1989 (1) TMI 221 - SC - Wealth-tax

Supreme Court clarifies Wealth Tax Act exemption timeline

The Supreme Court held that the exemption under the proviso to Section 4(1)(a) of the Wealth-Tax Act, 1957 applies only to gifts made after March 31, ... Whether on the facts and in the circumstances of the case and on a proper interpretation of section 4(l)(a) of the Wealth-tax Act as amended by the Wealth-tax (Amendment) Act, (Act 46) of 1964, the sum of ₹ 1,00,011/- gifted by the assessee to her minor daughter could be included in computing her net wealth? Held that:- The rule of construction that if the statutory provision is susceptible or admits of two reasonably possible view then the one which would promote its constitutionality should be preferred on the ground that the legislature is presumed not to have intended an excess of its own jurisdiction, is subject to the further rule that it applies only where two views are reasonably possible on the statutory language. If the words of the statute, on a proper construction, can be read only in a particular way, then it cannot be read in another way by a court of construction anxious to avoid its unconstitutionality. In a case, as here, a reference arises under ‘Act’, the question of the constitutionality of the ‘Act’ cannot be examined and pronounced upon. Even if the proviso is bad for discrimination, it would follow that the converse situation brought about by the later amendment, a discrimination as between gifts made as between the 31st of March, 1972 and on 1st April, 1972 might also become bad. It is true that we are required to notice the provision as it stood at the relevant time - the question referred is answered in the negative and in favour of the revenue. Issues Involved:1. Proper construction of the proviso to Section 4(1)(a) of the Wealth-Tax Act, 1957.2. Whether the exemption under the proviso applies to gifts made before or after March 31, 1964.3. Divergence in judicial opinions on the interpretation of the proviso.4. Constitutionality of the proviso based on the alleged arbitrary cut-off date.Issue-wise Detailed Analysis:1. Proper Construction of the Proviso to Section 4(1)(a) of the Wealth-Tax Act, 1957:The main question was the correct interpretation of the proviso to Section 4(1)(a) of the Wealth-Tax Act, 1957, which provides for exemptions for transferred assets chargeable to gift-tax or not chargeable under Section 5 of the Gift-Tax Act, 1958. The proviso states: 'Provided that where the transfer of such assets or any part thereof is either chargeable to gift-tax under the Gift-Tax Act, 1958 (18 of 1958), or is not chargeable under Section 5 of that Act, for any assessment year commencing after the 31st day of March, 1964, [but before the 1st day of April, 1972], the value of such assets or part thereof, as the case may be, shall not be included in computing the net wealth of the individual.' The issue was whether this exemption applies only to gifts made after March 31, 1964, or also to those made earlier.2. Whether the Exemption Applies to Gifts Made Before or After March 31, 1964:The divergence in judicial opinions was highlighted, with several High Courts (Calcutta, Madras, Punjab, Kerala, Madhya Pradesh, and Bombay) supporting the Revenue's interpretation that the exemption applies only to gifts made after March 31, 1964. Conversely, the Andhra Pradesh High Court extended the exemption to gifts made before this date. The Supreme Court examined whether the phrase 'for any assessment year commencing after the 31st day of March, 1964' should determine the eligibility of gifts for exemption or merely signify the starting point for the exemption from wealth tax.3. Divergence in Judicial Opinions:The Supreme Court noted the conflicting views of various High Courts. The Calcutta High Court's opinion (101 ITR 488) was representative of the view favoring the Revenue, while the Andhra Pradesh High Court's opinion (108 ITR 98) supported the assessee. The Court analyzed the arguments presented by both sides, including the legislative intent and the literal interpretation of the proviso.4. Constitutionality of the Proviso Based on the Alleged Arbitrary Cut-off Date:The Court addressed the argument that the literal interpretation of the proviso would lead to discrimination based on an arbitrary cut-off date, potentially rendering the provision unconstitutional. The assessees argued that this would create an irrational distinction between gifts made before and after March 31, 1964, especially for gifts exempt under Section 5 of the Gift-Tax Act. The Supreme Court emphasized the principle that if the statutory language is plain, it must be applied as is, regardless of the outcome. The Court also noted that the rule of preferring a construction that avoids unconstitutionality applies only when two reasonable interpretations are possible.Conclusion:The Supreme Court concluded that the literal interpretation of the proviso must prevail. The exemption applies only to gifts made after March 31, 1964, and not to those made earlier. The Court dismissed the appeals by the assessees (CA Nos. 1226 and 1227 of 1975) and allowed the appeal by the Revenue (CA No. 1118 of 1975), reversing the Andhra Pradesh High Court's order. The question referred was answered in the negative and in favor of the Revenue. Each party was ordered to bear its own costs.