Commissioner of Income Tax vs Mr. and Mrs. Govind B.C. Ghanekar

DR. B.P. Saraf, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law to this court for opinion :

"Whether, on the facts and in the circumstances of this case, and having regard to the relevant and appropriate provisions of the Portuguese Civil Code, the gifts made by Govind Ghanekar to his wife, Premabai, inter vivos were ''revocable transfers'' within the meaning of section 61 read with section 63 of the Income Tax Act, 1961 ?"

The assessee is a body of individuals comprising Mr. and Mrs. Govind B. C. Ghanekar. They are governed by the Portuguese Civil Code. Mr. Ghanekar had gifted in favour of his wife, Mrs. Premabai, a sum of Rs. 5 lakhs which was deposited in her name on August 31, 1961, with one Mr. Modu Timble. Mr. Ghanekar also gifted Rs. 90,000 to his wife on February 1, 1962, out of which she purchased certain properties and shares. She was enjoying the properties with absolute right. There was no written document of gift. The Income Tax Officer did not accept the alleged gifts. In the assessment years 1964-65 to 1969-70, he included the income from the gifted properties in the assessment of the body of individuals comprising Mr. and Mrs. Ghanekar.

The assessee (body of individuals) appealed against the above orders of the Income Tax Officer to the Appellate Assistant Commissioner of Income Tax, who accepted the contention of the assessee that the possession and enjoyment of the gifted properties and the income arising therefrom had always been of the wife only and, therefore, the income from the said gifted properties was not assessable in the hands of the body of individuals. He, thus, directed the Income Tax Officer to exclude the above income from the assessment of the body of individuals.

The Revenue appealed to the Income Tax Appellate Tribunal. The main controversy before the Tribunal was whether the gifts by the husband to the wife were revocable gifts and, as such, the income derived from such gifted properties was includible u/s 61 of the Income Tax Act, 1961, in the hands of the donor, the communion of husband and wife, i.e., the body of individuals. The Tribunal noted the admitted position in the instant case that the property, which had been given, was communion property, which was under the management of the husband. It was a gift of the communion property by the husband to the wife. The Tribunal also noted the fact that under article 1181 of the Portuguese Civil Code, gifts between consorts can be revoked freely at any time by the donors. The Tribunal, therefore, observed that the gifts were revocable gifts under the Portuguese Civil Code. The Tribunal, however, held that this fact was irrelevant for the purpose of deciding the applicability of section 61 of the Income Tax Act. The Tribunal discussed the provisions of sections 61 and 63 of the Income Tax Act and held that gifts revocable under the Portuguese Civil Code did not fall within the ambit of section 61 of the Income Tax Act. Hence this reference at the instance of the Revenue.

Learned counsel for the Revenue submits that the Tribunal misconstrued and misinterpreted section 61 read with section 63 of the Income Tax Act. According to learned counsel, a gift which is revocable by the operation of law is also revocable within the meaning of section 61 read with section 63 of the Act. We have considered the above submission. Section 61 of the Act, which provides for inclusion of income from revocable gifts in the total income of the transferor, reads as under :

"61. All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to Income Tax as the income of the transferor and shall be included in his total income."

Section 62 specifies certain cases of transfer to which the provisions of section 61 do not apply. It provides :

"62. (1) The provisions of Section 61 shall not apply to any income arising to any person by virtue of a transfer -

(i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee; or

(ii) made before the first day of April, 1961, which is not revocable for a period exceeding six years :

Provided that the transferor derives no direct or indirect benefit from such income in either case."

Section 63 of the said Act specifies certain transfers which shall be deemed revocable for the purpose of sections 60, 61 and 62. It is in the following terms :

"63. For the purposes of sections 60, 61 and 62 and of this section, -

(a) a transfer shall be deemed to be revocable if -

(i) it contains any provision for the retransfer directly or indirectly of the whole or any part of the income or assets to the transferor, or

(ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets;

(b) ''transfer'' includes any settlement, trust, covenant, agreement or arrangement."

On a conjoint reading of section 60, 61, 62 and 63, it is abundantly clear that the income from revocable transfers of assets is to be included in the hands of the transferor for the purpose of charge of Income Tax. What is a revocable transfer will depend on various factors including, of course, the operation of law. If the law itself provides that a certain transfer shall be revocable, it cannot be held to be irrevocable with reference to the provisions of section 63 of the Act. Section 63 specifies certain situations in which a "transfer" shall be deemed to be "revocable". The object of this provision is to enlarge the meaning of "revocable transfers" for the purposes of sections 60, 61 and 62 and to include certain transfers therein which otherwise might or might not fall within that expression. It is not intended to restrict the normal meaning of the expression "revocable transfer".

On a careful reading of sections 61, 62 and 63 of the Act, we are of the clear opinion that the expression "revocable transfer" has been used therein in the sense it is understood in the legal world subject only to the enlargement of its scope by the deeming provision contained in section 63.

Article 1181 of the Portuguese Civil Code is in the following terms :

"1181. The gifts between consorts may be freely cancelled at any time by the donors.

(1) For such purposes, there is no need of the wife being authorised by the husband or by judicial decree.

(2) The cancellation shall be expressed."

The above article which is applicable to the gifts in question clearly goes to show that the gifts by the husband to his wife are revocable gifts.

Section 63 of the Income Tax Act, 1961, does not have the effect of rendering gifts which are "revocable" by operation of law or otherwise, "irrevocable".

In view of the above discussion, we are of the clear opinion that having regard to the relevant provisions of the Portuguese Civil Code, the gift made by Mr. Govind Ghanekar to his wife were "revocable gifts" within the meaning of section 61 of the Income Tax Act, 1961. The question referred to us is therefore, answered in the affirmative, i.e., in favour of the Revenue and against the assessee.

Under the facts and in the circumstances of the case, there shall be no order as to costs.