1967 (6) TMI 5 - HC - Income Tax

Father's financial support to sons qualifies as gifts under section 4(c) and 5(j), exempt from expenditure-tax

The HC held that amounts relinquished by the assessee in favor of sons constituted gifts under section 4(c) of the Gift Tax Act, 1958, and also qualified ... Gift Tax Act, 1958 - amounts relinquished in favour of the sons by the assessee - it amount to gifts within the meaning of section 4(c) of the GT Act, are also gifts within the definition of section 5(j) of the Expenditure-tax Act - therefore, items are exempt from expenditure-tax 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:- Whether the assessee is entitled to exemption from expenditure-tax under section 5(j) of the Expenditure-tax Act in respect of amounts expended on repairs to a jointly owned property, which the assessee relinquished as gifts to his sons;- Whether the amounts in question qualify as 'gifts' under section 5(j) of the Expenditure-tax Act, considering that the assessee had already been assessed and paid gift-tax under the Gift-tax Act on those amounts;- Whether the exemption under section 5(j) applies only to expenditure incurred in connection with the act of making the gift (such as conveyance expenses) or also to the amounts that constitute the gift itself;- The proper interpretation of the term 'gift' in section 5(j) of the Expenditure-tax Act, particularly whether it corresponds to the definition of gift under the general law (Transfer of Property Act) or also includes the broader definition under the Gift-tax Act;- The applicability of the proviso added to section 5(j) in 1964, which conditions exemption on either chargeability to gift-tax or payment of expenditure-tax at 4% on the value of the gift.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to exemption under section 5(j) of the Expenditure-tax Act for amounts gifted to sonsLegal framework and precedents: Section 5(j) of the Expenditure-tax Act exempts from expenditure-tax 'any expenditure incurred by the assessee by way of or in respect of, any gift, donation, or settlement on trust or otherwise for the benefit of any other person.' Prior to amendment, this provision did not explicitly clarify the scope of 'gift'. The Gift-tax Act defines 'gift' more broadly than the Transfer of Property Act.Court's interpretation and reasoning: The Court emphasized that the exemption under section 5(j) is intended to avoid double taxation where an expenditure has already attracted gift-tax. The Court rejected the Department's contention that exemption under section 5(j) should be limited to expenditure incurred in connection with the conveyance or disposition of the gift (e.g., stamp duty, registration fees) and not the gift amount itself.Key evidence and findings: The assessee incurred expenditure on repairs amounting to Rs. 15,476 (1960-61) and Rs. 31,782 (1961-62) for a jointly owned building. The assessee relinquished his rights to recover two-thirds of these amounts from his sons, effectively gifting those amounts. The assessee had filed gift-tax returns and paid gift-tax accordingly.Application of law to facts: The Court found that the relinquishment of the amounts recoverable from the sons amounted to gifts within the meaning of section 4(c) of the Gift-tax Act and also fell within the ambit of section 5(j) of the Expenditure-tax Act. Since the expenditure was incurred 'by way of or in respect of' a gift, the amounts were exempt from expenditure-tax.Treatment of competing arguments: The Department argued that the exemption should not apply because the property was under the assessee's occupation and that the expenditure was personal or related to upkeep rather than gifts. The Court rejected this, noting that some expenditures were indeed personal, but the key issue was the relinquishment of amounts recoverable from the sons, which constituted gifts.Conclusions: The Court held that the assessee was entitled to exemption under section 5(j) for the amounts gifted to his sons, as these were gifts within the meaning of the statute and had been subjected to gift-tax.Issue 2: Interpretation of the term 'gift' in section 5(j) of the Expenditure-tax ActLegal framework and precedents: The Transfer of Property Act defines gift as a transfer of existing movable or immovable property made voluntarily and without consideration, accepted by or on behalf of the donee. The Gift-tax Act defines gift more broadly, removing the requirement of acceptance and including deemed gifts such as release or abandonment of debt or claims.Court's interpretation and reasoning: The Court analyzed the definitions under both Acts and concluded that the term 'gift' in section 5(j) of the Expenditure-tax Act should be understood in the broader sense as defined under the Gift-tax Act. The Court reasoned that if the legislature intended to restrict exemption to gifts as defined under the Transfer of Property Act, it would have expressly stated so.The Court further noted the 1964 proviso to section 5(j), which links exemption to chargeability under the Gift-tax Act or payment of expenditure-tax at 4%, indicating legislative intent to harmonize the definitions and avoid double taxation.Key evidence and findings: The assessee had already been assessed to gift-tax on the amounts in question, which were deemed gifts under the Gift-tax Act's definition, including deemed gifts such as relinquishment of claims.Application of law to facts: Since the amounts were gifts under the Gift-tax Act, they also qualified as gifts under section 5(j) of the Expenditure-tax Act, entitling the assessee to exemption.Treatment of competing arguments: The Department argued that the word 'gift' in section 5(j) should be limited to the Transfer of Property Act definition. The Court rejected this, emphasizing the legislative intent and the statutory context of section 5(j).Conclusions: The Court concluded that the word 'gift' in section 5(j) encompasses gifts as defined under the Gift-tax Act, including deemed gifts, and is not confined to the narrower Transfer of Property Act definition.Issue 3: Whether exemption under section 5(j) applies to expenditure incurred 'by way of' or 'in respect of' a giftLegal framework and precedents: Section 5(j) exempts expenditure 'incurred by the assessee by way of or in respect of' a gift. The Department contended that exemption should be limited to expenditure related to the act of making the gift (e.g., conveyance, registration, legal fees) and not the amount constituting the gift itself.Court's interpretation and reasoning: The Court interpreted the phrase 'by way of or in respect of' as broad enough to cover both the expenditure amount constituting the gift and expenditure incidental to making the gift. The Court found no reason to restrict the exemption narrowly.Key evidence and findings: The assessee's relinquishment of amounts recoverable from his sons constituted gifts, and the expenditure was incurred in respect of those gifts.Application of law to facts: The amounts relinquished by the assessee were gifts and thus exempt from expenditure-tax under section 5(j), regardless of whether the expenditure was on the gift amount itself or on expenses related to making the gift.Treatment of competing arguments: The Department's narrow interpretation was rejected as inconsistent with the language and purpose of the statute.Conclusions: The exemption under section 5(j) applies both to the expenditure constituting the gift and to expenditure incurred in respect of the gift.3. SIGNIFICANT HOLDINGS- 'For the purpose of determining whether gift, which has been subjected to tax under the Gift-tax Act, is exempt under the Expenditure-tax Act, it is immaterial whether the rates under the Gift-tax Act were less than the rates under the Expenditure-tax Act. These considerations cannot be taken into account in interpreting a taxing statute.'- 'A gift under the Transfer of Property Act would nonetheless be a gift under the Gift-tax Act, so that it cannot be said that when the Expenditure-tax Act under section 5(j) used the word 'gift' it is only confining to the Transfer of Property Act.'- 'The exemption is, therefore, both in respect of the gift itself as well as the expenditure incurred in making the gift.'- The Court held that the amounts relinquished by the assessee in favour of his sons, which were recoverable from them and amounted to gifts within the meaning of section 4(c) of the Gift-tax Act, are also gifts within the definition of section 5(j) of the Expenditure-tax Act and hence exempt from expenditure-tax.- The Court answered the question referred by the Tribunal in the affirmative and allowed the exemption with costs.