1989 (1) TMI 1 - SC - Wealth-tax

Wealth Tax On Transferred Assets - includibility of gifts in net wealth - effect of proviso to section 4(1) (a) of Wealth-Tax Act

Issues Involved:
1. Proper construction of the proviso to section 4(1)(a) of the Wealth-tax Act, 1957.
2. Eligibility of gifts for exemption under the proviso.
3. Interpretation of the phrase "for any assessment year commencing after the 31st day of March, 1964".
4. Constitutionality and potential discrimination in the application of the proviso.

Detailed Analysis:

1. Proper Construction of the Proviso to Section 4(1)(a) of the Wealth-tax Act, 1957:
The core issue in these appeals revolves around the proper interpretation of the proviso to section 4(1)(a) of the Wealth-tax Act, 1957. The proviso provides for an exemption in respect of transferred assets which would otherwise be includible in the wealth of the assessee under section 4(1)(a) of the Act. The condition for the grant of the exemption is that the transfer of the asset is either chargeable to gift-tax or is not chargeable under section 5 of the Gift-tax Act, 1958.

2. Eligibility of Gifts for Exemption Under the Proviso:
The specific point for consideration is whether the exemption is attracted only to such gifts as were chargeable to tax for any assessment year commencing "after the 31st day of March, 1964," as understood by the Revenue, or whether the gifts made earlier would also attract the benefit of the exemption as claimed by the assessees. The High Courts have had divergent opinions on this matter. The Calcutta High Court, among others, construed the provision in favor of the Revenue, while the Andhra Pradesh High Court extended a wider benefit of the exemption.

3. Interpretation of the Phrase "for any assessment year commencing after the 31st day of March, 1964":
The controversy hinges on whether this phrase should be read with the first part of the proviso, referring to the eligibility of the gifts for exemption with reference to the point of time at which the gifts were made, or whether it signifies the starting point for the exemption from wealth-tax. The assessees argue that the date of the gift is immaterial and that the exemption should apply as long as the transfer is chargeable to gift-tax or is exempt under section 5, regardless of when the gift was made. The Revenue contends that the plain words of the proviso should be read as relating to gift-tax assessments and not to wealth-tax assessments.

4. Constitutionality and Potential Discrimination in the Application of the Proviso:
The assessees argue that a literal construction of the proviso would result in discrimination between two classes of assessees based solely on an arbitrary cut-off date. They highlight the anomaly between gifts made just before and just after March 31, 1963, to illustrate the potential for arbitrary discrimination. The court, however, emphasizes that if the statutory provision is plain, it must be applied regardless of the result. The rule of construction that promotes constitutionality applies only where two views are reasonably possible on the statutory language. In this case, the court finds that the plain words of the proviso can only be read as relating to gift-tax assessments.

Conclusion:
The Supreme Court concluded that the proviso to section 4(1)(a) of the Wealth-tax Act, 1957, should be interpreted as relating to gift-tax assessments. Accordingly, Civil Appeals Nos. 1226 and 1227 of 1975 preferred by the assessee are dismissed, and Civil Appeal No. 1118 of 1975 of the Revenue is allowed. The question referred is answered in the negative and in favor of the Revenue. The parties are left to bear and pay their own costs in these appeals.

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