A. Rudrakodi v. Commissioner of Income Tax — 1998 DIGILAW 479 (MAD)

Judgment :- N.V. BALASUBRAMANIAN J. The following two questions of law have been referred to us for the opinion of this court at the instance of the assessee in respect of the assessment year 1976-77, as directed by this court in judgment dated July 29, 1985, in T.C.P. No. 11 of 1985, "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the gifts of Rs. 20, 000 to Sri A. Venkatesan and Rs. 10, 000 to Sri R. Prabhu are not eligible for exemption under section 5(1)(xiii) or section 5(1)(xiv) of the Gift-tax Act, 1958 ? and 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the gift made to the assessee's daughter is not exempt under section 5(1)(vii) of the Gift-tax Act, 1958 ?" The assessee is an individual who carried on the business of automobile workshop at Salem with a branch workshop known as "Koti Engineering Works". During the assessment year, 1976-77, the assessee made certain gifts, viz., machinery valued at Rs. 65, 721 to his brother, A. Venkatesan, who was an experienced automobile mechanic and who had been in employment of the assessee since 1960. The donee had also been receiving salary but he was not in receipt of any other benefits. During the assessment year, viz., 1976-77, the said A. Venkatesan left the assessee's employment and set up an independent business. The assessee made the gift of machinery worth Rs. 65, 721 to A. Venkatesan and claimed exemption to the extent of Rs. 20, 000 (rupees twenty thousand only) out of the gift made under the provisions of section 5(1)(xiii) or alternatively under section 5(1)(xiv) of the Act. Another gift that was made by the assessee in favour of his son, R. Prabhu, who was also the employee of the assessee. The said R. Prabhu was managing the branch workshop styled "Koti Engineering Workshop". He was getting monthly salary and he was not entitled to any other benefits. The said R. Prabhu also left the assessee's employment and he had also set up a separate business. The assessee made a gift of certain machinery of the value of Rs. 75, 345 to the said R. Prabhu and claimed exemption of Rs. He was getting monthly salary and he was not entitled to any other benefits. The said R. Prabhu also left the assessee's employment and he had also set up a separate business. The assessee made a gift of certain machinery of the value of Rs. 75, 345 to the said R. Prabhu and claimed exemption of Rs. 10, 000 under section 5(1)(xiii) or 5(1)(xiv) of the ActThe Gift-tax Officer rejected both claims of the exemption of Rs. 20, 000 and Rs. 10, 000 on the ground that both A. Venkatesan and R. Prabhu were paid monthly salary for the services rendered by them and that, therefore, the claim of the assessee was untenable. The assessee preferred an appeal against the order of the Gift-tax Officer. The Commissioner of Income-tax (Appeals) has found that in so far as A. Venkatesan is concerned, he had his training as an automobile apprentice and he was employed in Simpson and Company Ltd. He thereafter joined the assessee's workshop some time during the previous year relevant to the assessment in the year 1961-62 and the quantum of remuneration payable to Sri Venkatesan in the assessment of the assessee came up for consideration in an appeal filed by the assessee before the Income-tax Appellate Tribunal for the assessment year 1964-65. The Tribunal held that the payment of annual salary of Rs. 9, 000 to Sri A. Venkatesan who happened to be a skilled mechanic could not be taken as unreasonable. It was also found that the said A. Venkatesan was employed only up to the assessment year 1975-76 and he was getting Rs. 11, 750 and taking into consideration the number of years of service put in by the said A. Venkatesan and also taking into consideration that the said A. Venkatesan did not have any other benefit, like provident fund, the Appellate Assistant Commissioner has held that the assessee was entitled to claim deduction of a sum of Rs. 20, 000 under section 5(1)(xiii) of the Act. In so far as Prabhu is concerned, it was found that he has studied up to Pre-University course and he was managing a branch workshop and he was also getting monthly salary. He was an employee of the assessee up to the end of September, 1975, and he was getting a salary of Rs. 2, 750 per month. In so far as Prabhu is concerned, it was found that he has studied up to Pre-University course and he was managing a branch workshop and he was also getting monthly salary. He was an employee of the assessee up to the end of September, 1975, and he was getting a salary of Rs. 2, 750 per month. Since Prabhu had put in more than six years of service in the assessee's company at the time he left the employment and since he also did not get any other benefit like provident fund, etc., the Appellate Assistant Commissioner held that the assessee would be entitled to claim deduction of Rs. 10, 000 paid as consideration for the past services. The Revenue has challenged the order of the Appellate Assistant Commissioner by filing an appeal before the Income-tax Appellate TribunalThe Income-tax Appellate Tribunal went into the matter in detail and ultimately found that the assessee had not produced any evidence or material to show that the gifts given to both Venkatesan and Prabhu were solely in consideration of the past services rendered by them. The Tribunal after having found that there was no evidence at all to support the claim of the assessee also recorded a finding that the brother and son of the assessee, after getting gifts from, the assessee started their own business and the gifts were made by the assessee to assist them for setting up their own business and due to the close relationship of the assessee with the donees. It is this order of the Tribunal which is the subject-matter of challenge in the first question. In so far as the second question is concerned, the assessee made a gift of Rs. 15, 000 to his daughter, Smt. Chadurvedinayaki. The assessee had performed the marriage of his daughter in September, 1971, and the gift was made on September 29, 1975. The assessee claimed exemption in respect of the marriage gift under section 5(1)(vii) of the Act. The Gift-tax Officer rejected the claim on the ground that the gift was made long after the marriage and it cannot therefore be said that the gift was made on the occasion of the marriage. The assessee claimed exemption in respect of the marriage gift under section 5(1)(vii) of the Act. The Gift-tax Officer rejected the claim on the ground that the gift was made long after the marriage and it cannot therefore be said that the gift was made on the occasion of the marriage. The Appellate Assistant Commissioner allowed the assessee's claim on the ground that the assessee had not paid any substantial gift to his daughter at the time of marriage of his daughter, due to his other commitments and, hence, the gift made later was eligible for exemption. The Income-tax Appellate Tribunal on appeal by the Department reversed the finding of the Appellate Assistant Commissioner and held that the gift cannot be said to have been given on the occasion of the marriage, as there was no evidence to show that the gift was on the occasion of the marriage as the marriage took place four years earlier. It is this finding of the Income-tax Appellate Tribunal, which is the subject-matter of reference in question No. 2 referred to us for the opinion of this courtMr. T. N. Seetharaman, learned counsel for the petitioner-assessee, submitted that the gifts of Rs. 20, 000 and Rs. 10, 000 made to A. Venkatesan and R. Prabhu, respectively, were made in consideration of the past services rendered by them to the assessee and the salaries paid to Venkatesan and Prabhu during the tenure of their services were meagre and they were not provided any other facility, viz., provident fund, etc. According to learned counsel for the assessee, it is not correct to say that the gifts were made to A. Venkatesan and Prabhu on account of the close relationship of the assessee with the donees. On the other hand, Mr. C. V. Rajan, learned counsel appearing for the Revenue, supported the order of the Income-tax Appellate Tribunal. We have carefully considered the submissions of learned counsel appearing for the assessee and learned counsel appearing for the Revenue. It is seen that the Tribunal has rendered a categorical finding that there was absolutely no evidence to show that the gifts were made to those donees in consideration of their past services. The assessee has not established anywhere that it was his practice to make gifts to the employees when they leave the services. It is seen that the Tribunal has rendered a categorical finding that there was absolutely no evidence to show that the gifts were made to those donees in consideration of their past services. The assessee has not established anywhere that it was his practice to make gifts to the employees when they leave the services. The Tribunal has considered the case of A. Venkatesan, when the question of deduction of the salary paid to A. Venkatesan came up for consideration before the Tribunal. The Tribunal has held that the payment of Rs. 9, 000 by way of salary to the said A. Venkatesan was quite reasonable and that it was also further enhanced to Rs. 11, 750 during the assessment year 1975-76. The Tribunal therefore recorded a finding that in the absence of any evidence to show that the assessee made gifts to the employees in consideration of the past services rendered by them, the assessee was not entitled to claim exemption under section 5(1)(xiii) or under section 5(1)(xiv) of the Act. The Gift-tax Officer also recorded a finding that the employees have received adequate remuneration for their past services rendered from time to time and in the absence of any evidence to show that the gifts were made solely in recognition of the past services rendered by the donees we are of the opinion the finding of the Tribunal that the gifts were not made solely in recognition of past services of the employees is a finding of fact. Further, it was not established before us that the Tribunal has failed to take into account any relevant consideration or the Tribunal has taken into account any irrelevant consideration in arriving at such a conclusion. On the other hand, we are of the opinion that the Tribunal has recorded a finding that as the gifts were made to the brother and son of the assessee in materials and it was also found that the two donees have set up their own business and, therefore, the assessee was not entitled to claim exemption having regard to his close relationship with those doneesLearned counsel for the assessee in his fairness has not pressed the claim for exemption on account of the gifts under section 5(1)(xiv) of the Act. In view of the finding of the Tribunal, we hold that the assessee is not entitled to claim exemption on the gifts made to both A. Venkatesan and R. Prabhu either under section 5(1)(xiii) or under section 5(1)(xiv) of the Gift-tax Act, 1958. We, accordingly, answer the first question referred to us in the affirmative and against the assesses. In so far as the second question is concerned, it relates to the gift made by the assessee to his daughter on the occasion of her marriage. Admittedly, the marriage took place in September, 1971, but the gift of Rs. 15, 000 was made to her on September 29, 1975. As the assessee had certain financial commitments at the time of the performance of the marriage of his daughter, he could not make any substantial presentation to his daughter at the time of her marriage. However, after some improvements in his financial position, he subsequently made a gift of Rs. 15, 000 to his daughter on September 29, 1975. It was found that the assessee's son-in-law was employed in the Postal Department. The Tribunal rejected the claim of the assessee for exemption only on the ground that there was no evidence to show that the gift was made by him in pursuance of some marriage arrangements made by him for his daughter. In our opinion, the Tribunal ought to have considered the entire circumstances of the case and the case of the assessee, which was accepted by the Appellate Assistant Commissioner. The case of the assessee was that he could not make the gift to his daughter at the time of marriage due to his severe financial commitments. It is a common knowledge that performance of any marriage, particularly the daughter's marriage would involve huge wedding expenditure and since it is a heavy commitment normally one cannot expect that the assessee would have been in a position to make the gift at the time of performance of the marriage of his daughter. When the financial position improved, for the assessee, naturally he made a gift of Rs. 15, 000 to his daughter, i.e., nearly after four years after the marriage of his daughter. When the financial position improved, for the assessee, naturally he made a gift of Rs. 15, 000 to his daughter, i.e., nearly after four years after the marriage of his daughter. In view of the peculiar facts and circumstances of the case, we are of the opinion that the case of the assessee is acceptable that the gift has been made by the assesses on the occasion of the marriageThis court in CGT v. Dr. Mrs. Neelambal Ramaswamy, has taken the view that the expression "on the occasion of the marriage" under section 5(1)(vii) of the Gift-tax Act, 1958, should not be given any restricted meaning and if the gift made was associated with the event of the marriage or if the reason for the gift or the immediate cause thereof was the marriage, it would be covered by the said expression. It was further held that the relationship between the gift and the marriage was the relevant factor and not the time of making the gift. We are, therefore, of the opinion that the principles laid down by this court in CGT v. Dr. Mrs. Neelambal Ramaswamy are fully satisfied on the facts of the present case. The gift made was associated with the event of the marriage and the assessee had given a plausible reason for the delayed gift and he has established the nexus between the marriage and gift. Applying the principles of law laid down by this court in CGT v. Dr. Mrs. Neelambal Ramaswamy, we are fully satisfied that the assessee is entitled to exemption under section 5(1)(vii) of the Gift-tax Act, 1958. The Tribunal has denied the exemption claimed by the assessee in toto but we hold that the assessee would be entitled to the maximum amount of exemption of a sum of Rs. 15, 000 under section 5(1)(vii) of the Gift-tax Act, 1958. Accordingly, we answer the second question referred to us in the negative and in favour of the assessee. However, in the circumstances of the case, there will be no order as to costs.