The Commissioner of Gift-Tax, Kerala Vs.
Dr. George Kuruvilla [1970] INSC 108 (24 April 1970)
24/04/1970 SHAH, J.C.
SHAH, J.C.
HEGDE, K.S.
GROVER, A.N.
CITATION: 1970 AIR 1535 1971 SCR (1) 373 1970
SCC (2) 29
CITATOR INFO:
D 1972 SC 23 (8,9)
ACT:
Gift-tax Act, (18 of 1958) s. 5(1)
(xiv)--Gift of Hospital building by medical practitioner to his son who later
join donor's profession-Gift described as for love and affectionWhether, exempt
under s. 5(1)(xiv).
HEADNOTE:
The assessee a medical practioner, by a deed
gifted a hospital building and land appurtenant thereto his son. The gift-deed
recited that the gift was made "Out of love and affection". The
assessee claimed exemption from gift-tax liability under s. 5 (1) (xiv) of the
Gift Tax Act 1958 on the ground that a few months after the gift his son had
graduated in medicine and had joined the assessee's profession. No evidence was
placed before the taxing authorities that the gift was made in the course of
carrying on the business of the donor. The Gift-tax Officer rejected the claim,
and the order was affirmed by the Appellate Commissioner. The Appellate
Tribunal held that the assessee was exempt from liability to pay Gift-tax. On
reference, the High Court upheld the Tribunal's order. In appeal by the Revenue,
this Court.
HELD : The assessee was not entitled to the
exemption under s. 5(1) (xiv) of the Act. The donor is exempt under s. 5 (1)
(xiv) from liability to pay tax only if the gift is in the course of carrying
on a business, profession or vocation and is made bona fide for the purpose of
such business, profession or vocation. The clause does not enact that a gift
made by a person carrying on any business is exempt from tax, nor does it
provide that a gift is exempt from tax because the property is used by the
donor. Without deciding whether the test of "commercial expedience"
is strictly appropriate to a claim for exemption under s. 5(1)(xiv) of the Gift
Tax Act-there was no evidence on the record in this case to prove that the gift
was "in the course of carrying on the business" of the donor, and
"for the purpose of the business". [1375 G-H; 376 A]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 764 of 1967.
Appeal from the judgment and order dated
April 2, 1965 of the Kerala High Court in I.T.R. Case No. 26 of 1964.
B. Sen, S. K. Aiyar and B. D. Sharma, for the
appellant.
The respondent did not appear.
The Judgment of the Court was delivered by
Shah, J. By our order dated January 1, 1969, we directed the Income-tax
Appellate Tribunal to submit a supplementary statement of the case together
with a copy of the deed of gift dated February 3, 1960 executed by the
respondent. The tri L12SupCI/70-10 374 bunal has submitted the supplementary
statement of the case together with, a copy of the deed of gift executed by the
respondent on February 3, 1960.
The respondent is a medical practitioner. By
the deed dated February 3, 1960 he has given to his son Thomas four items of
property : (1) one-fifth share in cardamom estate valued at Rs. 3,030.80; (2)
1.38 cents of garden land valued at Rs. 4,500; (3) G. K. Hospital Building
erected on the garden land valued ,at Rs. 17,250; and (4) Other rights valued
at Rs. 6,000.
In response to a notice under s. 13(2) of the
Gift Tax Act 18 of 1958 the assessee filed a return for the assessment year
1960 61 disclosing taxable gifts of property valued at Rs. 27,251 But he
claimed exemption in respect of item No. (2), i.e. the garden land. In the
course of the hearing the respondent claimed that the G.K. Hospital, Building
item No. (3) was also exempt from liability to gift-tax because of s. 5 ( 1 )
(xiv) of the Gift-tax. Act. It was the case of the respondent that his son
Thomas had graduated in the medical science at an examination held in December
1959 and had joined the respondent's profession as a House-Surgeon July 1960,
and on that account the gifts in respect of items (2) & (3) were exempt
from liability to tax. The Gift-tax Officer rejected the claim. The Appellate
Assistant Commissioner confirmed the order of the Gift-tax Officer.
the Appellate Tribunal held that the
respondent was entitled to exemption in respect of items (2) and (3).
At the instance of the Commissioner of Gift
Tax, the Tribunal referred the following question to the High Court of Kerala
for opinion "Whether on the facts and in the circumstances of the case,
the assessee was entitled to the exemption in respect of G.K. Hospital and the
adjoining land of 1.38 cents under s. 5 ( 1 ) (xiv) of the Gift Tax Act?"
The High Court answered the question in the affirmative.
The Commissioner of Gift Tax, Kerala, has
appealed to this Court.
Section 5 of the Gift Tax Act provides for
exemption in respect of certain gifts : insofar as it is relevant it provides :
"(1) Gift-tax shall not be charged under
this Act in respect of gifts made by any person(xiv) in the course of carrying
on a business, profession or vocation, to the extent to which the gift is
proved to the satisfaction of the Gift-tax Officer to have 375 been made bona
fide for the purpose of such business, profession or vocation." The
respondent practises the profession of medicine. A few months after the deed of
gift his son Thomas also qualified to be a medical practitioner. But there is
nothing in the deed of gift which even remotely suggests that the gift was made
by the respondent in the course of his profession and bona fide for the purpose
of carrying on his profession as a practitioner in medicine. The recitals in
the deed are clear : it is recited in the deed that the gift was made 'out of
love and affection". There was no evidence before the taxing authorities
that the gift was made to the donee Thomas in the course of carrying on the
business by the donor or for the purpose of such business, profession or
vocation. The Tribunal observed in paragraph-7 of the judgment :
"There is no finding that the assessee
has ceased to carry on his profession as a doctor;
Therefore it will be clear that the gift had
been made in the course of the carrying on the profession. Now the next
condition is that it should have been made for the purpose of the profession.
It is not the case of the Department that the gift property had been used for
any purpose other than what it had been put to while it was with the donor.
The High Court observed:
"We feel it difficult to resist the
conclusion that in the background and circumstances, the gift could well be
regarded as having been made for the better ordering of the business of the
assessee......... it would be enough to show that the gift was made on grounds
of commercial expediency and in order to directly or indirectly facilitate the
carrying on of the business, profession or vocation." We are unable to
agree with the views so expressed. The donor is exempt under s. 5 (1) (xiv)
from liability to pay tax only if the gift is in the course of carrying on a
business, profession or vocation and is made bona fide for the purpose of such
business, profession or vocation. The clause does not enact that a gift made by
a person carrying on any business is exempt from tax, nor does it provide that
a gift is exempt from tax merely because the property is used for the purpose
for which it was used by the donor.
Without deciding whether the test of
commercial expediency" is strictly appropriate to the claim 3 76 for
exemption under S. 5 ( 1 ) (xiv), we are of the view that there is no evidence
on the record to prove that the gift to Thomas was "in the course of
carrying on the business" of the donor, and "for the purpose of the
business".
The appeal is allowed and the order passed by
the High Court is set aside. The Commissioner of Gift Tax will get his costs in
this Court and the High Court.
Appeal allowed.
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