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Judgment
T.L. Viswanatha Iyer, J.—The assessee made a gift of certain jewels belonging to her, to her grand-daughter, on April 10, 1982. The value of the jewels was Rs. 3,41,000, The assessee, however, filed return u/s 13 of the Gift-tax Act, 1958, declaring a taxable value of Rs. 2,65,000 claiming "deduction" of the amount of the gift-tax payable, in the computation of the taxable value of the gift. Her case was that after delivering the ornaments to the grand-daughter, she had addressed a letter to the donee informing her that the gift was subject to the condition that she should undertake to pay the gift-tax due, as the donor had no money with her. The donee assented and agreed to pay the gift-tax. The amount was, therefore, deductible. But the Gift-tax Officer did not accept the plea and completed the assessment on a taxable value of Rs. 3,36,000 with a gift-tax liability of Rs. 65,500. The Commissioner (Appeals), however, held that because of the exchange of contemporaneous correspondence between the donor and the donee, the liability of the donee to pay the gift-tax was part of the scheme of the gift itself, that it did not arise outside it, the gift was coupled with the liability to pay the gift-tax, and hence the taxable amount was the value of the jewels reduced by the amount of the gift-tax. The Tribunal did not accept this view and refused to deduct the amount of gift-tax from the value of the taxable gift. The assessee has thereupon filed this application to compel reference of certain questions of law u/s 26(3) of the Act, the Tribunal having refused to make a reference thereof.
After having heard counsel, we are of the opinion that no referable question of law arises in this case. The liability to pay gift-tax arises only after the gift is made. The liability is on the donor u/s 29 of the Act, but it may be recovered from the donee, when it cannot be recovered from the donor. The gift-tax payable in respect of a gift comprising immovable property is a first charge on that property (vide Section 30 of the Act), with protection for a bona fide purchaser for valuable consideration without notice of the charge. The gift in this case being only of jewels, no charge is fastened on it u/s 30. The gift was not one made with any condition attached to it, except that the donee subsequently agreed to pay the gift-tax. It was not an onerous or a conditional gift. All that was arranged was that the donee shall pay the gift-tax, but the gift itself was not conditional to the payment being effected, nor was it defeasible if the condition was not satisfied. The gift became complete and absolute when the ornaments were delivered to the donee, the grand-daughter, on April 10, 1982. In the circumstances, the taxable value of the gift was the market value of the gifted jewels on the date of the gift.
What the assessee claimed was deduction of the amount of the gift-tax in the computation of the taxable value. But none of the provisions of the Act provides for any such deduction. What was apparently claimed was that this liability for gift-tax undertaken by the donee should be taken into account in reckoning the taxable value of the gift.
In Commissioner of Gift Tax Vs. K. Bhoomiamma, , the Karnataka High Court held that the gift-tax undertaken to be paid by the donee cannot be treated as consideration and cannot be allowed as a permissible deduction. The court was dealing with a plea of the assessee u/s 4(1)(a) of the Act a transfer of property for inadequate consideration, the part consideration being the gift-tax payable. It was in that context the court held as aforesaid that the gift-tax payable could not be treated as part consideration for the transfer. A similar view was taken by the High Court of Madras in Commissioner of Gift Tax Vs. Muthukumaraswamy Mudaliar and Another, , where it was held that the fact that the donees had undertaken the liability to pay the gift-tax was not a relevant circumstance in determining the value of the properties gifted for the purpose of levy of gift-tax under the Act.
We are in agreement with these decisions. The decisions relied on by counsel for the assessee are not in point and relate to anterior charges existing on the property gifted which had an effect on their market value.
It was in those circumstances that the courts held that the amount of the anterior charges could be deducted in the computation of the taxable value of the gifted property.
In Kutty Sahib Vs. Commissioner of Gift-Tax, Kerala, , this court was concerned with a case where there were existing charges and liabilities on the property on the date of the gift, which had got to be discharged by the donee. In that context, it was stated that the market value of the property being the price that a prudent and willing buyer will pay to a prudent and willing seller, it was impossible to visualise a prudent buyer who will not take into account the liabilities with which a property was impressed, and make adequate deductions in the price in order to compensate for the existence of those liabilities. It was, therefore, held that the anterior liabilities must be taken into account in assessing the market value of the property, whether those liabilities were mentioned in the deed of gift or not.
In Commissioner of Gift Tax Vs. Biswanath Paul, , the donor stipulated that the three donees should each pay him Rs. 20,000 within three years. These documents were construed either as onerous gifts liable to be defeated by non-payment of Rs. 20,000 by each donee, or as an obligation arising out of the contract annexed to the ownership of the properties. The Calcutta High Court held that, viewed either way, this condition would affect the market value of the property for the purpose of assessment to gift-tax and the amount of Rs. 60,000 was deductible in assessing the taxable value.
In Commissioner of Gift-tax Vs. Late K.A. Sheik Dawood (by Lr.), , the assessee gifted lands to twenty-three persons, and seven out of them were required to discharge debts contracted by him to the extent of Rs. 1,75,000. The Gift-tax Officer refused to deduct this amount in the computation of the value of the lands on the ground that it did not constitute a charge on the properties and the creditors could not proceed against the properties for the satisfaction of their debts. The Appellate Assistant Commissioner held to the contrary, that the gift was an onerous gift, as the donees had accepted it subject to discharge of the debts, and, therefore, the amount was liable to be deducted in the computation of the taxable value. This was confirmed by the Tribunal. The Madras High Court accepted the case of the assessee holding that on the terms of the documents, it was a clear case of a conditional or onerous gift, and the value of the gifted property was what it would fetch if sold in the open market subject to this condition. Hence, the liability of Rs. 1,75,000 had to be deducted from the market value of the lands gifted.
The position in the case before us is totally different. The jewels were transferred by the assessee to the grand-daughter. The charge under the Gift-tax Act is on the market value of the assets, that is, what a willing buyer would pay to a willing seller. The fact that the donee had agreed to pay the gift-tax will not in any manner affect the value of the gifted movables, whose value in the market will continue to be the same irrespective of this liability. The Act by itself does not contain any provision for deduction of the liability in the computation of the value of the property gifted, as under the Wealth-tax Act. But the question of liability becomes relevant in the circumstances pointed out by this court in Kutty Sahib Vs. Commissioner of Gift-Tax, Kerala, . A prudent buyer would necessarily take the existence of the liabilities on the property into account in assessing what he would pay for it. The market value of the gifted property will have to be fixed taking those liabilities into account. But so far as jewels are concerned, their market value does not, as mentioned by us earlier, depend upon the liability for payment of the gift-tax undertaken by the donee. In any case, the liability for gift-tax arises only subsequent to the gift and not earlier. It is a post-gift liability. Looked at either way, the liability for gift-tax is not liable to be taken into account in assessing the value of the gifted movables.
The Tribunal was, therefore, right in its decision. The answer to the question raised by the assessee is self-evident, so that no purpose will be served by making any reference of the questions sought by the assessee.
This petition is, therefore, dismissed.