COMMISSIONER OF GIFT TAX Vs. JOHN P V

JUDGEMENT

(1.) The following question of law has been referred by the Income tax Appellate Tribunal, Cochin Bench, for our determination and opinion, viz

(2.) By four documents all dated 1-12-1969, the assessee made gifts of his immovable properties to his tour children viz , (1) Renjit studying in the IV Standard, (2) Eapen studying in the S.S.L.C. Class, (3) George, studying for B.Sc. and (4) Miss. Annie John studying for B.A. The assessee filed a gift tax return wherein he showed the valuation of his property at Rs. 1,74,080.00. The entire sum was claimed to be exempted under S.5(1)(xii) of the Gift Tax Act, on the ground that the gifts were for the education of his children. That they were to meet the educational needs of the donee had been expressly mentioned in the gift deed. The Gift Tax Officer accepted the purpose stated in the deed. But while allowing the deduction under S.5(1)(xii) of the Act, he took into account the income earned from the property gifted. In the case of property gifted to Renjit, he found it yielded an annual income of Rs. 1,800/-. He assessed the period of study for the purpose of education needed by Renjit at fourteen years, for which period the income would amount to Rs. 25,200/-. The expenses to be incurred for education of the boy was calculated at Rs. 50,500/-. Deducting the income from the property from the estimated figure of expenses, the balance of Rs. 25,300/- was regarded as a deduction under S.5(1)(xii) of the Gift Tax Act. Similarly in the case of Eapen, the income from the property during the period necessary for education was fixed at Rs. 14,400/- and the expenses at Rs. 42,000/-. A deduction of Rs. 27,600/- was allowed to make allowance for the income from the property. In respect of George, the gifted property did not fetch any income. So the entire expenses of Rs. 33,500/- was allowed as deduction. In regard to Annie John the entire expenses estimated, was allowed as deduction, since the property gifted to her also did not fetch any income. In the assessment, the Officer estimated the value of the gift at Rs. 2,43,500/- and allowed a deduction of only Rs. 1,03,400.00 representing the total expenses calculated as allowable. The balance of Rs. 1,40,100.00 was taxed for the purpose of gift tax. On appeal, the Appellate Assistant Commissioner enhanced the estimated amount required for educational purpose of all the donees to Rs. 1,69,080/-. He also reduced the valuation. As regards the claim for exemption he agreed with the assessee that the Gift Tax Officer erred in taking into account the income from the gifted properties. He was of the view that the income from the gifted properties is not an element forming part of "the circumstances of the case", to be taken into account for determining reasonable amount allowable under S.5(1)(xii). There was a further appeal by the Department to the Appellate Tribunal. The contention of the Department to the Appellate Tribunal. The contention of the Department was that the income from the gifted properties during the period of the donees' education should also be taken into account for calculating the exemption under S.5(1)(xii). The Tribunal was of the view that the gift tax being levied on the corpus of the gifted property, the exemption is also related to the corpus of the property, and the income derived from the gifted property as such, which was only incidental to that, is an irrelevant consideration. The Tribunal agreed with the Appellate Assistant Commissioner's reasoning for allowing the claim of the assessee under S.5(1)(xii). It sent up the question of law referred to earlier for our opinion.

(3.) S.2(xii) of the Gift Tax Act defines the expression "gift" as follows: