Commissioner of Gift Tax vs Mohammed Khan

B. Subhashan Reddy, J.—In this reference, the effect of the provision contained in Section 5(3) vis-a-vis Section 5(1)(viii) of the Gift-tax Act, 1958, has to be considered.

The assessee is an individual and his wife had gifted him an amount of Rs. 25,000 on February 3, 1972. On October 30, 1975, the assessee had in turn made a gift to his wife of the same quantum of Rs. 25,000. The asses-see''s wife was not subjected to gift-tax, but the assessee was made exigible to pay gift-tax for the gift amount of Rs. 25,000 made by him to his wife on October 30, 1975. The case of the assessee is that the gift amount made by his wife is no way concerned with the gift he made and as such, Section 5(3) of the Gift-tax Act is not applicable and he should be exonerated of payment of gift-tax. It is apt to extract both the provisions, which stood in the statute book before their repeal :

"5. (1) Gift-tax shall not be charged under this Act in respect of gifts made by any person--. . .

(viii) to his or her spouse, subject to a maximum of rupees fifty thousand in value in the aggregate in one or more previous years, the expression ''spouse'' in this clause, where there are more wives than one, meaning all the wives together."

"5. (3) Notwithstanding anything contained in Sub-section (1) or Sub-section (2), where either spouse makes any gifts out of any such gifts received by that spouse as fall within Clause (viii) of Sub-section (1), the gifts, so made shall be deemed to be taxable gifts made by that spouse and nothing contained in Sub-section (1) or Sub-section (2) shall apply in relation to any such gifts."

A question arises as to whether the amount of Rs. 25,000 gifted by the assessee''s wife on February 3, 1972, has got any concern with the amount of Rs. 25,000 gifted by the assessee to his wife on October 30, 1975. It is needless to mention that if there is no such concern and both are independent, then Section 5(3) is not applicable. Otherwise, the assessee incurs the wrath of Section 5(3). For deciding the applicability of this legal provision, the factual matrix is necessary.

Up to February 5, 1972, the firm run by the assessee was dealing both in tobacco and jewellery and they were separated only after February 5, 1972. While it is true that the gift made by his wife was entered by the assessee in the account books of the firm, Sulemankhan and Mahaboobkhan Tobacco Exporters, the gift made by him in the year 1975 was from his personal account in the firm of Sulemankhan and Mahaboobkhan Jewellers. But, in the account books of Sulemankhan and Mahaboob Khan Jewellers, the entry on October 30, 1975 reads :

"Debit : October 30, 1975--Your wife, Jameela Begum, on February 3, 1972, gave Rs. 25,000 as gift to you. Cash taken for returning the gift to her."

Regardless of the change in the firm''s name or maintenance of separate accounts, the said entry in no uncertain terms proves that the gift made by the assessee on October 30, 1935, was the return of the same gift made to him by his wife earlier on February 3, 1972, and as such, Section 5(3) of the Gift-tax Act, as it stood in the statute book at the relevant period of assessment, is applicable.

In the circumstances, the reference is ordered in the negative and against the assessee. No costs.