1969 (12) TMI 35 - HC - Income Tax

Gift - which rate of tax is applicable - rate of tax on date of gift or on the first day of the assessment year

Summary

Issues:
Challenge to gift-tax assessment based on change in rates post-gift date.

Analysis:
The petitioner gifted Rs. 1,15,000 to his sons on January 4, 1963. The Gift-tax Officer assessed the gift-tax at Rs. 21,400 based on the rates effective from April 1, 1964, post-gift date. The petitioner contended that the liability to pay gift-tax crystallized on the gift date, relying on the rates in force then. The petitioner argued that under section 29 of the Gift-tax Act, the liability arises at the time of the gift, similar to the Wealth-tax Act's approach. The counsel cited relevant case laws to support this position.

The Gift-tax Officer argued that tax is levied at rates prevailing in the assessment year for transactions in the previous year. The counsel relied on precedents to assert that the tax computation is based on rates applicable at the start of the assessment year following the previous year. The court observed that the gifts were made in the previous year, falling within the assessment year 1964-65, and thus, chargeable at rates effective at the commencement of the relevant assessment year. The court referenced a Supreme Court decision regarding income tax matters to emphasize applying the law in force during the assessment year.

The court discussed the rulings cited by the petitioner's counsel, emphasizing that wealth-tax liability crystallizing on the valuation date does not alter the computation based on rates in force at the start of the assessment year. The court differentiated between the liability arising and the tax computation process. The court concluded that the tax calculation is for the assessment year, not the accounting year, dismissing the petitioner's arguments. However, considering the sudden increase in tax liability, the court granted the petitioner four months to pay the revised amount, showing leniency in the interest of justice.

In summary, the court upheld the gift-tax assessment based on rates applicable at the start of the assessment year following the gift date. The court rejected the petitioner's argument that the liability crystallized on the gift date, emphasizing the assessment year's relevance for tax computation. Despite dismissing the petition, the court granted the petitioner additional time to pay the revised tax amount due to the significant increase in liability.