which he does not agree to, or even repudiates. If such an argument is accepted, the result will be that the donee can be made liable for tax even in cases where he repudiates the gift, for the taxable event arises on the donor executing the gift deed.
18. Sec. 4 (1)(c) of the Gift-tax Act was referred by the ld D. R. in order to buttress the claim that even unilateral act can constitute a gift. This section speaks about a deeming provision and concerns a situation, inter alia, where there is a release of any interest in property by any person, the value of such release, etc., shall be deemed to be gift, to the extent not found bona fide to the satisfaction of the AO.
19. Under section 49 of the I. T. Act, 1961, the 'cost of acquisition' of capital asset which becomes the property of the assessee under a gift or will, etc., is deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred by the previous owner or the assessee, as the case may be. However, it is possible that the previous owner of the capital asset might have acquired the asset under a gift or will or by any other mode of acquisition referred to in sec. 49. In such a case, it could be urged that acquisition cost of the asset to the assessee was 'nil'. The Finance Act, 1965, has, therefore, amended this section, with effect from 1st April, 1965, by way of adding an Explanation to it to the effect that the expression "previous owner of the property" in relation to a capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in sec. 49. Accordingly, in the instant case "cost to the settlor" as per index, shall be the cost of acquisition.
20. The case of the assessee, in our opinion, falls within the matrix of sec. 49 (1)(ii) of the I. T. Act, 1961. The decision of the Hon'ble Bombay High Court was rendered in a different context. It is not relevant in the facts of the present case. The act of release of 'life interest' comes within the ken of gift. As such 'cost of the settlor' as per index shall be the cost of acquisition. However, in relation to the subsequent acquisition by way of bonus and right shares, cost is to be determined correctly in accordance with law. We, therefore, allow the alternative argument advanced on behalf of the assessee.
21. We, therefore, set aside the impugned order and restore the matter to the file of the A. O. with direction to compute correctly the amount of capital gains in accordance with law after providing adequate opportunity to the assessee of being heard.
22. In the result, appeal of the assessee stands partly allowed.