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A. Vimalan v. Commissioner Of Gift-Tax, Madras

Madras High Court

Dec 6, 1972

Judgment

Subsequent
References

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Structured Summary of the Court's Opinion (Ramanujam, J.)

Factual and Procedural Background

A registered settlement (gift) deed dated 17 June 1967 shows Appavoo Pillai gifted three buses to his son, Vimalan (the assessee). The deed recorded a value of Rs. 20,000 for the three buses. The Gift-tax Officer determined the written down value of the buses on the date of transfer to be Rs. 31,688 and, in addition, estimated the value of the route permits associated with the buses at Rs. 75,000; the Officer computed gift-tax on the combined basis.

The assessee appealed to the Appellate Assistant Commissioner, arguing that the route permits had not been transferred (because transfer requires Regional Transport Authority permission) and that only the buses' value should be assessed. The Appellate Assistant Commissioner rejected that contention, finding that the routes had been transferred on a joint application and that the assessee enjoyed income from operating the buses on those routes.

On further appeal to the Tribunal, the assessee additionally challenged the quantum of valuation of the routes (Rs. 75,000) and relied on a prior wealth‑tax decision regarding non-valuation of such routes. The Tribunal held that routes had definite monetary value, relied on a decision of this court (G. Vijayaranga Mudaliar v. Commissioner of Income‑Tax, Madras), and distinguished the wealth‑tax decision on statutory grounds; it also found no evidence from the assessee proving a lower value and thus did not interfere with the Officer's estimate. The Tribunal referred the following question to this Court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Appavoo Pillai was liable to be taxed under the Gift‑tax Act by including the route permits referable to the buses gifted to Vimalan and Jayathilakan, as property forming the subject of the gifts and including the same in the assessments and estimating the value thereof at Rs. 75,000?”

Legal Issues Presented

Whether, on the facts and circumstances, the Tribunal was justified in law in including the route permits referable to the gifted buses as property forming the subject of the gifts and in including the same in the assessments by estimating their value at Rs. 75,000.

Arguments of the Parties

Assessee's Arguments (as represented by Mr. Swaminathan)

Under the gift deed the assessee received only the three buses; the route permits were not transferred to him because permits can be transferred only with the order/permission of the Regional Transport Authority.
Even if there had been purported transfer of route rights, without the Regional Transport Authority allowing transfer and transferring the permits in the assessee's name there could be no legal transfer of the permits.
Before the Tribunal the assessee also contended that the valuation of the bus routes at Rs. 75,000 was excessive.
The assessee relied on a decision in wealth‑tax proceedings holding the bus routes could not be valued for wealth‑tax purposes and argued that decision should apply to gift‑tax proceedings.
The assessee's counsel argued that, if the gift was of buses together with route permits, the Gift‑tax Officer could not value them separately and should adopt a capitalisation method (relying on State of Kerala v. P.P. Hassan Koya and a Madras High Court decision in Gouthamchand Galada v. Commissioner of Wealth‑tax).

Revenue/Respondent's Arguments and Findings (Gift‑tax Officer, Appellate Assistant Commissioner, Tribunal)

The Gift‑tax Officer determined written down value of the buses at Rs. 31,688 and separately estimated the value of the route permits at Rs. 75,000, arriving at a combined assessment (reported in the opinion as Rs. 1,06,390).
The Appellate Assistant Commissioner held that the routes had actually been transferred in favour of the assessee on the joint application of the transferor and transferee, and that the assessee carried on business on those routes and enjoyed the income therefrom.
The Tribunal held that route permits have a definite monetary value dependent on earning capacity of the route, relied on G. Vijayaranga Mudaliar, and rejected the applicability of the wealth‑tax decision to gift‑tax proceedings because the Wealth‑tax Act contains a provision excluding certain short‑term interests from the definition of “asset” (not present in the Gift‑tax Act).
The Tribunal also found that the assessee failed to produce evidence to show that the actual value was less than the Gift‑tax Officer’s estimate and declined to interfere with the Officer's estimate.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
G. Vijayaranga Mudaliar v. Commissioner Of Income‑Tax, Madras [1963] 47 I.T.R. 853 (Mad.)	Establishes that route permits and routes have monetary value related to earning capacity; transfers commonly include value for routes even if parties do not openly acknowledge consideration for permits.	The Court relied on this decision to support the view that route permits have definite pecuniary value and that a fair portion of the consideration for transferred buses reflects the value of the routes.
Commissioner of Income‑tax v. Krishna and Sons	Recognised that the Supreme Court has not definitively decided whether the right to ply under a permit is “property”.	The Court noted that while the Supreme Court left the question open, that uncertainty did not prevent treating the transaction as a gift of “property” where the gift deed conveyed buses together with route permits.
State of Kerala v. P.P. Hassan Koya, A.I.R. 1968 S.C. 1201	Describes the accepted method for valuing land and buildings by capitalising the returns (income) from the property.	The assessee relied on this principle to argue for capitalisation-based valuation; the Court acknowledged the authority but concluded that the Officer's composite estimate stood unrefuted by evidence showing a lower capitalised value.
Gouthamchand Galada v. Commissioner of Wealth‑tax [1972] 86 I.T.R. 292 (Mad.)	Holds that where a property consists of land and buildings, they should not be valued separately and the capitalised value based on actual income may be adopted.	The Court recognised this Madras High Court decision supporting capitalisation as a method but treated the Gift‑tax Officer's figure as a composite value for buses with permits and found no evidence to displace that composite estimate.

Court's Reasoning and Analysis

The Court proceeded in a step‑by‑step manner, constrained to the facts and authorities cited in the opinion:

The Court examined the gift deed's language. The deed identified each bus (including route descriptions) and expressly provided that the transferee "shall own and enjoy the buses with all absolute rights and be entitled to run the said buses in the routes operated by them and enjoy the income derived therefrom" and that the transferor would apply to the Regional Transport Officer to change the permits into the transferee's name. On that basis, the Court concluded that the deed conveyed not only the buses but also the right to ply them on particular routes.
The Court analysed relevant provisions of the Motor Vehicles Act cited in the opinion: section 59(1) (a permit is not transferable except with permission of the transport authority and without such permission a vehicle transfer does not confer the right to ply under the permit) and section 61 (provisions for transfer on death and a temporary right to use the permit for three months pending application for transfer). The Court observed these provisions do not impose an absolute prohibition on transfer; rather, transfers are made subject to the transport authority's permission.
Factually it was not disputed that permission of the transport authority was in fact obtained after the gift by a joint application of transferor and transferee, and that the assessee ran the buses on the routes and enjoyed the income. On that ground, it was “idle” to contend there was no transfer of the routes.
Addressing whether the route permits had monetary value, the Court noted the deed conveyed buses together with the route permits; relying on the logic in G. Vijayaranga Mudaliar, it accepted that permits and routes commonly have a pecuniary value connected with earning capacity, and that the value of buses shorn of permits is significantly less.
On the contested issue of valuation, the Court considered the assessee's reliance on capitalisation methodology and the authorities (State of Kerala v. P.P. Hassan Koya and Gouthamchand Galada) suggesting valuation on capitalised income. The Court observed that the Gift‑tax Officer had effectively produced a composite estimate for the three buses with the route permits (reported as Rs. 1,06,390) and found that the assessee produced no material to show that a capitalised value based on route income would be less than the Officer's aggregate estimate.
Although the Supreme Court in Krishna and Sons had left open whether the right to ply a carriage under a permit is “property”, the Court reasoned that where, as here, the gift deed clearly conveys buses together with route permits and the transferee actually enjoys the income, there is no dispute that the gift comprised “property” for gift‑tax purposes.
Given these findings, the Court answered the referred question in the affirmative: the Tribunal was justified in law in including the route permits as property forming the subject of the gifts and in estimating their value as it did. The Court awarded costs to the revenue and taxed counsel's fee at Rs. 250.

Holding and Implications

Holding: The Court answered the reference in the affirmative and held that the Tribunal was justified in law in including the route permits referable to the gifted buses as property forming the subject of the gifts and in including and estimating their value (the Gift‑tax Officer's composite estimate was accepted). The decision was rendered against the assessee.

Implications:

Direct effect on the parties: The assessee's challenge failed; the inclusion of the route permits in the gift‑tax assessment and the valuation adopted by the Gift‑tax Officer (treated as a composite figure for buses with permits) was upheld. The revenue was awarded costs and counsel's fee of Rs. 250.
Broader precedent: The opinion applies and cites existing authorities on the valuation and monetary value of route permits and on valuation methodology, but the Court did not state that it was laying down a new general precedent beyond applying the cited authorities to the facts of this case.

Costs ordered: revenue to have its costs from the assessee; counsel's fee assessed at Rs. 250.

Show all summary ...

The Judgment of the Court was delivered by

Ramanujam, J.:— One Appavoo Pillai made a gift of three buses to his son, Vimalan, the assessee, under a registered settlement deed dated June 17, 1967. Under that deed the value shown for the three buses was Rs. 20,000. The Gift-tax Officer found that the written down value of the buses on the date of the transfer was Rs. 31,688. He, therefore, estimated the value of the buses at Rs. 31,688. In addition he also estimated the value of the route permits on which the buses were plying at the time of the transfer at Rs. 75,000 and computed the gift-tax payable on that basis.

2. The matter was taken in appeal by the assessee to the Appellate Assistant Commissioner. It was contended by him that the route permits had not been transferred as they could not be transferred without the order of the Regional Transport Authority, and that, therefore, the value of the buses alone should be taken into account for computing the gift-tax. The Appellate Assistant Commissioner rejected this contention on the ground that the routes had actually been transferred in favour of the assessee on the joint application of the transferor and transferee, and that the assessee in fact had carried on the business of plying the buses on the routes in question and enjoyed the income therefrom.

3. There was a further appeal to the Tribunal. Before the Tribunal, in addition to the submissions made before the Appellate Assistant Commissioner, it was also contended that the valuation of the bus routes at Rs. 75,000 was excessive. The Tribunal took the view that there is definite monetary value for a route depending upon the earning capacity in the particular line and that it was futile to contend that the route permits were of no value at all. In support of that view the Tribunal referred to the decision of this court in G. Vijayaranga Mudaliar v. Commissioner Of Income-Tax, Madras. [1963] 47 I.T.R 853 Mad... Before the Tribunal it was also contended that the decision of the Tribunal in wealth-tax proceedings in respect of the same assessee holding that these bus routes could not be valued for the purpose of the Wealth-tax Act applies to gift-tax proceedings as well. On the applicability of its decision rendered under the Wealth-tax Act to the gift-tax proceedings, the Tribunal has stated that the definition of “asset” in section 2(e)(1)(v) of the Wealth-tax Act excludes any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee and it is with reference to that provision the route permits which enured only for a period of three years were held to be not coming within the definition of “asset” under that Act, and that in the Gift-tax Act there being no such provision that decision had no application. On the question of the quantum of the estimated value of the route bus the Tribunal felt that the assessee did not produce any evidence to show that the actual value of the bus routes was anything lesser than what the Gift-tax Officer had fixed, that the Gift-tax Officer had based his estimate on a comparable basis and that, therefore, there is no reason to interfere with the estimate made by the Gift-tax Officer. At the instance of the assessee the Tribunal has referred to this court the following question:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Appavoo Pillai was liable to be taxed under the Gift-tax Act by including the route permits referable to the buses gifted to Vimalan and Jayathilakan, as property forming the subject of the gifts and including the same in the assessments and estimating the value thereof at Rs. 75,000?”

4. Mr. Swaminathan, learned counsel for the assessee, contends that under the gift deed the assessee got only three buses and that permits had not been transferred in his name as permits could be transferred only by the Regional Transport Authority. The learned counsel also contends that even if there had been a gift of the bus routes in favour of the assessee unless the Regional Transport Authority permits such a transfer and transfers the permits in favour of the assessee, there cannot be a legal transfer of the permit. In our view, it is not possible to accept the said contention. For one thing the gift deed describes the three buses as:

Rs. Bus No. MDS. 3127 running between Dharmapuri to Erode via Salem valued at 10,000 Bus No. MDS. 2723 running between Salem to Thali via. Dharmapuri, Osur valued at 5,000 Bus No. MDS. 2776 running between Thali to Salem via Osur, Dharmapuri valued at 5,000

and there is also the following provision:

“Hereafter you shall own and enjoy the buses with all absolute rights and be entitled to run the said buses in the routes operated by them and enjoy the income derived therefrom…… I shall apply to the Regional Transport Officer, Salem, to change the permits in your name.”

5. Having regard to the above extracts from the gift deed it is not possible to say that the buses alone had been transferred to the assessee and not the bus routes. The above extracts clearly show that it is not only the buses but also the right to ply them on particular routes that have been conveyed under the documents. Section 59(1) of the Motor Vehicles Act provides that a permit shall not be transferable from one person to another except with the permission of the transport authority which granted the permit and shall not without such permission operate to confer on any person to whom a vehicle covered by the permit is transferred any right to use that vehicle in the manner authorized by the permit. Section 61 provides for transfer of the permit on the death of the holder and the person succeeding to the possession of the vehicle covered by the permit can use the permit as if it had been granted to himself for a period of three months and thereafter apply to the transport authority for transfer of the permit in his name. Thus it is seen that there is no absolute prohibition of transfer of a route permit but it is only made subject to the permission of the transport authority which granted the permit. It is not in dispute that subsequent to the gift the requisition permission from the transport authority had been obtained on a joint application filed by the transferor and transferee and that in fact the assessee as a transferee is running the buses on the said routes and enjoying the income therefrom. In these circumstances, it is idle to contend that there was no transfer of the bus routes as such by the transferor to the assessee.

6. Then coming to the question as to whether the route permits had any value, we have to say that in this case as per the terms of the gift deed the buses have been transferred along with the route permits and that the value of the buses along with the route permits should be taken to be the value of the gifts. As pointed out by this court in G. Vijayaranga Mudaliar v. Commissioner Of Income-Tax, Madras.:

“Neither the provisions of the statute nor the rules framed thereunder actually prohibit the receipt of consideration for a transfer of permit. It may be that the competent authorities under the Motor Vehicles Act may not allow a permit to be transferred for value lest it should encourage trafficking in permits. Buses have little value shorn of their permits to ply on particular routes. It is an open secret that when buses are transferred, the consideration paid by the purchaser of the vehicles is only commensurate with their earning capacity which is intimately connected with the routes on which they operate. But nevertheless no transferor admits having received any consideration for transfer of the permits and the transferee also never acknowledges that he paid any amount for annexing the routes along with the buses. We must observe that this pretence of non-payment of consideration for transfer of permits is nothing short of sheer hypocrisy. We can almost take judicial notice of the fact that whenever a bus with a permit is transferred a fair portion of the consideration would represent the value attributable to the pecuniary gain derived by operating on the routes.”

7. Mr. Swaminathan refers to the decision in Commissioner of Income-tax v. Krishna and Sons to show that the question whether a right to ply a carriage under a permit granted by the transport authority is property or not has been left open by the Supreme Court. It is true the Supreme Court has not recorded its opinion on the question as to whether a route permit will be “property”. But as we have taken the view in this case that on the terms of the gift deed there has been a transfer of buses with route permits, there cannot be any dispute that the gift was of “property”.

8. The assessee's learned counsel, however, contends that, if the gift is taken to be that of buses along with the route permits, then it is not possible for the Gift-tax Officer to value them separately as has been done in this case. The learned counsel refers to the decision in State Of Kerala v. P.P.Hassan Koya A.I.R 1968 S.C 1201.. In that case the Supreme Court said that the method which is generally resorted to in determining the value of the land with buildings especially those used for business is the method of capitalization of return actually received or which might reasonably be received from the land and the buildings. Reference was also made to a decision of this court in Gouthamchand Galada v. Commissioner of Wealth-tax [1972] 86 I.T.R 292 Mad. where this court held that, in respect of a property consisting of land and buildings, the land and the building cannot separately be valued and if it is possible its capitalised value should be adopted based on the actual income yielded by the property. In this case, though the Gift-tax Officer has added Rs. 75,000 as the value of the routes to the written down value of the buses, it can only be taken that the officer felt that the value of the three buses with the route permits should be increased by Rs. 75,000. We, therefore, consider the estimate made by the Gift-tax Officer at Rs. 1,06,390 as a composite one for the three buses along with the route permits. There is no material placed by the assessee in this case that the capitalised value based on the income from the concerned routes will be less than the aggregate sum estimated by the Gift-tax Officer. We, therefore, answer the reference in the affirmative and against the assessee. The revenue will have its costs from the assessee. Counsel's fee Rs. 250.

9. Reference answered in the affirmative.