SUBBA NAIDU R Vs. COMMISSIONER OF GIFT TAX

JUDGEMENT

(1.) THE substantial problem in the reference initiated by the assessee and relating to the assessment year 1959-60 is whether the inclusion of Rs. 38,880 for gift-tax is proper. That represented the total value of 208 "B" shares and 8 "A" shares held by the assessee in Udumalpet Palani Andavar Mills Limited. THEy stood registered in the books of the company right through in the name of the assessee. He was in receipt of the dividends referable to the shares, which he included in his income chargeable to tax. But the value of the shares was added to his return for purposes of gift-tax on the footing that he had by two settlement deeds dated respectively April 11, 1951 and March 31, 1959, made a gift of them absolutely to his daughter. She died on June 24, 1960 ; but the shares were not treated as part of her estate for estate duty. His case, which was not accepted by the Gift-tax Officer and the Tribunal, was that there was no actual transfer of the shares to his daughter. He maintained that by the first settlement deed he retained in himself a life interest in the first lot of shares, the remainder therein being vested absolutely in his daughter, that he had not handed over the certificates to his daughter, though the whole lot of shares was settled on her absolutely by the terms of the second settlement deed, and that neither a transfer deed was executed in favour of the daughter in relation to the shares nor a request was made to the company to transfer the shares to her name, but that, on the other hand, his name continued in the share register of the company as the holder of the shares and he also continued to receive the dividends from the shares and treat and include the same as income chargeable to tax at his hands.

(2.) THE Appellate Assistant Commissioner in deleting the addition was persuaded to the view that short of mutation of the register in favour of the daughter and because of the continuance of the assessee's name as the shareholder and his perception of the dividends, there was no transfer of the shares. THE Tribunal disagreed with that view and held that the assessee having done everything in his power to divest himself of his title to the shares, there was a completed gift thereof to his daughter. A subsidiary point raised by the assessee but rejected by the Tribunal was that, in any case, the gift comprised but the vested remainder in the shares and not the assessee's life interest therein. A further fact to be noticed in this connection is that 8 "A" ordinary shares were not the subject-matter of a gift in favour of the daughter under the first settlement deed. THE second settlement deed shows that the assessee's daughter surrendered whatever interest she had under the earlier settlement so that the assessee, jointly with his wife, could make a revised scheme of disposition of his properties and under the terms of the later document executed by the consent of all concerned including the assessee's daughter, the shares were given absolutely to her. THE document also said that the settlor was to be in possession of whatever was settled under the document in her favour.

(3.) WE do not think that any of the cases cited for the assessee runs counter to what we hive said or establishes that, in the absence of registration, there is no transfer of any interest at all in the shares to the transferee. Societe Generate De Paris v. Walker related to a contest between competing transferees. Under the first transfer, the certificates of shares along with a blank transfer were deposited with the transferee as security for a debt. Later, the holder fraudulently executed a blank transfer in respect of the shares and deposited it with the appellants before the House of Lords. They filled up the blanks and presented the transfer form to the company for registration of the transfer. By the articles of association, shares could be transferred only by a deed; lost certificates might be renewed upon satisfactory proof of the loss or, in default of proof, upon a satisfactory indemnity being given. The certificates bore an endorsement that no transfer of any portion of the shares represented by the certificates would be registered until the certificate had been delivered at the company's office. The company having refused to register the transfer in favour of the appellants, they sued for a declaration of their title to the shares as against the first transferee. The House of Lords held, all the law lords concurring in the opinion, that the title of the appellants to the shares was inchoate and they could not therefore succeed. The transfer was considered to be inchoate because the transfer form, which was in blank, was filled up by the appellants themselves and its presentation for registration was not also accompanied by the certificates which had been deposited with the earlier transferee. The equities arising between the two transferees, so to speak, were further looked at this way by the House of Lords: