A. Ramaswamy Mudaliar v. Commissioner of Gift Tax — 1975 DIGILAW 97 (MAD)

Judgment :- SETHURAMAN, J. This reference arises out of the gift-tax assessment for the asst. yr. 1964-65 and the question referred runs as follows : "Whether, on the facts and in circumstances of the case, the Tribunal was right in holding that the computation of gift-tax by the GTO was in accordance with the provisions of S. 6 A of the GT Act, 1958 ? Sec. 6 A referred to in the question was a short-lived provision but so confusing to understand. The relevant facts which brought in the operation of this provision may now be given. Sir A. Ramaswami Mudaliar made gifts to his daughter-in-law, Mrs. Andal Damodaran, in this year and in some of the earlier years. In the relevant year, he made a gift of Rs. 16, 750 to her. In earlier year he had made a gift of Rs. 37, 982. In the relevant previous year for the asst. yr. 1964-65, he made gifts to other persons totalling Rs. 38, 122. If S. 6 A were not in operation, then the tax would be payable on the following two amounts, namely, (1) Gift made to Andal Ammal, Rs. 16, 750 and Gifts made to other persons Rs. 38, 122 totalling Rs. 54, 872. Because of the operation of S. 6 A, the gifts made in the earlier years were liable to be aggregated. As stated already, a gift of Rs. 37, 982 had been made in one of the four preceding years prior to the relevant previous year relevant under S. 6 A. As there was a basic exemption of Rs. 10, 000 available in that year the taxable gift with reference to the said amount was only Rs. 27, 982. The result of the operation of S. 6 A, therefore was to arrive at the taxable gifts of Rs. 54, 872 of this year and Rs. 27, 982 of the earlier year. After giving the basic exemption of Rs. 5, 000 available for this year, the balance of gift of this year along with the amount of earlier gift taken for the purpose of aggregation came to Rs. 77, 854. the GTO arrived at Rs. 13, 363.50 P. as the tax for this year, on said sum of Rs. 77, 854. He had thereafter to give the rebate which is available under S. 6 A itself. 77, 854. the GTO arrived at Rs. 13, 363.50 P. as the tax for this year, on said sum of Rs. 77, 854. He had thereafter to give the rebate which is available under S. 6 A itself. At present, it is enough to mention that he applied the average rate of tax on Rs. 27, 982 being the taxable gift of the earlier year. The average rate of tax was taken as 17.165 paise per rupee. This yielded a sum of Rs. 4, 803-11 P and it was deducted from Rs. 13, 363-50. The gift-tax payable was, therefore, determined at Rs. 8, 560.39 P. 2. The assessee disputed the manner of application of S. 6 A and contended that the rate of 17, 165 paise per rupee should have been applied only to the gift of Rs. 16, 750 made in the relevant previous year to Mrs. Andal and not to the entire gift of Rs. 49, 872 as made by the GTO. The AAC did not accept this submission. In the further appeal to the Tribunal, the same contention was taken. The Tribunal has worked out the tax calculation on the basis of an analysis of S. 6 A to which we shall presently refer. Suffice it to say now that the Tribunal found that the determination of tax by the GTO was correct and that the assessee's calculation did not deserve to be accepted. 3. Sec. 6-A : of the GT. Act was introduced by the Finance Act of 1964. The provision is difficult to understand, but its purport appears to be (1) to take the gifts to the same donee in the earlier years for the purpose of aggregation and (2) to give rebate with reference to the said amount so aggregated. 3. Sec. 6-A : of the GT. Act was introduced by the Finance Act of 1964. The provision is difficult to understand, but its purport appears to be (1) to take the gifts to the same donee in the earlier years for the purpose of aggregation and (2) to give rebate with reference to the said amount so aggregated. The provision has to be reproduced in full, and it runs as follows :" * Sec. 6-A : Aggregation of gift made to the same donee during a certain period :- (1) Notwithstanding anything to the contrary contained in this Act where an assessee has made taxable gifts to the same donee during a previous year and during any one or more of the four previous years immediately preceding such previous year, the gift-tax payable by him for the relevant assessment year shall, subject to the provisions of sub-s. (2), be determined in the following manner, namely : (a) The value of the taxable gifts made to such donee during any one or more of the four previous years immediately preceding the previous year relevant to the assessment year shall be aggregated with the value of the taxable gifts made by the assessee during the relevant previous year and gift-tax shall be calculated on the aggregate value at the rate or rates specified in the schedule :(b) from the amount of gift-tax calculated under cl. (a), there shall be deducted the aggregate of - (i) an amount which bears to the amount of gift-tax calculated under cl. (a), the same proportion to the value of any taxable gift made to such donee prior to the 1st April, 1963, included in the aggregate value referred to in cl. (a) bears to such aggregate value; (ii) the amount of any gift-tax payable by the assessee for each of the four assessment years immediately preceding the relevant assessment year in respect of the value of the taxable gifts made by him to the said donee after the 31st day of March, 1963, included in the aggregate value referred to in cl. (a); and the balance shall be the amount of gift-tax payable by the assessee. Explanation-For the purpose of sub-cl (ii) of cl. (a); and the balance shall be the amount of gift-tax payable by the assessee. Explanation-For the purpose of sub-cl (ii) of cl. (b), the amount of gift-tax payable by an assessee in respect of the value of taxable gifts made by him to the same donee for each of the four assessment years immediately preceding the relevant assessment year meant such proportion of the total amount of gift-tax payable by the assessee for that assessment year as the value of any taxable gifts made by him after the 31st day of March, 1963, to such donee during the relevant assessment year bears to the total value of the taxable gifts made by the assessee during that previous year. (2) The gift-tax payable by an assessee shall, in no case, be less than the amount of gift-tax which would be payable by him without given effect to the provisions of sub-s. (1)." This provision was deleted from the statute w.e.f. the 1st April, 1966 by the Finance Act of 1966. In applying this provision, we have first to see whether an assessee has made taxable gifts to the same donee during the earlier four years. It is only if this condition is satisfied that the application of the provision has to be further considered. If it does not so satisfy, then the provision will not apply. If this condition is satisfied, then the provisions states that, if gifts had been made to the same donee in one or more of the four pervious year immediately preceding the previous year, such gifts would have to be taken into account in levying the tax. The relevant previous year for the purpose of this case was the year ended 31st March, 1964. The previous four years would start from the financial year 1959-60. In this case, there was a gift in one of the four preceding years to the extent of Rs. 37.982/- which, after the basic exemption of Rs. 10, 000/- was taken as Rs. 27, 982/- which was alone taxable in the earlier year. Therefore, the first two steps in the present case would be to arrive at the taxable gift of this year and to take the amount of gift made in one of the four preceding years. There is no dispute that these two figures total Rs. 77, 854/-. 4. 27, 982/- which was alone taxable in the earlier year. Therefore, the first two steps in the present case would be to arrive at the taxable gift of this year and to take the amount of gift made in one of the four preceding years. There is no dispute that these two figures total Rs. 77, 854/-. 4. The next part of this provision is to arrive at the tax on the said sum of Rs. 77, 854/-. There is no dispute that the tax on this sum is Rs. 13, 363.50 P. We have now to take the rebate available to the assessee from the said sum of Rs. 13, 363-50. P. because, to the extent of Rs. 27, 982/- which has been aggregated in this year, there would be double taxation if the rebate was not given. In other words, as Rs. 27, 982/- had already been taxed, it was not intended that the assessee should pay a further tax on the same sum this year. The only idea behind this provision was to bring it into the balance for the purpose of working out the rate. As far as the tax on Rs. 77, 854/- is concerned, as set out already, there is no controversy. As regards the rebate which is available under cl. (b)(i), it has to be worked out as follows : We have to take the amount which bears to the amount which bears to the amount of gift-tax calculated under cl. (a) the same proportion to the value of any taxable gift made to such donee prior to the 1st April, 1963 included in the aggregate value referred to in cl. (a). The aggregate value referred to in cl. (a) was Rs. 77, 854/- and the amount included therein with reference to in cl. (a) was Rs. 27, 982/-. Therefore the proportion contemplated under cl. (b) (i) for the purpose of rebate would be : 133363-50X27982/77854 That came to Rs. 4, 803, 11P. This was deducted from Rs. 13, 363.50 and the balance of Rs. 8560.39 was found as tax payable. Upto this point also, there is at any rate before us, no difference between the assessee and the Revenue. 5. Now, comes the problem as to whether the assessee is eligible to a further deduction under sub-cl. (ii) of cl. This was deducted from Rs. 13, 363.50 and the balance of Rs. 8560.39 was found as tax payable. Upto this point also, there is at any rate before us, no difference between the assessee and the Revenue. 5. Now, comes the problem as to whether the assessee is eligible to a further deduction under sub-cl. (ii) of cl. (b) of S. 60 A. That is the only point in issue before us. On a reading of the entire provision and taking into account its background. we are satisfied that sub-cl. (ii) of cl. (b) would apply only for any later assessment year than the asst. yr. 1964-65. That is clear from the words, "after the 31st March, 1963", appearing in sub-cl. (ii). We do not propose to add anything more on this part of the clause because it dose not lie for interpretation for this year. The assessee is not eligible for any further benefit under sub-cl. (ii) cl. (b) of S. 6-A. The question is answered in the affirmative and in favour of the Revenue. The Revenue will be entitled to its costs. Counsel's fee Rs. 250/-.