2003 (5) TMI 38 - HC - Income Tax

Gift Tax Act 1958 - Whether in law on facts the assessee is liable to pay tax under the Gift-tax Act 1958 on account of the variations made on December 31 1970 in the settlement deed of 1961 ?

Summary

Issues Involved:

1. Liability of the assessee to pay gift-tax under the Gift-tax Act, 1958, due to variations made in the settlement deed of 1961 on December 31, 1970.
2. Interpretation of "gift" and "transfer of property" under the Gift-tax Act and the Transfer of Property Act.
3. Validity and effect of the revocation and substitution of clauses in the original trust deed.
4. Judicial propriety and conduct of Tribunal Members in expressing differing opinions.

Issue-wise Detailed Analysis:

1. Liability of the Assessee to Pay Gift-tax:

The primary question was whether the assessee was liable to pay gift-tax due to changes made on December 31, 1970, in the original settlement deed of 1961. The Gift-tax Officer initially held that the variations constituted a new trust, making the assessee liable for gift-tax. The Tribunal, however, had differing opinions. The Judicial Member concluded that the changes did not constitute a new trust or fresh gift, while the Accountant Member believed that the property transferred under the new deed was different, constituting a fresh gift.

2. Interpretation of "Gift" and "Transfer of Property":

The definitions of "gift" and "transfer of property" under the Gift-tax Act and the Transfer of Property Act were pivotal. The Gift-tax Act's definition of "gift" includes any voluntary transfer of property without consideration, encompassing the creation of a trust. The Transfer of Property Act defines a gift as a transfer of existing property without consideration, accepted by the donee. The court noted the broader scope of "gift" under the Gift-tax Act due to its inclusion of trust creation as a transfer.

3. Validity and Effect of Revocation and Substitution of Clauses:

The court examined the original trust deed of April 11, 1961, which was irrevocable for six years and one day, and the subsequent deed of December 31, 1970, which substituted certain clauses and made the trust irrevocable. The court found that the trust property continued to vest in the same trustees and was not revoked or transferred back to the settlor. The changes merely affected the management and disposition of the trust property, not its ownership, thus not constituting a fresh gift.

4. Judicial Propriety and Conduct of Tribunal Members:

The judgment highlighted the issue of judicial propriety among Tribunal Members. After differing opinions were expressed, the Judicial Member made additional remarks, which were unnecessary and led to further comments from the Accountant Member. The court disapproved of this conduct, emphasizing that Members should respect each other's opinions and follow the statutory process for resolving differences without engaging in acrimonious exchanges.

Conclusion:

The court concluded that the variations made on December 31, 1970, did not constitute a fresh gift, and the assessee was not liable to pay gift-tax on account of such variations. The question referred to the court was answered in the negative, in favor of the assessee and against the Revenue. The court also addressed the need for judicial propriety among Tribunal Members, urging them to respect each other's opinions and adhere to the statutory process for resolving differences.