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Commissioner Of Gift-Tax, Gujarat v. Smt. Padmaben Hiralal.
Structured Summary of the Opinion (T.U. Mehta, J.)
Factual and Procedural Background
The Appellate Tribunal referred the following question for the court's opinion: “Whether, on the facts and in the circumstances of the case, the previous year should be the financial year for assessing the gifts made on 2nd February, 1963, and the assessment year should be 1963-64?”
The factual matrix in the opinion (as stated in the source text) is as follows:
- The assessee made gifts to two persons: Rs. 40,000 to Shri Hiralal Manilal and Rs. 25,000 to Smt. Savitaben Hiralal. The opinion records the date of the gifts as 2nd February, 1963 in one place and later refers to 22nd February, 1963 in another passage in the same text.
- The assessee filed a voluntary return under the Gift-tax Act showing the assessment year as 1964-65 and the previous year as Samvat (S.Y.) 2019, stated to have commenced 29th October, 1962 and ended 17th October, 1963. On that basis the Gift-tax Officer assessed the amount of Rs. 65,000.
- The assessee contended before the Gift-tax Officer that the correct assessment year should be 1963-64. The Gift-tax Officer rejected that contention.
- The assessee appealed to the Appellate Assistant Commissioner, who held that the assessment year was correctly adopted as 1964-65. The assessee then approached the Appellate Tribunal.
- The Appellate Tribunal considered clause (xx) of section 2 of the Gift-tax Act (definition of “previous year”) and concluded that sub-clauses (a) and (b) did not apply; it held that sub-clause (c) (the residual clause) applied and construed it in a way that led it to treat “previous year” as the financial year under section 3 of the Income-tax Act even though the assessee's accounting year for income-tax purposes was Samvat.
- The Department was aggrieved by the Appellate Tribunal's conclusion and preferred the reference to the court for opinion on the framed question.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the "previous year" for assessing the gifts in question should be treated as the financial year for the purpose of the Gift-tax Act (so that the assessment year would be 1963-64), as asked in the reference forwarded by the Appellate Tribunal.
- Whether, for the facts of this case, clause (xx)(c) of section 2 of the Gift-tax Act requires that the definition of "previous year" be taken from section 3 of the Income-tax Act in such a manner as to convert the assessee's Samvat accounting year into the financial year for gift-tax assessment (i.e., whether the Tribunal's construction introduced a legal fiction treating the gift as income of the donor for that purpose).
Arguments of the Parties
Respondent-Assessee's Arguments
- The assessee contended that the correct assessment year for the gifts should be 1963-64 (this contention appears in the return and in the appeals described in the opinion).
- The assessee (as recorded in the return) treated the previous year as Samvat year 2019 (commencing 29th October, 1962 and ending 17th October, 1963) and had chosen assessment year 1964-65 on that basis; separately, the assessee had advanced the position (in the proceedings) that assessment year 1963-64 applied — the opinion records these competing positions as they arose in the procedural history.
Revenue's Arguments
- The revenue maintained that the previous year for the gifts should be the Samvat year (as recorded in the income-tax assessments) — i.e., that the assessee's accounting period for income-tax (the Samvat year) should determine the previous year for gift-tax purposes.
Appellate Tribunal's Reasoning (as recorded)
- The Tribunal concluded that sub-clauses (a) and (b) of clause (xx) did not apply and that the residual sub-clause (c) applied.
- The Tribunal construed sub-clause (c) as if by a legal fiction the gift should be treated as though it were "income" to the donor from an undefined source, and therefore the "previous year" for gift-tax should be determined by reference to section 3 of the Income-tax Act — which, the Tribunal said, points to the financial year as the previous year per section 3(1)(a) if an assessment were to be made under the Income-tax Act.
- On that basis the Tribunal concluded that even though the assessee's accounting period for other sources was the Samvat year, for the purpose of gifts falling under sub-clause (c) the financial year should be taken as the previous year.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court proceeded through a focused statutory analysis, summarized step-by-step as follows (restricted to the reasoning in the opinion):
- Identification of applicable sub-clause: The court accepted that sub-clauses (a) and (b) of clause (xx) of section 2 of the Gift-tax Act did not apply to the facts, leaving only sub-clause (c) (the residual provision) for interpretation.
- Examination of the Tribunal's construction: The Tribunal had read sub-clause (c) as creating a "legal fiction" whereby a gift should be treated as income to the donor and, adopting the definition in section 3 of the Income-tax Act, the Tribunal deduced that the "previous year" must be the financial year (per section 3(1)(a) of the Income-tax Act).
- Rejection of the "legal fiction" approach: The court rejected the Tribunal's approach. It held that sub-clause (c) does not create a legal fiction. Instead, sub-clause (c) operates by incorporation "by reference" — it imports the definition of "previous year" from section 3 of the Income-tax Act for the limited and specific purpose set out in sub-clause (c).
- Limits of incorporation by reference: The court explained that incorporation by reference is a recognised legislative method but that the imported provision must be read as having been made under the statute that makes the reference and only to the extent necessary for the stated purpose. The reference to section 3 is limited to defining "previous year" and does not import all provisions of the Income-tax Act or convert the legal character of a gift into income.
- Substantive point — gift is not income of the donor: The court emphasized that the donor does not receive income when making a gift and that treating a gift as income in the hands of the donor would amount to introducing a judicial fiction that the legislature did not create. The proper inquiry under sub-clause (c) is to determine what would have been the "previous year" if an assessment of the assessee's income were to be made under the Income-tax Act for the assessment year in question.
- Application to the facts: The court noted that the assessee's income-tax "previous year" for the relevant assessment year was the Samvat year (S.Y. 2019) running from 29th October, 1962 to 17th October, 1963. The date(s) on which the gifts fell within that Samvat year (the opinion records both 2nd February, 1963 and 22nd February, 1963 in different passages). Because the gifts fell within S.Y. 2019, that Samvat year is the "previous year" for gift-tax purposes under sub-clause (c) as read with section 3 of the Income-tax Act.
- Conclusion of law applied to disposition: On that statutory construction and factual application, the court concluded that the Tribunal was incorrect to convert the previous year into the financial year by treating the gift as income; instead, the previous year is the Samvat year S.Y. 2019 and the corresponding assessment year is 1964-65.
Holding and Implications
Holding: The court answered the referred question in the negative. The court held that the previous year for the gifts in question is S.Y. 2019 (the Samvat year commencing 29th October, 1962 and ending 17th October, 1963) and that the correct assessment year for those gifts is 1964-65.
Direct consequences and costs: The respondent-assessee was ordered to bear the costs of the Commissioner in the reference.
Broader implications: The opinion confines its analysis to statutory construction of clause (xx)(c) of section 2 of the Gift-tax Act and its interaction with section 3 of the Income-tax Act. The opinion does not elaborate broader doctrinal consequences beyond the parties' dispute; it limits the effect to the factual determination that the Samvat previous year (S.Y. 2019) and assessment year 1964-65 apply to these gifts.
Administrative/Dispositional Statement
Question answered in the negative. The respondent-assessee shall bear the costs of the Commissioner in this reference.
Source: This summary is strictly based on the content of the provided opinion text attributed to T.U. Mehta, J., and does not add information beyond that text. It preserves the internal date references as they appear in the opinion, including the differing date references for the day of the gifts (2nd February, 1963 and 22nd February, 1963) as recorded in the opinion itself.
T.U Mehta, J.:— The Appellate Tribunal has referred to us the following question for our opinion in this reference:
“Whether, on the facts and in the circumstances of the case, the previous year should be the financial year for assessing the gifts made on 2nd February, 1963, and the assessment year should be 1963-64?”
2. The above question arises from the following set of facts. The asses-see is found to have made gifts of Rs. 40,000 to Shri Hiralal Manilal and Rs. 25,000 to Smt. Savitaben Hiralal on 2nd February, 1963. She filed a voluntary return for these gifts under the Gift-tax Act showing the assessment year as 1964-65 and the previous year as S.Y 2019 which commenced on 29th October, 1962, and ended on 17th October, 1963. On the basis of this return, the Gift-tax Officer carried out the assessment on the amount of Rs. 65,000.
3. The assessee contended before the Gift-tax Officer that the year of assessment for both the gifts should be the year 1963-64 and not 1964-65. She, however, failed in this contention before the Gift-tax Officer, and, hence, took the matter in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner found that the assessment year for the gifts in question was correctly adopted as the year 1964-65. Being aggrieved by this, the respondent-assessee approached the Appellate Tribunal. The Appellate Tribunal considered the provisions of section 2, clause (xx), which defines the expression “previous year” and came to the conclusion that subclauses (a) and (b) thereof had no application to the facts of the case.
4. The Appellate Tribunal, however, found that sub-clause (c) of clause (xx) of section 2, which is the residuary clause applied to the facts of the case and held that even though the accounting year of the assessee for the purpose of income-tax was Samvat year, on a proper construction of sub-clause (c), the same should be taken as financial year. Sub-clause (c) of clause (xx) says that in cases where sub clauses (a) and (b) do not apply, the “previous year” would mean the “previous year” as defined in section 3 of the Income-tax Act, if an assessment were to be made under that Act for that year. The Tribunal was of the view that sub-clause (c) should be construed as saying that in cases where sub-clauses (a) and (b) do not apply, in order to determine “previous year” for the purpose of gift-tax, the gift should be treated as “income” to the donor from an undefined source, and since it cannot be related to any other sources of the income of the donor, its previous year should, according to the principles of section 3 of the Income-tax Act, be presumed to be the financial year. According to the Tribunal, this would be so even if for other sources of the donor's income the accounting period is the Samvat year. Being aggrieved by this decision of the Appellate Tribunal, the department has preferred this reference in which the above question is referred to us for our opinion.
5. So far as the Gift-tax Act is concerned, the expression “previous year” is defined in section 2 thereof as under:
“‘Previous year’ in relation to any assessment year—
(a) in the case of an assessee having no source of income, profits or gains or having a source of income, profits or gains in respect of which there is no previous year under the Income-tax Act, means the twelve months ending on the 31st day of March immediately preceding the assessment year;
(b) in the case of an assessee having different previous years under the Income-tax Act for different sources of income, profits or gains, means that previous year of twelve months determined as the previous year under sub-clause (a) or sub-clause (b), as the case may be, of sub-section (1) of section 3 of the Income-tax Act or such period determined as the previous year under clause (c) of that sub-section, whichever expired last;
(c) in the case of any other assessee, means the previous year as defined in section 3 of the Income-tax Act if an assessment were to be made under that Act for that year:
Provided that where a person who has not been assessed under this Act for any assessment year makes a gift on a date which does not fall within a previous year as defined in sub clause (a) or sub clause (b) or subclause (c), the previous year shall be the twelve months ending on the 31st day of March immediately preceding the assessment year:
Provided further that where an assessment has been made under this Act for any assessment year in respect of gifts made by an assessee during any previous year, the meaning of the expression ‘previous year’ as then applicable to him shall continue to apply for any subsequent assessment year unless the assessee is allowed to vary it with the consent of the Gift-tax Officer who may, in allowing any such variation, impose such conditions as he may think fit.”
6. The question which arises to be considered is in which of the three sub-clauses of clause (xx) of section 2 of the Gift-tax Act, the case of the assessee falls. Now, so far as sub-clauses (a) and (b) are concerned, the Tribunal ruled them out as is clear from the following excerpt from the statement of case submitted to us:
“Before the Tribunal the assessee contended that the correct assessment year in his case should be 1963-64 in accordance with the provisions of the Gift-tax Act. The Tribunal referred to the definition of the ‘previous year’ under clause (xx) of section 2. Sub-clause (a) of clause (xx) relates to an assessee having no source of income or having a source of income but there is no previous year under the Income-tax Act. Admittedly, the case of the assessee did lot come under this sub-clause. Sub-clause (b) deals with a case where the assessee having different previous years under the Income-tax Act for different sources of income, etc. This clause also could not apply to the assessee, ina smuch as in the income-tax assessment, though there are different sources of income, there is only one previous year. Therefore, the only residual clause that applies to the case of the assessee is sub-clause (c).”
7. It is not disputed before us that the present case is not governed either by sub-clause (a) or sub-clause (b) of clause (xx). As a matter of fact, it is found that for the income-tax assessment of the respondent-assessee for the years 1962-63, 1963-64 and 1964-65, the accounting periods are mentioned as respective Samvat years. This is evident from annexures “D” and “E” which are filed in this reference. It is, therefore, evident that this is not a case where for assessment to income-tax the assessee has no previous year or has different previous years for different sources of income. Under the circumstances, the only question which survives for consideration is whether under sub-clause (c) and, on the facts of the case, the previous year for the Gift-tax Act would be the Samvat year as claimed by the revenue or the financial year as claimed by the assessee. The Tribunal has construed sub-clause(c) as meaning that the “previous year” for the purpose of gift-tax should be determined by taking the event of gift as the event of earning income, and then deciding what would be the “previous year” if the assessment of that income were to be made in the hands of the donor under the Income-tax Act. The reasoning of the Tribunal is contained in the following observations:
“On a plain reading of sub-clause (c) it appears to us that by a legal fiction the previous year is to be found out in respect of any gift coming under sub-clause (c) as if an assessment were to be made under the Income-tax Act. It is too well-known that the legal fiction cannot be extended beyond the purpose for which it is enacted. We must, therefore, strictly construe the legal fiction and decide as to what would be the ‘previous year’ by assuming that an assessment under the Income-tax Act is to be made. In that event there cannot be any doubt that the previous year would be the financial year as per section 3(1)(a) of the Income-tax Act.”
8. In our opinion, this approach is not correct, because sub-clause (c) contains no legal fiction. In fact, it is an illustration of incorporation “by reference”, inasmuch as it incorporates the definition of the expression “previous year” as given in section 3 of the Income-tax Act even for the purpose of the Gift-tax Act under certain circumstances. Incorporation of a provision of law in a statute by reference to a similar provision in another statute is a recognised method of legislation. Whenever such a method is adopted, the provisions of another statute to which a reference is made should be read as having been made under the statute which makes that reference. But there, the purpose of the reference ends, unless there is a clear indication that the reference is made to incorporate something more. In this case, reference to the definition of the expression “previous year” as given in section 3 of the Income-tax Act is not made for the purpose of incorporating all the provisions of the Income-tax Act. It is made only for a limited purpose of knowing what a “previous year” means when sub-clauses (a) and (b) do not apply to the facts of a particular case. Therefore, the Tribunal's observation that we should decide what would be the “previous year” for the purpose of gift-tax “by assuming that assessment under the Income-tax Act is to be made” is not correct. Assessment for gift-tax has to be made under the Gift-tax Act and not under the Income-tax Act. But for making that assessment we have to borrow the definition of the expression “previous year” as given in section 3 of the Income-tax Act if sub-clauses (a) and (b) do not apply. If this is so, “gift” cannot be treated as “income” in the hands of the donor. It is the donor who is principally liable to tax under the Gift-tax Act and the donor receives no income when he makes a gift. To hold that gift is income in the hands of the donor is to introduce a judicial fiction where the legislature has introduced none. Gift remains a gift and the only inquiry which is required to be made for the purpose of sub-clause (c) of clause (xx) is to find out what would have been the “previous year” if assessment of the income of the assessee were to be made for the purpose of the Income-tax Act for the assessment year in question. In this case the gifts to be assessed are made on 22nd February, 1963. The “previous year” for the income assessment of the assessee was admittedly the Samvat year corresponding to the assessment year in question. The day of 22nd February, 1963, fell in the Samvat year 2019 commencing on October 29, 1962, and ending on October 17, 1963. The assessment year for this period would, therefore, be the year 1964-65.
9. In view of this, we answer the question which is referred to us in the negative and against the assessee. In our opinion, the previous year should be the S.Y 2019 for the gifts in question and the assessment year should be the year 1964-65. The respondent-assessee shall bear the costs of the Commissioner in this reference.
10. Question answered in the negative.
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