SATYA NAND MUNJAL Vs COMMR OF GIFT TAX
Bench: D.K. JAIN,MADAN B. LOKUR
Case number: C.A. No.-003914-003914 / 2010
Diary number: 13931 / 2009
Advocates: RAMESHWAR PRASAD GOYAL Vs
B. V. BALARAM DAS
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3914 OF 2010
Satya Nand Munjal …..Appellant
Versus
Commissioner of Gift Tax …..Respondent
WITH
CIVIL APPEAL NO. 3915 OF 2010
J U D G M E N T
Madan B. Lokur, J.
1. Civil Appeal No. 3914/2010 (Assessee: Satya Nand Munjal) and
Civil Appeal No. 3915/2010 (Assessee: Om Prakash Munjal) arise
out of G.T.A. No. 3/2001 and G.T.A. No. 2/2001 respectively both
decided by the High Court of Punjab & Haryana on 17th December,
2008. The relevant Assessment Year is 1989-90.
2. At the instance of the Revenue, the High Court was called upon to
decide the following common substantial question of law:-
“Whether, on the facts and in the circumstances of the case, the ITAT was right in law in quashing the gift-tax assessment in the assessee’s case.”
3. The High Court set aside the order of the Income Tax Appellate
Tribunal (the Tribunal) and held in favour of the Commissioner of
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Gift Tax by upholding the assessment order. It is in these
circumstances that the assessee is now before us.
4. For convenience, we refer to the facts in the case of Satya Nand
Munjal.
The facts:
5. On 20th February 1982 the assessee, being the absolute owner of
6000 fully paid up equity shares of the face value of Rs. 25 each
of M/s Hero Cycles (P) Ltd. executed a deed of revocable
transfer in favour of M/s Yogesh Chandra and Brothers Associates
(the transferee). Under the deed, the assessee could, on
completion of 74 months from the date of transfer but before the
expiry of 82 months from the said date, exercise the power of
revoking the gift. In other words, the assessee left a window of
8 months within which the gift could be revoked.
6. The deed of revocable transfer specifically stated that the gift
shall not include any bonus shares or right shares received
and/or accruing or coming to the transferee from M/s Hero Cycles
(P) Ltd. (the company) by virtue of ownership or by virtue of the
shares gifted by the assessee and standing in the name of the
transferee. Effectively, therefore, only a gift of 6000 equity
shares was made by the assessee to the transferee.
7. On 29th September 1982 the company issued bonus shares and since
the transferee was a holder of the gifted equity shares, 4000
bonus shares of the said company were allotted to the transferee.
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Similarly, on 31st May 1986 another 10,000 bonus shares were
allotted to the transferee by the company.
8. Thereafter, during the window of eight months, the assessee
revoked the gift on 15th June 1988 with the result that the 6000
shares gifted to the transferee came back to the assessee.
However, the 14,000 bonus shares allotted to the transferee while
it was the holder of the equity shares of the company continued
with the transferee.
Assessment proceedings for AY 1982-83:
9. For the Assessment Year 1982-83, the Gift Tax Officer passed an
assessment order on 17th February 1987 in respect of the assessee.
He held that the revocable transaction entered into by the
assessee was only for the purpose of reducing the tax liability.
As such, it could not be accepted as a valid gift. For arriving
at this conclusion, the assessing officer relied upon McDowell &
Co. v. Commercial Tax Officer, [1985] 154 ITR 148. Accordingly,
the assessing officer, while holding the gift to be void, made
the assessment on a protective basis.
10. Feeling aggrieved by the assessment order, the assessee
preferred an appeal before the Commissioner of Gift Tax (Appeals)
but found no success. The Commissioner of Gift Tax (Appeals),
however, held that since the gift was void, a protective
assessment could not be made.
11. The assessee then preferred a further appeal to the
Tribunal and by its order dated 23rd August 1991 allowing the
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appeal; the Tribunal held the revocable gift to be valid. It was
noted that the concept of a revocable transfer by way of gift is
recognized by Section 6(2) of the Gift Tax Act, 1958 (the Act).
The value of the gift in such a case was to be calculated in
terms of Rule 11 of the Gift Tax Rules, 1958.
12. Although the decision was rendered by the Tribunal after
the gift had been revoked by the assessee, it was held that if
the assessee “does not exercise an option to revoke the gift
within the provided for period of 82 months, then at that point
of time also, there will be a further valuation of the residuary
interest….”.
13. Feeling aggrieved by the decision of Tribunal, the Revenue
took up the matter in appeal before the Punjab & Haryana High
Court. By its judgment and order in Commissioner of Gift-tax v.
Satya Nand Munjal, [2002] 256 ITR 516 the High Court dismissed
the appeal and held:
“It is a legitimate attempt on the part of the assessee to save money by following a legal method. If on account of a lacuna in the law or otherwise the assessee is able to avoid payment of tax within the letter of law, it cannot be said that the action is void because it is intended to save payment of tax. So long as the law exists in its present form, the taxpayer is entitled to take its advantage. We find no ground to accept the contention that merely because the gift was made with the purpose of saving on payment of wealth-tax, it needs to be ignored.”
14. The position as it stood, therefore, was that the
revocable gift made by the assessee was held to be a valid gift
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and the assessee was liable to pay gift tax on the value of the
gift as determined under Rule 11 of the Gift Tax Rules, 1958.
Assessment proceedings for AY 1989-90:
15. All of a sudden, on 30th January 1996 the Gift Tax Officer
issued a notice to the assessee under Section 16(1) of the Act to
the effect that for the Assessment Year 1989-90 the gift made by
the assessee was chargeable to gift tax and that it had escaped
assessment for that Assessment Year. The assessee responded to
the notice by simply stating that there is no gift that had
escaped assessment.
16. On 24th March 1998 the assessing officer passed a
reassessment order for the Assessment Year 1989-90. While doing
so, he framed two issues for consideration: firstly, whether the
transferee becomes the owner of the bonus shares particularly
because the shares have been received by it as a result of a
revocable transfer; secondly, whether the bonus shares received
by the transferee could be described as a benefit derived by the
transferee from the transferred shares.
17. The assessing officer held that the transferee does not
become the owner of the gifted shares until the transfer is an
irrevocable transfer. Proceeding on this basis, it was held that
the 14,000 bonus shares allotted to the transferee were a part
and parcel of the gifted shares and the assessee only took back
6000 shares from the transferee pursuant to the revocable gift.
Consequently, it was held that the assessee had surrendered his
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right to get back 14,000 bonus shares which were treated as a
gift by the assessee to the transferee in view of the provisions
of Section 4(1)(c) of the Act. The assessee was taxed
accordingly.
18. Feeling aggrieved by the reassessment order, the assessee
preferred an appeal to the Commissioner of Gift Tax (Appeals).
By his order dated 8th September 1998 the Commissioner held that
since there was no regular transfer of the bonus shares, the
transferee could not claim any ownership of the shares. In fact
he was only a trustee of the assessee in respect of the bonus
shares. The Commissioner also referred to McDowell & Co. and
held that the assessee had carefully planned his affairs in such
a manner as to deprive the Revenue of a substantial amount of
gift tax. The reassessment order was accordingly upheld.
19. The assessee then took up the matter with the Tribunal
which held in its order dated 23rd May 2000 that in view of the
assessment to gift tax made in respect of the assessee for the
Assessment Year 1982-83, the notice issued under Section 16(1) of
the Act was merely a change of opinion and, as such the
reassessment proceedings could not have been taken up. On the
merits of the case, it was noted that neither the dividend income
on the bonus shares nor their value had been taxed in the hands
of the assessee. Consequently, the assessee was liable to
succeed on the merits of the case also. The gift tax reassessment
was accordingly quashed by the Tribunal.
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20. The Revenue then came up in appeal before the High Court
with the substantial question of law mentioned above.
21. In the impugned order, the High Court held that the
assessee was liable to gift tax on the value of the bonus shares
which were a gift made by the assessee to the transferee. It was
held that the bonus shares were income from the original shares
by relying upon Escorts Farms (Ramgarh) Ltd. v. Commissioner of
Income Tax, [1996] 222 ITR 509. Accordingly, the order of the
Tribunal was set aside and the reassessment order upheld.
Discussion and conclusions:
22. Although learned counsel for the assessee seriously
doubted the correctness of the impugned judgment and order on
several grounds, we find that it is not necessary for us to go
into all the issues raised by him.
23. The fundamental question before the High Court was whether
there was in fact a gift of 14,000 bonus shares made by the
assess to the transferee. The answer to this question lies in the
interpretation of Section 4(1)(c) of the Act which reads as
follows :-
“Gifts to include certain transfers. 4. (1) For the purposes of this Act,-
(a) xxx
(b) xxx
(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 Assessing
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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) to (e) xxx”
24. A perusal of the impugned judgment and order facially
indicates that there has been no consideration of the provisions
of Section 4(1)(c) of the Act. From the rather elaborate
narration of facts, it is quite clear that the assessee had made
a valid revocable gift of 6000 equity shares in the company on
20th February 1982 to the transferee. This is a finding of fact
conclusively determined by the High Court in the assessee’s own
case.
25. The only event that took place in the previous year
relevant to the Assessment Year 1989-90 was the revocation of the
gift by the assessee on 15th June 1988. Was this event enough for
the Gift Tax Officer, in 1996, to re-open the assessment for the
year 1989-90, while keeping in mind the fact that bonus shares
were allotted to the transferee on 29th September 1982 and 31st May
1986? It is possible, on an interpretation of Section 4(1)(c) of
the Act to answer this question either way, but unfortunately the
High Court did not even notice this provision of the Act. Of
course, the submission of learned counsel for the assessee is
that on an interpretation of Section 4(1)(c) of the Act, it
cannot be said by any stretch of imagination, that the assessee
had made a gift of 14,000 bonus shares to the transferee in the
previous year relevant to the Assessment Year 1989-90.
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26. However, we are not inclined to decide this issue finally
since we do not have the view of the High Court on the
interpretation of Section 4(1)(c) of the Act. Nor do we have the
view of the High Court on the applicability or otherwise of the
principle laid down in McDowell & Co.
27. As far as the applicability of Escorts Farms is concerned,
the question that arose for consideration in that case was the
determination of the cost of acquisition of the original shares
when bonus shares are subsequently issued. That is the second
part of Section 4(1)(c) of the Act and that question would arise
(if at all) only after a finding is given by the High Court on
the first part of Section 4(1)(c) of the Act. But, as we have
noted above, the High Court has not considered the interpretation
of Section 4(1)(c) of the Act.
28. Under the circumstances we have no option but remand the
matter for de novo consideration by the High Court keeping in
mind the provisions of Section 4(1)(c) of the Act as well as the
orders passed in the case of the assessee for the Assessment Year
1982-83. We do so accordingly.
29. In view of the above, both the Civil Appeals are allowed
and the impugned judgment and order of the High Court is set
aside but without any order as to costs.
30. We make it clear that the parties are entitled to raise
all contentions before the High Court and are at liberty to file
additional documents, if necessary.
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….…….……………………..J. (D.K. Jain)
….…….……………………..J. (Madan B. Lokur)
New Delhi; January 22, 2013
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