1972 (11) TMI 8 - HC - Income Tax

Court Rules Gifts Between Spouses Taxable under Gift-tax Act

Smt. Sulekha Bai Versus Commissioner Of Gift-Tax, Kerala.

The court ruled that a gift made by a wife to her husband, originally received from the husband as a tax-exempt gift, was liable to tax under section 5(3) ... Gift Tax Act, 1958 - ' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that section 5(3) of the Gift-tax Act, 1958, applied to the gift under consideration and that the gift was liable to tax under the Gift-tax Act, 1958 ? ' Issues:Interpretation of section 5(3) of the Gift-tax Act, 1958 regarding tax liability on a gift made by a spouse out of gifts received earlier under section 5(1)(viii).Analysis:The case involved a gift made by a wife to her husband, which was originally received by her from the husband as a gift exempted from tax under section 5(1)(viii) of the Gift-tax Act, 1958. The key question was whether the subsequent gift by the wife to the husband was liable to tax under section 5(3) of the Act. Section 5(3) states that gifts made by a spouse out of gifts received under section 5(1)(viii) shall be deemed taxable gifts by that spouse, irrespective of the exemptions under other subsections. The court emphasized that the unit of assessment under the Act is a definite period, usually an year, and the wording of the statute must be interpreted in that context. The court rejected the argument that the expression 'gifts received by that spouse as fall within clause (viii)' should be limited to gifts received in the relevant previous year, stating that the provision covers gifts received over longer periods as well.The court referred to a previous Division Bench ruling to support the interpretation that taxation statutes, including gift-tax laws, operate on a specific period for assessment. The court clarified that even if the original gift by the husband to the wife was made in a previous year, the wording 'as fall within clause (viii)' encompasses gifts to which clause (viii) is applicable, regardless of the timing of the original gift. The court concluded that for the gift in question, the exemption under clause (viii) of section 5(1) was not applicable, and therefore, the gift was liable to tax under section 5(3) of the Act.In response to the question referred by the Income-tax Appellate Tribunal, the court answered in the affirmative, ruling against the assessee and in favor of the department. The court directed the parties to bear their respective costs and ordered the judgment to be forwarded to the Tribunal as required by the Act.