T SARASWATHI ACHI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 27(1) of the Wealth-tax Act, 1957. For the assessment year 1965-66, the relevant valuation date being June 30, 1, 964, the Wealth-tax Officer sought to include the value of a gift of 20, 000 shares in Rajendra Mills made on July 22, 1960, by the assessee in favour of her two minor unmarried daughters under section 4(1)(a)(ii) of the Act. The assessee contended that by virtue of the proviso to section 4(1)(a) which was introduced by the Wealth-tax (Amendment) Act, 1964, which came into force with effect from April 1, 1965, the value of the shares gifted to the two minor unmarried daughters are not liable to be included in the total wealth of the assessee. The Wealth-tax Officer, the Appellate Assistant Commissioner and the Tribunal held that the proviso would apply to only those gifts which are chargeable to gift-tax in any assessment year commencing after the 31st day of March, 1964, under the Gift-tax Act and those gifts which are not chargeable under section 5 of that Act and it will not apply to a case where the gift was made as in this case on 22nd July, 1960. At the instance of the assessee the following two questions have been referred "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expression "for any assessment commencing after the 31st day of March, 1964" occurring in the proviso to section 4(1)(a)(ii) of the Wealth-tax Act, 1957, had reference to the assessment under the Gift-tax Act, 1958, and not to the assessment under the Wealth-tax Act, 1957 ?(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 6, 20, 000 was properly included in the net wealth of the assessee for the assessment year 1965-66 ?" *As the construction of the proviso is involved in this reference, we may usefully set out that provision as it stood in the relevant assessment year ".4. (1) In computing the net wealth of an individual, there shall be included, as belonging to that individual, --(a) the value of assets which on the valuation date are held--(ii) by a minor child, not being a married daughter of such individual, to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration, orwhether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwiseProvided that where the transfer of such assets or any part thereof is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958), or is not chargeable under section 5 of that Act, for any assessment year commencing after the31st day of March, 1964, the value of such assets or part thereof, as the case may be, shall not be included in computing the net wealth of the individual." *The argument of the learned counsel for the assessee is that the words "for any assessment year commencing after the 31st day of March, 1964 referred to the same assessment year which is contemplated under section 3 of the Wealth-tax Act and that therefore, irrespective of the date of gift for wealth-tax purposes for any assessment year commencing from 1st day of April, 1964, the assets transferred in favour of a minor child or unmarried minor daughter shall not be deemed to be held by the transferor-assessee. According to the learned counsel the fiction of treating an asset transferred in favour of such minor children as belonging to the individual created by the main part of the section was made inapplicable as and from the assessment year 1964-65 by the proviso. On the other hand, learned counsel for the revenue contends that the words "for any assessment year commencing after the 31st day of March, 1964" qualifies the chargeability or exemption of a particular gift under the Gift-tax Act and not to the assessment year referred to in section 31 of the Wealth-Tax ActWe must state that the section is plausible of both these constructions, but having given a careful consideration we think that the construction placed by the learned counsel for the revenue is more reasonable and acceptable. Normally, chargeability of gift-tax or the exemption thereof is to be understood with reference to an assessment year under the Gift-tax Act. Otherwise we think that chargeability to gift-tax or the exemption thereof under the Gift-tax Act, 1958, could not be precisely defined. Further, an exemption under section 5 of the Gift-tax Act could obviously be only with reference to an assessment year because Parliament might take away the exemption in a subsequent year.

(2.) THUS, the said words should be understood as a reference to the assessment year under the Gift-tax Act and not the assessment year under the Wealth-tax Act. This conclusion is also supported by two other circumstances. In the first place, we see that the gift-tax which was about 8% when the value of the total assets gifted exceeded Rs. 1, 45, 000 was increased to 40% as and from the assessment year 1964-65. Further, in that assessment year by Finance Act, 1964Income-tax Act, 1961, the penalty is leviable under the old Act, whereas if the return was subsequent to the commencing of the new Act, i.e., April 1, 1962, the penalty is leviable under the new Act. The argument advanced was that the fixing of the date, April 1, 1962, is arbitrary and discriminatory. Repelling this contention the Supreme Court observed as follows" *The date, 1st April, 1962, which has been selected by the legislature for the purpose of clauses (f) and (g) of section 29 7(2) cannot be characterised as arbitrary or fanciful. It is the date on which the Act of 1961 actually came into force. For the application and the implementation of the Act of 1961, it was necessary to fix a date and the stage of the proceedings which were pending for providing by which enactment they would be governed. According to Hatisingh Mfg. Co. Ltd. v. Union of India, the State is undoubtedly prohibited from denying to any person equality before the law or the equal protection of the laws but by enacting a law which applies generally to all persons who come within its ambit as from the date on which it becomes operative no discrimination is practised. In that case although a distinction had been made with reference to section 25FFF(1) of the Industrial Disputes Act, 1947, as inserted by Act 18 of 1957 between employers who had closed their undertakings on or before November 27, 1956, and those who had done so after that date, it was held that article 14 had not been violated. "We do not, therefore, agree with the learned counsel on this part of the argumentWe may also notice that at or about the same time in section 33(1) of the Estate Duty Act, 1953, Finance Act, 1965, introduced section 33(1)(o) which reads as follows" *.33. (1) To the extent specified against each of the clauses in this sub- section, no estate duty shall be payable in respect of property of any of the following kinds belonging to the deceased which passes on his death(o) property taken under any gift made by the deceased to the spouse, son, daughter, brother or sister, beyond a period of five years before his deathProvided that the property is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958), or is not chargeable under section 5 of that Act, for any assessment year commencing after the 31st day of March, 1964. " arliament used the identical language in this provision also as in the proviso to section 4(1)(a). A reading of section 33(1)(o) makes it clear that the words "for any assessment year commencing after the 31st day of March, 1964" in that provision refers to the assessment year under the Gif t-tax Act, the Estate Duty Act itself not contemplating any assessment year as such.