1989 (12) TMI 130 - AT - Income Tax

Accounting Year, Assessment Proceedings, Mistake Apparent From Record, Penalty For Concealment, Reassessment Proceedings, Total Income, Undisclosed Sources

Issues Involved:
1. Whether the revocable gift made by the assessee to M/s. M&L Investments Pvt. Ltd. is liable to gift-tax.
2. Validity of the gift under the Transfer of Property Act.
3. Applicability of section 6(2) of the Gift-tax Act.
4. Determination of the value of the gift.

Issue-wise Detailed Analysis:

1. Whether the revocable gift made by the assessee to M/s. M&L Investments Pvt. Ltd. is liable to gift-tax:

The primary issue in this appeal is whether the revocable gift made by the assessee to M/s. M&L Investments Pvt. Ltd. is liable to gift-tax. The Gift-tax Officer considered the transfer of jewellery as a gift within the meaning of section 2(xii) and 'transfer of property' under section 2(xxiv) of the Gift-tax Act. He computed the value of the jewellery at Rs. 14,68,000 and levied tax on it. The Commissioner (Appeals) held the gift void under section 126 of the Transfer of Property Act, thus exempting it from gift-tax. However, the Tribunal reviewed the facts and concluded that the gift, although revocable after 74 months, is still a gift under section 6(2) of the Gift-tax Act.

2. Validity of the gift under the Transfer of Property Act:

The assessee argued that the gift is void as it is revocable, violating section 126 of the Transfer of Property Act. The Commissioner (Appeals) accepted this argument, declaring the gift void and not liable for gift-tax. However, the Tribunal noted that section 126 of the Transfer of Property Act does not apply to the Gift-tax Act. The Tribunal emphasized that irrevocability is essential for a gift under ordinary parlance and section 126 of the Transfer of Property Act, but not necessarily under the Gift-tax Act, especially with the provisions of section 6(2) that accommodate revocable gifts after a specified period.

3. Applicability of section 6(2) of the Gift-tax Act:

The Tribunal focused on section 6(2) of the Gift-tax Act, which deals with gifts that are revocable after a specified period. The Tribunal clarified that the absence of a definition for 'irrevocable transfer' in the Gift-tax Act does not exclude revocable gifts from being taxed. The Tribunal distinguished the present case from the Bombay High Court decision in CGT v. Dr. R. B. Kamdin, indicating that section 6(2) of the Gift-tax Act explicitly covers gifts revocable after a specified period, thus making the present gift taxable.

4. Determination of the value of the gift:

The Tribunal directed that the value of the gift should be determined under section 6(2) of the Gift-tax Act and rule 11 of the Gift-tax Rules. The Tribunal noted that the Gift-tax Officer and Commissioner (Appeals) had not applied these provisions to determine the gift's value. The Tribunal remanded the case back to the Gift-tax Officer to apply section 6(2) and rule 11, allowing the assessee to present arguments regarding the gift's value, including the contention that the gift has no value due to the absence of income from the jewellery during the irrevocable period.

Conclusion:

The Tribunal set aside the orders of the Gift-tax Officer and the Commissioner (Appeals), directing the Gift-tax Officer to reassess the value of the gift under section 6(2) of the Gift-tax Act and rule 11 of the Gift-tax Rules. The Tribunal allowed the Revenue's appeal for statistical purposes, emphasizing that the revocable gift after a specified period is taxable under the Gift-tax Act.

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