9911796707
TMI Blog1980 (10) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... for her absolute use and benefit. After the death of Smt. Ansuya Sarabhai, the trustees had to transfer and assign the trust property absolutely to the children and grandchildren of late Ambalal Sarabhai in certain specified proportions, as mentioned in the deed of settlement dated 30th August, 1949. Pursuant to the aforesaid deed, the assessee was paid the net income arising from the trust property for a number of years. Thereafter, on 12th July, 1964, by a deed, Smt. Ansuya Sarabhai, out of natural love and affection, released, surrendered and yielded her right, title and interest for life in that net income of the trust property in favour of the said children and grandchildren of late Shri Ambalal Sarabhai who were otherwise to get the trust property after the demise of Smt. Ansuya Sarabhai. For the assessment year 1965-66, the assessee filed a gift-tax return computing the value of her interest released at Rs. 74,563. The GTO (as per his assessment order) computed the taxable gift at Rs. 94,089 after allowing statutory exemption of Rs. 5,000. The GTO computed the value of 20 equity shares in Karamchand Premchand Ltd. at Rs. 31,240 and 80 equity shares in Sarabhai Sons P. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of settlement and the settlor in consideration of natural love and affection which he bore to his sister, Ansuya Sarabhai, the present assessee, and his children and grandchildren, effected the trust of the said shares and directed the trustees to pay the net income of the property to the settlor's sister, Ansuya (the present assessee), during her lifetime for her absolute use and benefit. It was further provided that, after the death of the said Ansuyaben, the trustees shall transfer and assign the trust property absolutely to the children and grandchildren of the settlor in the manner provided by the deed of settlement. The trustees were given a discretion to sell the trust property or a part thereof and invest the sale proceeds in any securities or investments as the trustees might in their absolute discretion think fit. Pursuant to the aforesaid deed of settlement, the assessee went on receiving the income from the aforesaid trust property for years together. Thereafter, on 12th July, 1964, she executed a release deed, which is the document in question in the present proceedings. As the relevant recitals in the said release deed have to be construed for deciding the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust property to Geeta S. Mayor; and 9. one-twentieth of the trust property to Gira A. Sarabhai. And Whereas, pursuant to the said deed of trust, the trustees have been paying the net income of the trust property to the releasor for her absolute use and benefit And. Whereas the trust property at present subject to the provisions of the said deed of trust consists of shares, more particularly described in the first schedule hereunder written, now in the hands of the trustees as trustees of the said deed of trust. And Whereas in consideration of the natural love and affection which the releasor bears towards the releasees who are the children and grandchildren of the brother of the releasor, the releasor is desirous of releasing, surrendering and extinguishing her life interest in, the net income in the portion of the trust property specified in the second schedule hereunder referred in favour of the releasees. Now This indenture Witnesseth that in pursuance of the premises and in consideration of the natural love and affection which the releasor bears towards the, releasees, the releasor doth hereby release, surrender and yield unto the releasees her right, titl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in question did not squarely fall within the aforesaid main provisions, even then, the said transaction would be covered by the provision of s. 4(1)(c) of the G.T. Act, 1958, and will be deemed to be gift as per the said provision and, consequently, liable to be brought to tax. Before we deal with the aforesaid submission of Mr. Raval for the revenue, it is necessary to have a look at the relevant statutory provisions of the G.T. Act. Section 3 is the charging section and it provides: "Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the 1st day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the 1st day of April, 1957), at the rate or rates specified in the Schedule." Thus, any gift effected by an assessee during the relevant previous year would be liable to be brought to tax under charging s. 3. Consequently, a question would arise as to whether by executing the aforesaid release deed, any gift was made by the assessee in favour of the beneficiaries mentioned in the said docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or the Reserve Bank of India; (b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transferor ; (c) where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment, to the extent to which it has not been found to the satisfaction of the Gift-tax Officer to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment; (d) where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any other person jointly without adequate consideration and such other person makes an appropriation from or out of the said property, the amount of the appropriation used for the benefit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right, title or interest in the net income of the portion of the trust property which was made the subject-matter of the release deed and the releasees were to hold the release deed and the releasees were to hold the share and interest respectively reserved unto the releasees by the deed of trust dated 30th August, 1949, expectant on the death of the releasor and, therefore, the aforesaid interest was to be accelerated and was to take effect in possession as from the date of the release deed itself and the concerned releasees had a right to the enjoyment of the concerned shares mentioned in the second schedule to the document to the entire exclusion of the releasor or of any benefit to her. It, therefore, appears clear that the assessee who was the releasor had released or surrendered her life interest in the portion of the trust property which discharged the trustees of their obligation under the trust deed qua that portion of the property and enabled the releasees who were beneficiaries under the original deed of 1949, to resume possession of the entire corpus of the concerned trust property which was the subject-matter of the release deed. Thus, the existing right of the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1949 as party of the, second part and even though they have signed the release deed, the fact remains that the operative part of the release deed reflects unilateral intention on the part of the releasor, that is, the assessee, to divest herself of her life interest in the shares in question and to surrender her interest to the trustees with a view to bring to an end her life interest in the trust property. Thus, the operative provision of the aforesaid indenture of release is purely self-induced on the part of the releasor desiring to surrender her entire life interest in the concerned shares with a view to accelerate the vested remainder of the original beneficiaries under the settlement deed of 1949. Thus, the operative part of the release deed represents a unilateral act on the part of the releasor to relinquish and surrender her life interest in the portion of the trust property in question. In that view of the matter, it is obvious that the definition provision of s. 2(xii) cannot be pressed into service by the revenue in the present case. As we have already stated above, before a transfer can be styled as gift, it must be shown that there is a transfer by one person to ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r doubt that the releasor by effecting the release deed in question, had diminished the value of her life interest in the entire trust property and to that extent, it went to swell the value of the property of the concerned beneficiaries. But this will be of no avail to the revenue for the simple reason that before s. 2(xxiv)(d) can apply it must be shown by the revenue that the transaction in question was entered into by any person with the intention mentioned in the said provision. This provision postulates that there must be a transaction between two parties. Thus, it must be bilateral transaction or a multilateral transaction. In the present case, as we have already shown above, the relevant operative provisions of the deed clearly show that the releasor had voluntarily sought to release her life interest in the concerned selected portion of the trust property as mentioned in the second schedule to the document. Thus it was not transaction between more than one person. In short, it was not bilateral or multilateral transaction. On a conjoint reading of s. 2(xii) read with s. 2. (xxiv)(d) of the Act, it appears clear that before any transaction can be styled as gift, it must imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y attempt to find out the bona fides of the releasor and to reach any conclusion one way or, the other on this aspect. A mere reading of the relevant provision of s. 4(1)(c) shows that before any release or surrender can be dubbed deemed gift, it must be shown by the revenue that the GTO was satisfied with respect to that release or surrender that it was not bona fide made by the concerned party. In the absence of any such satisfaction being reached by the GTO, the document in question would remain outside the scope of s. 4(1)(c) and cannot be styled as a deemed gift. Not only the GTO never reached such a negative finding, but he did not also make any effort in that behalf. The assessee, immediately after the assessment order, pointed out to the GTO the apparent error committed by him in his assessment order when he sought to bring to tax the amount of Rs. 94,089 and submitted that the transaction in question was a bona fide release as contemplated by s. 4(1)(c) of the G.T. Act. The assessee requested the GTO to rectify the said mistake. The GTO paid no heed to that request. The assessee raised this very contention before the authority in appeal. Even at that stage, the GTO did, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne. In that view of the matter, it cannot be urged by Mr. Raval for the revenue that the release in question reflected a transaction which amounted to a deemed gift under s. 4(1)(c) especially when the finding of fact reached to the contrary by the AAC is not disturbed by the Tribunal namely, that the release deed reflected a bona fide transaction which was well justified according to the circumstances in which the releasor was placed at the relevant time. Such a finding of fact based on relevant evidence cannot be disturbed by this court in reference proceedings. Hence, even the second alternative submission of Mr. Raval for the revenue can be of no avail to him and has got to be repelled. We may mention at this stage that our attention was invited by Mr. Raval to various decisions of the different High Courts as well as the Supreme Court. We will briefly refer to them. The first decision to which our attention was invited by Mr. Raval for the revenue was in the case of Provident Investment Co. Ltd. v. CIT [1953] 24 ITR 33 ; 23 Comp Cas 260 (Bom). A Division Bench of the Bombay High Court had to consider the question of capital gains under s. 123 of the Indian I.T. Act, 1922, as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exercise his ingenuity so to arrange his affairs as may make it possible for him legally and lawfully not to pay tax, and if his ingenuity succeeds, however reluctant the court may be to acknowledge the cleverness of the assessee, the court must give effect to the letter of the taxation law rather than strain that letter against the assessee." Mr. Raval pointed out that the aforesaid decision of the Bombay High Court went up to the Supreme Court as reported in [1957] 32 ITR 190 (CIT v. Provident Investment Co. Ltd.). The aforesaid decision of the Bombay High Court as confirmed by the Supreme Court cannot be of real assistance to Mr. Raval. In the said decision it has been held that relinquishment was not exigible to capital gains under s. 12B of the I.T. Act as it stood then on the statute book. So far as we are concerned, we are governed by the relevant-statutory provisions of the G.T. Act and we have to decide the matter accordingly. We were then taken to the decision in CIT v. Dadabhoy G. Broacha [1968] 68 ITR 614 (Bom). The facts in the case before the Bombay High Court were that one B executed two documents of trust in 1941 transferring certain properties in trust to tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the donees and the trustees continued to remain liable to make good the life interest as assigned to the concerned assignees. It is in the light of the peculiar recitals of the document in question that the Bombay High Court came to the aforesaid conclusion against the assessee. As we have already discussed in detail earlier, so far as the operative provisions of the release deed in the present case are concerned, the conclusion is inescapable that the life interest was not transferred by the releasor in favour of the releasees, but on the contrary, it was destroyed by the very act of release and the concerned trustees were discharged from their obligation to make good the life interest during the remainder of the life of the releasor. Mr. Raval, however, contended that the aforesaid decision of the Bombay High Court showed that there was no bar against any person effecting gift or assignment of his life interest in favour of the remaindermen. That may be so. But so far as the clear recitals of the present release deed are concerned, the conclusion reached by the Bombay High Court in the aforesaid case in the background of different recitals of the document before them, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian I.T. Act, 1922. It was held by the Bombay High Court in the aforesaid decision that (head note): " ...the operative clause in the deed executed by the assessee directly and clearly provided for complete surrender and I release of all the interests the assessee had in the trust created by the original deed of settlement. Whatever came to the son and daughter of the assessee in consequence of the release deed was the result of the provisions made in their favour under the original deed of settlement and the release deed did not create any interest of any kind in their favour. The execution of the release deed did not, therefore, amount to a transfer of assets by the assessee in favour of his minor children within the meaning of s. 16(3)(a)(iii) and the income from the trust accruing to the minor son and daughter of N could not be included in his total income." The recitals in the release deed in the present case also create similar situation in which the interest of the remaindermen under the settlement deed of 1949 gets accelerated on account of self-effacement resorted to by the releasor, the assessee in the present case, qua the properties selected by her for the operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer in question is a transfer of property within the definition given in section 2(xxiv), it is not capable of being a 'gift' within the meaning of the Act." The High Court also considered, cl. (c) of s. 2(xxiv) with which we are not directly concerned in this case and hence we need not refer to that aspect any further. But the Bombay High Court also referred to the term " disposition " in cl. (xxiv) and the word " transaction " in cl. (d) of s. 2(xxiv) and observed that the word " disposition " is not a term of law. It has no precise meaning. Its meaning has to be gathered from the context in which it is used. In the context in which it is used in s. 2(xxiv), it cannot mean " to dispose of ". In that provision it is used along with the words " conveyance, assignment, settlement, delivery, payment or other alienation of property ". It is clear from the context that the word " disposition therein refers to a bilateral or multilateral act. The word " transaction in cl. (d) of s. 2(xxiv) also refers only to a bilateral transaction and not a unilateral transaction. A transfer to which two persons are not parties can never amount to a gift." While interpreting the aforesaid provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parcener impresses his separate property with the character of joint family property. A contention was raised before the Full Bench on behalf of the revenue seeking reliance on s. 2(xxiv)(d) of the Act and it was submitted that the transactions would be covered by this provision. While repelling that contention, it was observed by the Full Bench (p. 179): " Section 2(xxiv), clause (d), includes within the category of 'transfer of property' any transaction entered into by any person with intent thereby to diminish the value of his own property and to increase the value of the property of another person. This clause applies to any transaction entered into with the specified intent. " It was also observed in that connection (p; 180): " The words used in clause (d) are 'any transaction entered into by any person'. These words clearly contemplate a bilateral transaction a transaction entered into by the donor with some other person ...... What clause (d) requires is that the donor must 'enter into a transaction' and that can only be with some person. We cannot equate the words 'enter into a transaction' with, 'do an actor abstain from doing an Act'. We must give due effect to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no serious controversy that by the declaration dated September 1, 1961, the appellant must be deemed to have made a gift of the items mentioned therein to the undivided family, of which she was a member. The aforesaid observations of the Supreme Court based on the relevant terms of the declaration dated September 1, 1961, in that case cannot be of any assistance to the revenue in the present case as we have to confine ourselves to the recitals in the release deed in question for their correct, interpretation. Mr. Raval also invited our attention to the decision of the Supreme Court in CED v. Kantilal Trikamlal [1976] 105 ITR 92. There, the Supreme Court was concerned with the interpretation of the term " disposition " as used in s. 2(15) of the E.D. Act, 1953. In, that case, the facts were that by an instrument styled release deed executed on November 16, 1953, between a father and his son, who formed a joint Hindu family, a sum of Rs. 1 lakh was taken by the father in lieu of his share in the joint family properties, which share was valued at Rs. 3,44,068 and he relinquished his interest in the remaining properties of the joint family which were declared to belong to the son ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, which was based on the peculiar wording of Expln. 2 to s. 2(15) of the E.D. Act, cannot be effectively pressed into service by Mr. Raval for the revenue in the present case. Mr. Raval also invited our attention to a decision of the Madras High Court in S.R.Chockalingam Chettiar v. CGT [1968] 70 ITR 397. The question before the Madras High Court was as to whether right to obtain a specified number of rights shares under s. 81 of the Companies Act in a fresh issue of capital was a tangible right which can be made the subject-matter of a gift. It was held by the Madras High Court in that case that such a right is not an interest in a future property but in an existing property as defined in the G.T. Act and the Tribunal was right in directing the officer to levy gift-tax on "the market quotations of the rights". We fail to appreciate how this judgment can be of any help to Mr. Raval in the present case. It is no doubt true that life interest is an existing interest in property which can be legally made the subject-matter of gift if the donor chooses to do so. But unfortunately for the revenue, in the present case, the releasor has not chosen to do so, on the contrary, she ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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