COMMISSIONER OF GIFT TAX Vs. SAH ROOP NARAIN

JUDGEMENT

(1.) THIS is a reference under Section 26(1) of the Gift-tax Act, 1958 (hereinafter referred to as "the Act"), at the instance of the Commissioner for decision of the following questions of law, namely :

(2.) THE relevant assessment year is 1973-74. By a will dated January 15, 1951, executed by Mohan Lal Sanghi, father of Smt. Ayodhya Kumari, wife of Sah Roop Narain, the assessee, the testator bequeathed his properties at Kota comprising of Brij Talkies, Mohan Kutir and Mohan Mansion in favour of Anil Kumar, son of Smt, Ayodhya Kumari, and Sah Roop Narain, while giving his daughter, Smt. Ayodhya Kumari, and her husband, Sah Roop Narain, the life interest to enjoy the income from these properties without having any right to alienate or encumber the same in any manner. For the assessment years 1963-64 to 1971-72, the assessment was completed in the case of Anil Kumar including the value of these properties treating them as his properties. It appears that an objection was taken to the failure to tax the income from these properties in the hands of Sah Roop Narain and his wife, Smt. Ayodhya Kumari. Accordingly, the Wealth-tax Officer commenced proceedings against them. It then transpired that Sah Roop Narain and his wife, Smt. Ayodhya Kumari, had executed a release deed dated May 27, 1972, under which they had given up their right to enjoy the income from these properties declaring categorically that Anil Kumar, who was the owner of these properties, would also be entitled to enjoy the income thereof.

(3.) A bare perusal of Clause (e) of Sub-section (1) of Section 4, inserted by the Finance Act, 1980, with effect from April 1, 1980, and applicable from the assessment year 1980-81 clearly shows that where a person who has an interest in property for life and surrenders or relinquishes his interest in the property or otherwise allows his interest to be terminated, the transaction is deemed to be a gift made by such person of the amount by which such value exceeds the consideration, if any, received in the transaction. In a case like the present where the assessee and his wife have surrendered or relinquished their interest in property for life, the transaction shall be deemed to be a gift under Section 4(1)(e) inserted with effect from April 1, 1980, but the same was not available during the relevant assessment year 1973-74 with which we are concerned. This distinct enacting provision inserted by the Finance Act, 1980, with effect from April i, 1980, is a clear indication of the legislative intent and indicates that the other material provisions existing prior to the insertion of this provision with effect from April 1, 1980, did not take within their ambit a transaction like the present for which Clause (e) now makes a specific provision. There is also a corresponding amendment made in Sub-clause (c) of Clause (xxiv) of Section 2 of the Act. The objects and reasons for these amendments in the Gift-tax Act appearing in paragraph 42.1 at page 48 of the Statutes part of [1981] 131 ITR supports this conclusion. It clearly mentions that to overcome the decision of the Bombay High Court in CGT v. Mrs. Jer Mavis Lubimoff [1978] 114 ITR 90, and to plug the lacunae pointed out in this decision, these two amendments were made in the Gift-tax Act by amending Sub-clause (c) of Clause (xxiv) of Section 2 and the insertion of a new Clause (e) under Sub-section (1) of Section 4 of the Act. It is also significant that earlier the existing Sub-section (2) was inserted in Section 4 of the Act in a similar situation and a corresponding amendment was made in Clause (xii) of Section 2 of the Act to overcome the decision of the Supreme Court in Goli Eswariah v. CGT [1970] 76 ITR 675, in which it had been held that the throwing into the common hotchpot of the Hindu undivided family of self-acquired property by a coparcener was not a gift under the Act, since it was a unilateral act which did not amount to transfer of property and it did not even require the acceptance by the other members of the Hindu undivided family. Accordingly, by the Finance Act, 1971, Sub-section (2) was inserted with effect from April 1, 1972, along with the corresponding amendment in Clause (xii) of Section 2 to treat such a transaction as a gift. A similar difficulty arising as a result of judicial decisions, particularly the above Bombay High Court decision led to insertion of Clause (e) in Sub-section (1) of Section 4 and the corresponding amendment in Clause (xxiv) of Section 2 of the Act by the Finance Act, 1980, with effect from April 1, 1980.