M G KOLLANKULAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Cochin Bench (hereinafter called the Tribunal) has referred the following two questions to this court under S.27(1) of the Wealth Tax Act, 1957 (hereinafter called the Act):

(2.) The aforesaid questions have arisen in relation to the assessments to wealth tax made against the assessee for the assessment years 1970-71 and 1971-72 for which the valuation dates are 31st March, 1970 and 31st March, 1971 respectively In making those assessments the Wealth Tax Officer acting under S.4(1)(a)(i) and (ii) of the Act added to the net wealth returned by the assessee a sum of Rs. 1,27,610/- being the value of agricultural lands gifted by the assessee to his wife and children prior to 1-4-1963 but after the commencement of the Gift tax Act, 1958. The assessee complained against the said addition by filing an appeal before the Appellate Assistant Commissioner. That appeal was allowed by the Appellate Assistant Commissioner who held that sub clauses (i) and (ii) of S.4(1)(a) were not attracted to the case since the gift in question was of agricultural lands which did not constitute 'assets' within the definition of that expression contained in S.2(e) of the Act as it stood on the date of the said transaction. In this view the Appellate Assistant Commissioner held that the agricultural property gifted by the assessee to his wife and children had to be excluded while computing the net wealth of the assessee. The further contention put forward by the assessee that by virtue of the proviso to S.4(1)(a) also the value of the gifted properties had to be excluded in computing his net wealth did not, however, find favour with the Appellate Assistant Commissioner. Rejecting the said contention the Appellate Assistant Commissioner held that the proviso will be attracted only in respect of gifts made during the previous years relevant for the assessment years to gift tax commencing from 1964-65 and ending with 1971-72, but the benefit of full exclusion of the value of the assets covered by the gift was granted to the assessee on the basis of the finding that since the properties covered by the gift were agricultural lands not falling within the definition of 'assets' in S.2(e) as it stood on the date of the transfer, sub clauses (i) and (ii) of S.4(1)(a) are not attracted to the case.

(3.) The Wealth Tax Officer carried the matter in appeal before the Tribunal. Those appeals were allowed by the tribunal by a common order dated 9-10-1974 (Annexure D). The Tribunal held that there is nothing in the provisions of S.4(1)(a)(i) and (ii) of the Act to indicate that the assets transferred by the assessee to his spouse or minor child by gift etc. and held by the spouse or minor child of the assessee on the relevant valuation date should have been on the date of the gift 'assets' as defined in the Act as it stood at the time of the transfer. In the opinion of the Tribunal sub clauses (i) and (ii) of S.4(1)(a) of the Act will apply to all cases where on the valuation date assets 'are held by the spouse or minor child of an assessee pursuant to transfers effected in their favour by the assessee directly or indirectly otherwise than for adequate consideration. On the question of the applicability of the proviso the Tribunal agreed with the view taken by the Appellate Assistant Commissioner that the proviso will be attracted only in cases of transfers effected during the previous years relevant to the gift tax assessment years 1964-65 to 1971-72. The assessee having moved the Tribunal under S.27(1) of the Act the Tribunal has drawn up a statement of the case and referred the aforementioned two questions to this court.