Bombay High Court

Cit vs Major General Sir Shahaji ... on 23 January, 2003

Equivalent citations: 2003 128 TAXMAN 45 Bom

Author: J Devadhar

JUDGMENT

J.P. Devadhar, J.

At the instance of the revenue, the Income Tax Appellate Tribunal has referred the following questions for the opinion of this court under section 256(1) of the Income Tax Act, viz. :

"1. Whether income from property known as Shalini Palace at Kolhapur, purported to be gifted by the assessee by gift deed dated 27-9-1964 subject to the agreement between the assessee and the donee dated 27-9-1964 could be included in the assessees total income ?

2. Whether the gift deed dated 27-9-1964 by which assessee gifted Shalini Palace to Chhatrapati Shivaji Co-operative Education Society, had to be considered with the agreement of the same date between the assessee and the donee society as part of the same transaction and whether in view of the said agreement there could not be said to be a gift to the donee absolutely until the conditions in the agreement were fulfilled ?

3. Whether on proper interpretation of the gift deed dated 27-9-1964 as also the agreement dated 27-9-1964 between the assessee and the donee, i.e., Chatrapati Shivaji Co-operative Education Society, Kolhapur, there could be valid gift of the property known as Shalini Palace by the assessee ?

4. Whether the gift of Shalini Palace by the assessee was subject to condition subsequent and the entire gift failed on non-fulfilment of that condition ?"

2. The assessee/an individual was former ruler of Kolhapur and was owner of several immovable properties including property known as "Shalini Palace" situated at Kolhapur. The assessment years relevant for the purpose herein are assessment years 1967-68 to 1969-70.

3. On 27-9-1964 the assessee executed a gift deed thereby gifting away "Shalini Palace" to the Chatrapati Shivaji Co-operative Education Society. The said gift deed was registered on 7-10-1994. Clauses 2, 3 and 4 of the gift deed are relevant for the purpose herein and the same are reproduced below : (as per English Translation of the deed submitted on behalf of the assessee).

"(2) Some of the Social Leaders from Kolhapur, with the intention to start a Medical College in Kolhapur established the Donee Society and it has been registered under the Maharashtra Co-operative Societies Act.

Similarly, the aims of this Society being creating facilities for the Education for the public, it has also been got registered under the Maharashtra Public Trust Act. The main aim of this society being to start a Medical College at Kolhapur, it was in need of a good building and accommodation for the medical college and, therefore, the society asked for the property as narrated in item 1 above, from the Donor as a gift without any consideration. According to By-law 2(3) of the Donee Society, the Board of Directors have got a right to accept donation, on accepting the conditions as will be laid down by the Donor. Accordingly it was requested by the Chief Promotors of the Society that they will accept the said property as mentioned in para 1 above as donation. Similarly, the promotors of the Society also requested that permission may be given to give the name of the donor to the proposed Medical College, considering the aims of the Donee Society, the Donor acceded to the request made by the Promoters of the said Society. The Donor allowed to give his name to the proposed Medical College and he agreed to give as a gift the aforesaid property as mentioned in Item No. 1 to the Donee-society. The property as mentioned in Item No. 1 above which was owned by the Donor, was agreed to be given as a gift without any consideration to the Society to start a Medical College by name "Chatrapati Shahaji Medical College" and the same gift was accepted by the donee Society for starting "Chhatrapati Shahaji Medical College.

(3) The property as mentioned in item No. 1 above, which was owned and possessed by the Donor has been given as a gift to the Donee-Society. The Donor has given up all his rights in the said property and these rights have been conferred upon the Donee-Society. The Donee-Society has now become the full fledged owner of the property in question. Similarly, the actual possession of this property is given by the donor to the Done Society on this day. The Donee-Society may use this property hereafter for the Chatrapati Shahaji Medical College. The Donor and his legal heirs will not take any objection to the above.

(4) All kinds of cess, Taxes charged on the above property upto the date of gift of this property, have been paid by the Donor and the Done Society will be responsible for payment of taxes etc. pertaining to this property chargeable after the date of gift, Similarly, the expenditure on account of stamp duty, registration etc. for execution of this Gift Deed is to be born by the Donee-Society."

From the aforesaid clauses of the gift deed, it is evident that the gift was unconditional and irrevocable. As per the gift deed, the possession of the gifted property was handed over to the donee-Society and the donor had given up all his rights in the said property.

4. On the same day i.e., on 27-9-1964 the assessee entered into an agreement with the owner of the Palace i.e., Chatrapati Shahaji Cooperative Education Society, Kolhapur setting out the conditions for utilisation of the gifted property. One of the important condition under the agreement was that the said society will pay to the assessee as compensation, a sum of Rs. 20,00,000 if the terms of the agreement for utilisation of the gifted property are not followed and for that purpose, a charge of Rs. 20,00,000 was to remain on all properties owned by the Donee-Co-operative Society. From the facts on record, it is seen that the medical college was not started by the society and in October, 1968 the society sold the said Shalini Palace for Rs. 16,00,000 to a third party. The assessee who was to receive Rs. 20,00,000 under the agreement dated 27-9-1964 if the terms of the agreement are not complied with, agreed to receive Rs. 10,00,000 in full and final settlement of his rights under the said agreement dated 27-9-1964.

5. For the assessment years in question the Income Tax Officer reopened the assessment and passed a fresh assessment order holding that the gift was a conditional gift and not an absolute and immediate gift and, therefore, the gifted property continued to be that of the assessee, and income from the said property will have to be taxed in the hands of the assessee.

6. Being aggrieved by the aforesaid order, the assessee filed an appeal before Commissioner (Appeals) who accepted the contention of the assessee and held that the assessee was not the owner of the property during the year under consideration and hence the income on the said property cannot be assessed in the hands of the assessee under the head "Income from house property-.

7. Being aggrieved by the aforesaid order, the revenue filed an appeal before the Tribunal and the Tribunal confirmed the order of Commissioner (Appeals). On the reference application filed by the revenue, the Tribunal has raised the aforesaid questions for the opinion of this court under section 256(1) of the Income Tax Act.

8. We have heard Mr. Desai, learned senior counsel for the revenue and Mr. V.H, Patil, learned senior counsel for the assessee. On perusal of the gift deed dated 27-9-1964 it is seen that the gift of the property was irrevocable and under no circumstances the gifted property was to revert back to the assessee. On execution of the said gift deed the donee became exclusive owner of the property and the possession of the property was also handed over to the donee-society. As rightly contended by the counsel for the assessee, the gift deed and the agreement although executed on the same day on 27-9-1964, they are independent of each other and there is no justification to read both the documents together. From the facts placed on record it is seen that on execution of the gift deed, the possession of the property was handed over to the donee and from the date of the gift, the donee society as absolute owner of the said property was liable to pay all taxes, cess etc. payable on the said property. The said gift deed was also registered. Therefore, from the terms of the gift deed it cannot be said that the gift was conditional. The terms of the agreement dated 27-9-1964 which pertains to the user of the gifted land cannot be imported in the gift deed so as to read the terms of the agreement in the gift deed. The terms of the agreement provide that for securing the compensation of Rs. 20,00,000 there will be a charge on all the properties owned by the donee cooperative society, which shows that on execution of the gift deed, the said property had vested in the donee-society. If the property on gift had not vested in the donee, there would not have been occasion for creating charge on the properties of the donee. In the facts of the present case, the agreement dated 27-9-1964 cannot be taken into account for construing the gift deed and as per the gift deed it cannot be held that the assessee continued to be the owner of the property inspite of the gift deed.

9. The Tribunal has rightly held that in the present case, the conditions for transfer of immovable property by gift as contemplated under section 123 of the Transfer of Property Act, 1882 have been complied with and accordingly the gift was a valid gift. The Tribunal has recorded a finding that in the sale deed executed by the donee-society in favour of the third party, the assessee is not shown as seller and only the donee society is shown as seller. Moreover, even if the gifted property was sold for higher amount, under the agreement the assessee was entitled to receive only Rs. 20,00,000 and not the entire sale amount. Under the circumstances, the Tribunal has rightly held that the gift deed is separate and distinct from the agreement and on executing the gift deed, the assessee ceased to be the owner of the said property. Therefore, in the facts of the case, we see no reason to interfere with the finding of fact given by the Tribunal.

10. Accordingly, we answer :

Question No. 1 :

in the negative and in favour of the assessee.

Question No. 2 :

is answered by holding that the gift deed and the agreement both dated 27-9-1964 could not be treated as part of the same transaction and that the gift to the donee was absolute and irrevocable.

Question No. 3 :

is answered by holding that the gift deed dated 27-9-1964 was validly gifted by the assessee in favour of the donee-society.

Question No. 4 :

is answered by holding that gift deed dated 27-9-1964 was not a conditional gift and hence, the question of the entire gift failing on account of the nonfulfillment of the condition does not arise.

The Reference is answered in the aforesaid terms, with no order as to costs.

11. In the facts and circumstances of this case, there shall be no order as to costs.