Commissioner of Gift-tax vs S. Lakshmana Sarma

G. Sivarajan, J.—This is a reference u/s 26(5) of the Gift-tax Act, 1958, at the instance of the Department. The following two questions of law have been referred to this court for its decision :

" 1. Whether, on the facts and in the circumstances of the case, was the Tribunal justified in law in finding that the assessee was only a benamidar between the date of purchase and the date of transfer and that the assessee was only the apparent owner of the shares but the real owner of the shares were the assessee''s father, mother and brother ?

Whether, on the facts and in the circumstances of the case, was the Tribunal justified in holding that since the assessee had shown in his wealth-tax return for the assessment year 1977-78 the shares in question as his own shares it cannot be held as militating factor against the assessee and it is only a misconception of law ?"

The brief facts are ; the assessee is an individual. During the assessment year 1978-79, the accounting period ended on May 31, 1977, the assessee filed a return of income on July 20, 1978, declaring the value of taxable gift in respect of 72.1 cents of land at Rs. 39,260. The assessing authority, namely, the Gift-tax Officer, in the course of the assessment, noticed that the assessee had during the previous year ended May 31, 1977, transferred at cost 17,500 shares out of 27,500 shares held by him in Kanthimathy Plantations to his close relations, namely, father, mother and brother. The assessing authority also noted that the cost price per share was Rs. 6.05 and that the market value of the share on the date of transfer was Rs. 21.89. Before the assessing authority, the assessee contended that he purchased shares on behalf of the persons mentioned above. The assessing authority did not accept the said contention of the assessee and brought the difference between the market value of the share, namely, Rs. 21.89, and the cost price, that is, Rs. 6.05, to get tax by resort to Section 4(1) of the said Act determining the value of gift at Rs. 2,77,200.

Aggrieved by the said assessment order, the assessee filed an appeal before the Commissioner of Gift-tax (Appeals). Before the appellate authority, it was also contended by the assessee that the said shares were purchased for and on behalf of his father, mother and brother. The appellate authority confirmed the order of the assessing authority.

The assessee took up the matter in second appeal before the Income Tax Appellate Tribunal, Cochin Bench, Ernakulam. Before the Income Tax Appellate Tribunal, the assessee contended that the father, mother and brother of the assessee wanted to purchase shares in Kanthimathy Plantations that they did not have the requisite funds at that time that they requested the assessee to purchase the same and that as and when the said persons got sufficient funds for purchase of these shares, the said shares will be transferred to them. The Appellate Tribunal accepted the said contention of the assessee and held that the purchases were benami for the assessee''s father, mother and brother and that they were sundry debtors to the assessee up to when the amounts have been repaid by them to the assessee and the shares transferred to their names. Accordingly, the Appellate Tribunal held that there is no scope for application of Section 4(1)(a) or Section 4(1)(b). The Appellate Tribunal further held that the fact that the assessee had shown the said shares in Kanthimathy Plantations as his own shares in his wealth-tax return for the assessment year 1978-79 cannot be held as a militating factor against the assessee. Accordingly, the appeal filed by the assessee was allowed. It is against the said findings of the Appellate Tribunal found in paragraph 7 of the appellate order that the Department or the Revenue has sought reference of four questions for the decision of this court. The Appellate Tribunal rejected the said application, as according to them, the findings entered in paragraph 7 of the appellate order are only findings of fact.

Aggrieved by the said order declining reference, the Revenue filed an original petition before this court for compelling the Tribunal to refer the said questions for decision by this court. This court in the said O. P. No. 10274 of 1987 by their judgment dated January 19, 1989, directed the Appellate Tribunal to refer questions numbers 1 and 3 (questions extracted hereinabove) for the decision of this court. The said judgment is reported in Commissioner of Gift Tax Vs. G. Lakshmana Sarma, .

Shri P.K.R. Menon, learned senior counsel appearing for the Department, assailed the findings of the Appellate Tribunal available at paragraph 7 of the said order as one unsupported by any material and also contended that the said findings of fact have been rendered on a misdirection of law. On the other hand, learned senior counsel appearing for the assessee, submitted that the findings of the Appellate Tribunal in paragraph 7 of the order are supported by material. The material, according to learned counsel for the assessee, is a letter dated September 12, 1980, submitted before the Gift-tax Officer in relation to the assessment of the assessee under the Income Tax Act for the year 1978-79, where, according to learned counsel, the assessee had contended that the father, mother and brother of the assessee wanted to purchase the shares in Kanthimathy Plantations that they did not have sufficient funds for the purchase of these shares, that they requested the assessee to pay the price and hold the shares temporarily and transfer the shares to them immediately the funds were arranged by them and that the price was paid and the shares were got transferred in their favour in September, 1977. Though the letter dated September 12, 1980, was stated to have been filed before the assessing authority, the submission made by the assessing authority was, as can be seen from the assessment order, annexure "A", at page 8, that these shares had been purchased on behalf of the assessee''s father, mother and brother. As already stated, the assessing authority did not accept the said contention. The first appellate authority also did not accept the said contention, as can be seen from paragraph 3 of the first appellate authority''s order. The appellate authority has said that whatever be the purpose for the purchase of the shares by the appellant, when the assessee transferred the shares for a consideration less than the market value of the shares on the date of the transfer, there is an element of gift involved in the transaction which is liable to tax as per the provisions of the Gift-tax Act. But, in the second appeal, we find that the Appellate Tribunal has accepted the said contention in the following terms :

" We have considered the rival submissions. From the orders of the lower authorities, it is seen that they have not disputed the submissions of the assessee that the shares in question were purchased by the assessee on behalf of his father, mother and brother, that they did not have sufficient funds for the purchase of these shares, that they requested the assessee to pay the price and hold the shares temporarily and transfer the shares to them immediately the funds were arranged by them and that the price was paid and the shares transferred to them in September, 1977. Now, we have to see what legal consequences will follow from these facts. When the assessee had advanced moneys to his relatives and at their request purchased the shares in question and held the shares in his name till the amount was repaid to the assessee, the assessee''s father, mother and brother were really sundry debtors to the assessee up to the date when the amounts were repaid by them to the assessee and the shares transferred to their names. Between the date of the purchase by the assessee and the date of transfer to their names, the assessee was only a benamidar for them. The assessee was only an apparent owner of the shares but the real owners of the shares were the assessee''s father, mother and brother. When the shares are transferred from the apparent owner to the real owner there is no question of transfer for consideration--whether inadequate or not--and the question of applying Section 4(1)(a) or Section 4(1)(b)., or for that matter even Section 4(1), does not arise. The fact that the assessee had shown in his wealth-tax return for the assessment year 1977-78, the shares in question as his own shares cannot be held as a militating factor against the assessee. It is only due to a misconception of the law."

We have perused the assessment order and the order of the first appellate authority. We do not find that any of the said authorities have accepted the submission of the assessee based on the letter dated September 12, 1980. The Tribunal unfortunately has stated that the lower authorities have not disputed the submissions of the assessee that the shares in question were purchased by the assessee on behalf of his father, mother and brother that they did not have sufficient funds for the purchase of these shares that they requested the assessee to pay the price and hold the shares temporarily and to transfer the shares to them immediately when the funds were arranged by them and that the price was paid and the share transferred to them in September, 1977. We have to say that these findings of fact had been entered by the Tribunal on a total misapprehension or a misdirection in law that the submissions made by the assessee are evidence. More so, in this case when fundamental premises on which the Appellate Tribunal has found the said facts is that the submissions are not disputed. As already stated by us, the Appellate Tribunal in making the statement that the lower authorities have not disputed the submissions has acted without any basis, for, no such admission is discernible from the assessment order or the appellate order of the first appellate authority. That apart, there is absolutely no material on record apart from the alleged contents in the letter dated September 12, 1980, to show that there was an understanding between the assessee, on the one hand, and his father, mother and brother, on the other hand, to the effect that the shares in Kanthimathy Plantations are being purchased for and on behalf of the latter or that the shares so purchased will be transferred to the latter at the cost price. The said findings rendered by the Appellate Tribunal according to us, rest on mere surmises and conjectures and the Tribunal has misdirected itself in accepting the submissions made by the assessee, as evidence in support of the said finding.

We are also unable to accept the submission of learned counsel for the assessee that the above observations contained in the appellate order of the Tribunal amount to recording of a finding of fact.

Though learned counsel for the assessee heavily relied on the letter dated September 12, 1980, filed before the Gift-tax Officer in connection with the Income Tax assessment for the year 1978-79, no such letter has been produced before the assessing authority or before the first appellate authority. We do not find any reference in the assessment order or in the first appellate order to the letter dated September 12, 1980. But, we find from the appellate order of the Tribunal that a contention has been taken before the Appellate Tribunal that the assessing authority or the first appellate authority has not considered the circumstances of the case brought to their notice in the assessee''s letter dated September 12, 1980, in connection with the assessee''s own Income Tax assessment for the year 1978-79. We have perused the appellate order of the Income Tax Appellate Tribunal also and we do not find anything in the order to show that the assessee had produced the letter before the Income Tax Appellate Tribunal also. The said letter is also not appended in this paper book.

Learned counsel for the Department submitted that only admission of fact is evidence and that the submission of the assessee is not evidence at all. In support of the said contention, learned counsel for the assessee has relied on the decision of the Calcutta High Court in Commissioner of Income Tax (Central) Vs. Chrestian Mica Industries Ltd., and also the decision of the Supreme Court in Killick Nixon and Company Vs. Commissioner of Income Tax, Bombay, . It is a well-accepted position for which we do not think any authority is required.

Needless to say that certain self-serving statement made in a letter by itself is not proof of the fact stated therein unless the said submission is supported by some evidence. In this case, apart from the reliance made on the statement contained in the letter dated September 12, 1980, there is absolutely no material in support of the said statement.

In this situation, learned counsel appearing for the Department, referred to us, the return filed for assessment year 1978-79, wherein he has voluntarily shown the value of 27,500 shares held by him in Kanthimathy Plantations as his own shares. That was the earliest opportunity for the assessee to put forward a case of benami purchase or in the alternative, an understanding that the shares purchased will be transferred to the father, mother and brother of the assessee at cost price, when they make available the funds. Instead, what the assessee himself has done is to treat the said shares as belonging to him only which is consistent with the recitals in the documents of transfer. Testing the submissions made on behalf of the assessee in the light of the details furnished in the return submitted under the Wealth-tax Act, we have no hesitation to hold that the case put forward by the assessee in a different manner before different authorities is contradictory and inconsistent.

It is too well-known that a party cannot be allowed to blow hot and cold at the same time. Here, what the assessee has done is to take an inconsistent and mutually exclusive stand before different authorities.

It is also contended by learned counsel for the assessee that what Section 4(1)(a) of the Gift-tax Act contemplates is transfer "otherwise than for adequate consideration". Based on the said expression used in Section 4(1)(a) of the Act, learned counsel contended that if the understanding between the assessee on the one side and his father, mother and brother on the other to the effect that the shares purchased by the assessee will be transferred to them at the cost price is accepted, then, that will amount to adequate consideration, for, according to learned counsel, adequate consideration is not synonymous with fair market value. We are not in a position to consider the said submission in view of the fact that we have already held that there is absolutely no material or evidence to show that there was an understanding as alleged.

The conduct of the assessee in including the value of 27,500 shares in Kanthimathy Plantations in his wealth-tax return for the assessment year 1978-79 also shows that the case put forward by the assessee in the gift-tax proceedings regarding the alleged benami purchase or the understanding is the result of an afterthought and is a cooked up story. We hold that the finding of the Tribunal that the said conduct of the assessee cannot be held as a militating factor against the assessee cannot be sustained. It clearly militates and falsifies the case pleaded before the authorities and before the Tribunal.

Learned counsel for the assessee further contended that even if the two questions referred to are answered against the assessee and in favour of the Department still the real question involved in this issue cannot be solved, as the Department has not chosen to raise a question regarding the ultimate findings entered into by the Tribunal. Learned counsel appearing for the Department in reply thereto has submitted before us that the findings of fact entered by the Tribunal, namely, that the shares were purchased by the assessee for and on behalf of his father, mother and brother and that there was an understanding to transfer the same at cost price as and when they make available the required funds, are not based on any material and that they rest on mere conjectures and surmises. He further contended that since the said findings have to be ignored and the necessary consequence is that the case put forward by the assessee cannot be accepted and, consequently, the findings of the Appellate Tribunal that the said transfer does not attract the provision of Section 4(1) of the Gift-tax Act has no legs to stand.

We have already found that the case of benami purchase or the understanding that the shares purchased will be transferred at cost price when funds are made available are not supported by any material, that the Appellate Tribunal''s finding rest on mere conjectures and surmises and that the said findings is as a result of total misdirection of law. In view of the said findings of ours, the necessary consequence is that the transaction is liable to be dealt with u/s 4(1)(a) of the Gift-tax Act. In the above circumstances, we cannot accept me contention ot learned counsel for the assessee that the answer to the questions referred will not solve the issue.

Learned counsel for the assessee lastly contended that this court itself in the judgment directing reference has pointed out about the paucity of materials to support the plea put forward by the assessee and that the matter requires a more detailed analysis and, therefore, he pleaded for a remand of the case to the Income Tax Appellate Tribunal to consider the matter afresh in the light of the said observations. In support of the said submissions, he also relied on the decision of this court in Commissioner of Income Tax Vs. Chemmeens, . We are not inclined to accede to the said request in view of the fact that the Tribunal has considered the matter in all its aspects and by a remand the assessee cannot improve his case.. As already stated, the materials made available before the assessing authority, the appellate authority and the Tribunal are not sufficient to accept the case of the assessee put forward in the letter dated September 12, 1980, Further, we cannot remand ''the matter to the Tribunal to enable the assessee to adduce evidence in support of the case put forward in the letter dated September 12, 1980.

We answer the two questions referred to us in the affirmative, that is, in favour of the Revenue and against the assessee. Accordingly, we hold that the orders of the assessing authority and the first appellate authority require no interference.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be sent to the Income Tax Appellate Tribunal, Cochin Bench, for passing consequential orders.