1978 (2) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Whether the expression "gift" in Section 47(iii) of the Income Tax Act, 1961, means gift as defined under the Gift Tax Act, 1958, or as generally understood.
2. Whether the assessee is liable to pay tax under Section 45 of the Income Tax Act, 1961, after having already been taxed under the Gift Tax Act, 1958, for the same transaction.

Issue-wise Detailed Analysis:

1. Definition of "Gift" in Section 47(iii) of the Income Tax Act, 1961:
The primary issue was whether the term "gift" in Section 47(iii) of the Income Tax Act, 1961, should be interpreted in the context of the Gift Tax Act, 1958, or in its general sense. The court examined the definitions and provisions under both the Income Tax Act and the Gift Tax Act.

Section 2(47) of the Income Tax Act defines "transfer" to include sale, exchange, or relinquishment of an asset, while Section 45 imposes tax on profits or gains from the transfer of a capital asset. Section 47(iii) excludes transfers under a gift from the applicability of Section 45.

The Gift Tax Act, 1958, defines "gift" under Section 2(xii) as a transfer made voluntarily and without consideration, and Section 4(1)(a) deems transfers for inadequate consideration as gifts.

The court noted that the term "gift" in Section 47(iii) should be understood in its ordinary sense, as per the Transfer of Property Act, rather than being confined to the definition under the Gift Tax Act. This interpretation aligns with the legislative intent and avoids rendering Section 52 of the Income Tax Act redundant.

2. Liability to Pay Tax Under Section 45 of the Income Tax Act, 1961:
The second issue was whether the assessee, having already been taxed under the Gift Tax Act for the transaction, should also be liable to pay tax under Section 45 of the Income Tax Act.

The Tribunal had ruled in favor of the assessee, stating that it would be unjust to impose capital gains tax after the transaction had already been taxed as a gift. However, the court disagreed with this reasoning, emphasizing that different taxable events under different statutes do not constitute double taxation.

The court cited several precedents, including the Supreme Court's observations in Jain Brothers v. Union of India, which clarified that the Constitution does not prohibit double taxation, and each statute must be interpreted based on its terms.

The court concluded that the assessee's liability under the Income Tax Act remains unaffected by the prior taxation under the Gift Tax Act. The principle of avoiding double taxation applies only when the same income is subjected to the same tax twice, not when different taxes are imposed on different aspects of a transaction.

Conclusion:
The court held that the term "gift" in Section 47(iii) of the Income Tax Act, 1961, should be understood in its general sense and not as defined under the Gift Tax Act, 1958. Consequently, the transaction in question does not qualify for exclusion under Section 47(iii), and the sum of Rs. 38,709 is liable to tax as capital gains under Section 45 of the Income Tax Act. The Tribunal's decision was overturned, and the question was answered in the negative, favoring the revenue.

In the facts and circumstances of the case, there was no order as to costs.