Commissioner of Gift Tax vs A. Abdul Kayam and M. Abdul Khallel

N.V. Balasubramanian, J.—This is a petition filed under s. 26(3) of the GT Act, 1958 by the CGT, Madras to direct the Tribunal to state a

case and refer the following question of law for the opinion of this Court :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the gift-tax assessment in respect of the

transfer of Rs. 6 lakhs by the assessee to his sons ?

The assessee is one M. A. Majeed who died on 29th Oct., 1989 and is represented by his legal representatives. He was assessed to gift-tax for

the asst. yr. 1988-89. The facts leading to levy of gift tax are under :

The assessee, during his lifetime, had won the first prize of Rs. 15 lakhs in 277th draw of the Tamil Nadu Government lottery held on 24th March,

1987, and after deducting a sum of Rs. 6 lakhs towards tax, he was given a sum of Rs. 9 lakhs. The assessee in the course of wealth tax

proceedings for the asst. yr. 1987-88, disclosed a net wealth of Rs. 3 lakhs representing his share in the prize money on the ground that the lottery

ticket was purchased on the basis of an agreement dt. 3rd Dec., 1986, and the agreement was executed between the assessee and his two sons,

Abdul Kayam and Abdul Khallel, agreeing that in the event of winning of the lottery, the amount of winning should be shared equally by the above

three persons. Hence, the assessee disclosed Rs. 3 lakhs as belonging to him in the WT return. However, the WTO assessed the entire sum of Rs.

9 lakhs in the hands of the assessee on the ground that the memorandum of agreement executed by the assessee with his sons on 3rd Dec., 1986

was a sham document, and the entire winning amount belonged to the assessee. The assessee accepted the order of assessment by the WTO. The

assessee''s sons also filed WT returns on 24th June, 1987 admitting the lottery amount due to each of them as Rs. 3,00,000 and paid the wealth-

tax also. The GTO noticed that on 6th April, 1987, the assessee had issued a cheque for Rupees 3 lakhs to each of his sons, totalling a sum of Rs.

6 lakhs. Since the agreement to share the prize winning amount between the sons and the assessee was held to be a sham document, the

assessment of gift-tax was made on the sum of Rs. 6 lakhs. The GTO in making the assessment rejected the contention of the sons of the assessee

that the amount should be treated as loans of the ground that if it was a loan, then, the sons of the assessee would not have filed WT returns. He,

therefore, came to the conclusion that the money was transferred without consideration and, therefore, gift tax was attracted and he made

assessment under the provisions of GT Act.

The assessee preferred an appeal before the CIT(A). The CIT(A) held that the agreement to share the prize winning amount was sham

document and hence, the GTO was justified in levying the tax on the sum of Rs. 6,00,000 transferred in favour of his sons. The assessee preferred

a further appeal before the Tribunal. The Tribunal held that the AO has held that the agreement dt. 3rd Dec., 1986 was a sham document, and

once the agreement was ignored, it should be ignored for all purposes and it is not open to the AO to treat the amount transferred to the sons as if

the transfer of Rupees six lakhs was a genuine one. The Tribunal also held that the transfer in favour of sons took place only on the basis of the

agreement dt. 3rd Dec., 1986, and if the agreement is treated as sham, then, all transactions that took place on the basis of the agreement should

be ignored. In this view of the matter, the Tribunal held that GTO was not justified in levying gift-tax on the alleged transfer of money to his sons.

The Revenue filed an application before the Tribunal to state a case and refer the question of law set out in para. 1. The Tribunal rejected the

application on the ground that the finding of the Tribunal is based on the facts of the case and no question of law arose on its order. The Revenue

filed the present petition before this Court challenging the said order of the Tribunal.

Mr. C. V. Rajan, learned counsel for the Revenue submitted that though the agreement was held to be a sham document, the fact of payment

cannot be denied and the money paid on 6th April, 1987 to the sons was not supported by consideration and hence, there was a transfer of money

without any consideration attracting the provisions of the GT Act. On the other hand, Mr. R. Meenakshisundaram, learned counsel for the

assessee, submitted that the finding of the Tribunal is arrived on the facts of the case, and hence no question of law arises out of the order of the

Tribunal.

We have carefully considered the rival contentions of the parties. There is no dispute that the Revenue treated the agreement dt. 3rd Dec., 1986

to share the prize money as a sham document. The case of the assessee was that the moneys were paid by the assessee to his sons on the basis of

the agreement dt. 3rd Dec., 1986, and in view of the categorical finding of the Tribunal that the agreement to share the prize winning amount was a

sham document, the payment should also be regarded as sham payment. All transactions that flow from the sham document will have to be ignored

for all purposes and the agreement has to be treated as if it has no legal effect in the eye of law for all intent and purposes. It is not permissible to

treat the agreement as a sham document for one purpose and accept the same for other purpose. If the source of payment is a sham document, the

money paid under the agreement should also be regarded as a sham payment. That is why the WTO levied wealth-tax on the entire amount of Rs.

9 lakhs in the hands of the assessee. No doubt, it is true, the assessee''s sons have filed WT returns and claimed that the sum of Rs. 3,00,000 each

should be regarded as loan from their father. The stand taken by the sons of the assessee is also consistent as the sons have to repay the money to

their father after the document was held to be sham document. The payment can at best be regarded as mistaken payment and the sons have no

right over the money in question. The money continued to be with the assessee and hence, the Tribunal was justified in holding that there was no

gift involved in the transaction. It is not open to the Revenue to ignore a part of the agreement and rely upon the result or consequence that may

arise from such a sham agreement. The stand of the sons of the assessee was that, after the death of their father, the money which was held by

them as a loan became their property by the operation of law. Therefore, it is not open to the Revenue to treat every mistaken payment as if there

was a gift element involved in the transfer of the money. The Tribunal has come to the conclusion in holding that the money was transferred under a

sham document and it should also be ignored. We are of the view that the said finding of the Tribunal is a finding arrived at on the facts of the case

and no referable question arises out of the order of the Tribunal. Accordingly, this tax case petition is liable to be rejected and it is rejected. No

costs.