COMMISSIONER OF GIFT TAX ERNAKULAM Vs. ABDULKARIMMOHD

JUDGEMENT

(1.) This appeal by special leave is against the decision of the High Court of Kerala in Income-tax Reference No. 101 / 1974 and it raises an important issue concerning the requirements of a gift made "in contemplation of death" within the meaning of Section 5(1)(xi) of Gift Tax Act, 1958 ('The Act'). That reference was made under Section 26(1) of the Gift Tax Act, 1958 by the Income-tax Appellate Tribunal Cochin Bench. The Tribunal referred to the High Court two questions for its opinion, out of which we are concerned only with the first question which reads:

(2.) The Gift-Tax Officer rejected the claim of the assessee and brought the said amount to tax. But on appeal the Appellate Assistant Commissioner held to the contrary, He allowed the exemption sought for on the ground that the gift was in contemplation of death. He has relied upon the circumstances under which the gift was made and the events followed thereafter to reach his conclusion. He has described the facts and circumstances as follows: "Now I agree with Sri Karunakaran, that the absence of any reference in the deed of settlement to the illness from which the donor was suffering does not lead to the conclusion that there was no illness, or that the donor was not apprehensive of death resulting from the same. There is ample evidence to show that he was seriously ill at the time when he made the gift. He was aged about 72 at the time and he was also suffering from paralysis, diabetes, hernia etc. In fact, in view of the seriousness of the condition, he could not proceed to the Sub-Registrar's office for registration of the document; on the other hand the sub-registrar was brought to his residence for the purpose of effecting the registration. In an affidavit filed by him before the Gift-Tax Officer on the 3rd August, 1969, the sub-registrar has affirmed that at the time of execution of the document the settlor was in sick bed and was unable to move out of the same. He has also stated that the settlor as well as his children showed anxiety and haste in the matter of registration on account of the serious nature of the illness. At that time, according to the sub-registrar the settlor was in his proper sense, but soon after the. execution of the deed, further complications set in and his power of speech and movements became impaired. Dr. V. B. Mohamed who was treating him has certified that on 4th June, 1964 the patient was unable to recognise the surroundings properly, and that his mental condition was impaired to a great degree. On 9th June, 1964 i.e. within about six weeks from the date of the settlement he died. In these circumstances, I am. satisfied that the donor, an aged gentleman who was seriously ill at the time of the settlement entertained no hope of recovery, and that it was in such a state of mind, that he made the settlement. Hence the gifts must be taken to have been made in contemplation of death."

(3.) The Gift-Tax Officer appealed to the Tribunal against the decision of the Appellate Assistant Commissioner. The Tribunal has affirmed the finding of the Appellate Assistant Commissioner that the donor at the time of gift was ill and expected to die shortly of his illness. The Tribunal observed "But we are satisfied that the Appellate Assistant Cornmissioner was on the facts and circumstances of the case right in his Conclusion that the donor, an aged gentleman, who was seriously ,ill at the time of the settlement entertained no hope of recovery and that it was in such a state of mind that he made the settlement. The materials referred, relied on and discussed by the Appellate Assistant Commissioner in the appellate order are sufficient enough to lead to a reasonable conclusion that the donor was, at the time of execution of the document, ill and that he expected to die shortly of his illness." The Tribunal however, did not agree with the exemption allowed to the assessee. It has stated that the finding recorded by the Assistant Commissioner that the donor was ill at the time of gift and he died thereafter out of the illness alone is not sufficient to hold that the gift was made in contemplation of death. In order to satisfy the requirements of gift in contemplation of death there must be two other conditions to be satisfied; (i),there must be delivery of possession of the gifted movables to the donee; (ii) that a gift is entitled to take effect only in event of the donor's death and that if the donor recovers from the illness the property should revert back. On the first condition the Tribunal found on facts that there was-delivery of possession of the gifted movables. On the second condition, the Tribunal observed that the gift was unconditional and it was in nature of settlement deed, pure and simple. It was executed to settle absolutely forever the property of the donor without any condition. It is just like any other settlement executed by a person without the contemplation of death. It has not been expressly specified or impliedly present in the deed that the gift must revert back in the event of the donor recovering from illness..The gifted property has to be kept as a gift in case the donor shall die of his illness has also not been satisfied in the case. With these findings, the Tribunal allowed the appeal of the Gift-Tax Officer.