The judgment of the court was delivered by
VENKATACHALIAH J.-Civil Appeal No. 1118 of 1975, by
special leave, by the Commissioner of Wealth-tax, Andhra Pradesh, and Civil
Appeals Nos. 1226 and 1227 of 1975, on a certificate, under section 29(1) of the
Wealth-tax Act, 1957 (the "Act"), by the assessee, raise a question as
to the proper construction of the proviso to section 4(1)(a) of the Act, which
provides for exemption in respect of transferred assets which would otherwise be
includible in the wealth of the assessee under section 4(1)(a) of the Act.
The condition for the grant of the exemption under the
proviso is that the transfer of the asset is either chargeable to gift-tax or is
not chargeable under section 5 of the Gift-tax Act, 1958. The particular point
for consideration is whether, on the language of the proviso, the exemption is
attracted only to such gifts as were chargeable to tax for any assessment year
commencing "after the 31st day of March, 1964," as understood by the
Revenue or whether the gifts even made earlier would attract the benefit of the
exemption as claimed by the assessees.
There appears to be a divergence of judicial opinion on
the point in the High Courts. In CWT v. Sarala Debi Birla [1975] 101 ITR 488
(Cal), T. Saraswathi Achi v. CIT [1976] 104 ITR 185 (Mad), CWT v. Seth Nand Lal
Ganeriwala [1977] 107 ITR 758 (P & H), M. G. Kollankulam v. CIT [1978] 115
ITR 160 (Ker), Malti Harshey v. C WT [1980] 121 ITR 676 (MP) and CWT v. Rasesh
N. Mafatlal [1980] 126 ITR 173 (Bom), the High Courts have construed the
provision in the manner suggested by the Revenue. CWT v. Hashmatunnisa Begum
[1977] 108 ITR 98 (AP) has taken the opposite view extending a wider benefit of
the exemption.
The opinion of the Calcutta High Court in CWT v. Sarala
Debt Birla [1975] 101 ITR 488, which is representative of the view in favour of
the Revenue, is under appeal in Civil Appeals Nos. 1226 and 1227 of 1985 and the
opinion of the Andhra Pradesh High Court in CWT v. Hashmatunnisa Begum [1977]
108 ITR 98, which is favourable to the assessee is under appeal in Civil Appeal
No. 1118 of 1975 preferred by the Revenue.
In Civil Appeal No. 1118 of 1975, the assessee, Smt.
Hashmatunnisa Begum, the legal representative of the late Nawab Zahir Yar Jung
Bahadur, claimed in respect of the assessment year 1967-68, that the value of
the immovable properties gifted by the late Nawab to his wives before April 1,
1964, should not be included in the net wealth of the Nawab as on the valuation
date, September 30, 1966. The Nawab, under three deeds of gift, one dated May
25, 1962, in favour of Smt. Hashmatunnisa Begum, his first wife, and two other
deeds dated August 17, 1962, and April 26, 1962, in favour of Smt. Fareed Jehan
Begum, his second wife, gifted in their favour certain lands and buildings of a
total value of Rs. 1,96,950. The gifts were chargeable to gift-tax and were
accordingly assessed to gift-tax in the assessment year 1963-64. On behalf of
the estate of the Nawab, who later died on December 16, 1968, it was claimed in
the proceedings for assessment to wealth for the assessment year 1967-68, that
though the gifts were otherwise includible as belonging to the Nawab under
section 4(1)(a)(i), as the transfers were made to the spouses otherwise than for
adequate consideration, however, as the gifts were chargeable to gift-tax, the
proviso to section 4(1 )(a) was attracted and that the assets so transferred
were not includible in the net wealth of the Nawab "for any assessment year
commencing after the 31st day of March, 1964". The Wealth-tax Officer
rejected this claim. The Appellate Assistant Commissioner, in the assessee's
appeal, confirmed the assessment. In the assessee's further appeal before the
Appellate Tribunal, the Tribunal, on a particular construction of the proviso,
allowed the appeal and held that the assets transferred, which had attracted
gift-tax, were not includible in the net wealth of the Nawab from the assessment
year 1964-65 onwards. At the instance of the Revenue, the following question of
law was referred to the High Court for its opinion (see page 99 of 108 ITR) :
"Whether, on the facts and in the circumstances of
the case, the assessee was entitled to exclude, under the proviso to section
4(1)(a) of the Wealth-tax Act, 1957, the value of the assets gifted to his wives
in the wealth-tax assessment for the assessment year 1967-68 ?"
The High Court agreed with the construction placed on the
proviso by the Tribunal and answered the question in the affirmative and against
the Revenue. The Revenue has come up in appeal by special leave.
In Civil Appeals Nos. 1226 and 1227 of 1975, the
assessment years concerned are 1964-65 and 1965-66 corresponding to the
valuation dates March 31, 1964, and March 31, 1965. On October 7, 1959, Smt.
Sarala Debi Birla, the assessee, made a gift of Rs. 1,00,011, to her minor
daughter, Smt. Manju Rani Birla. The asset so transferred was included in the
assessee's wealth for the two assessment years 1964-65 and 1965-66 under section
4(1)(a)(ii) of the Wealth-tax Act. The claim of the assessee that the proviso to
section 4(1)(a) operated to exclude the asset from the net wealth of the
assessee as the transfer was chargeable to gift-tax was not accepted by the
Wealth-tax Officer who completed the assessment including the transferred asset
in the assessee's net wealth. The assessee's appeal before the Appellate
Assistant Commissioner was unsuccessful.
However, the Appellate Tribunal accepted the contention of
the assessee and by its appellate order dated May 11, 1970, allowed the
assessee's appeal holding that on a true construction of the proviso, so long as
the gift was chargeable to, or exempt under section 5, from gift-tax, to that
extent section 4(1)(a) ceased to have operation and the statutory fiction
embodied in it was not attracted and that, as, at the relevant time, the gift
was chargeable to gift-tax, the exemption was to operate from the assessment
year commencing after March 31, 1964. At the instance of the Revenue, the
Appellate Tribunal referred the following question of law for the opinion of the
High Court (see page 489 of 101 ITR)
"Whether, on the facts and in the circumstances of
the case and on a proper interpretation of section 4(1)(a) of the Wealth-tax Act
as amended by the Wealth-tax (Amendment) Act, 1964 (Act 46 of 1964), the sum of
Rs. 1,00,011 gifted by the assessee to her minor daughter would be included in
computing her net wealth ?
The High Court of Calcutta, in reversal of the view taken
by the Tribunal, answered the question in the affirmative and against the
assessee. The assessee has come up in appeal by certificate.
We have heard Shri B. B. Ahuja, learned counsel for the
Revenue, and Shri Harish Salve and Shri Subba Rao, for the assessees.
The controversy generated on the point leading to the
divergence of judicial opinion on the point is attributable to the somewhat
inelegant and inappropriate phraseology of the provision. To appreciate the
relevant contentions, it is necessary to notice the words of the proviso :
"Provided that where the transfer of such assets or
any part thereof is either chargeable to gift-tax under the Gift-tax Act, 1958
(18 of 1958), or is not chargeable under section 5 of that Act, for any
assessment year commencing after the 31st day of March, 1964, but before the 1st
day of April, 1972, the value of such assets or part thereof, as the case may
be, shall not be included in computing the net wealth of the individual;"
The words "but before the 1st day April, 1972,"
were later introduced by the Finance (No. 2) Act, 1971, with effect from April
1, 1972.
The proviso was introduced by the amending Act of 1964,
but given effect to from April 1, 1965, by a notification (see [1965] 55 ITR
(St.) 179). Under the various clauses of section 4(1)(a), certain transfers of
assets made by an individual in favour of, or for the benefit of, the spouse or
of a minor child, not being a married daughter, of such individual, are required
to be ignored and the transferred assets included in the wealth of the assessee,
as belonging to him. Section 4(1)(a) aims at foiling an individual's attempt at
avoiding or reducing the incidence to wealth-tax by transferring the assets to
or for the benefit of the spouse or the minor child of the individual, by
requiring the inclusion of such transferred assets in computing the net wealth
of the individual.
However, the proviso makes the provision inoperative where
and in so far as the transferred asset is either chargeable to gift-tax under,
or is exempt under, section 5 of the Gift-tax Act. The controversy surrounds the
question whether the expression "for any assessment year commencing after
31st day of March, 1964", occurring in the proviso should be read with the
first part and as referring to the eligibility of the gifts for exemption with
reference to the point of time at which the gifts were made or whether that
expression does not condition the identity of the eligible gifts but only
signifies the starting point for the exemption from wealth-tax. The assessees
contend that the date of the gift is immaterial and as long as the transfer is
chargeable to gift-tax or is exempt under section 5,-whatever may be the year in
which the gift was made-the exemption from gift-tax must commence "for any
assessment year commencing after the 31st day of March, 1964".
If the expression "for any assessment year commencing
after the 31st day of March, 1964", is intended to qualify and determine
the gifts, the subject-matters of which are eligible for exemption, then the
literal construction would be that the gifts made earlier to that period, though
chargeable to gift-tax, would not attract the benefit of exemption. But the
assessees say that the clause must be read as part of the second part of the
proviso which contemplates the exemption. So read, the clause would qualify the
commencement of the benefit of the exemption and not the point of time when the
gift is required to be made to be eligible for exemption from wealth-tax. The
learned judges of the High Court of Andhra Pradesh, in the course of the
judgment under appeal in Civil Appeal No. 1118 of 1975 observed (at page 101 of
108 ITR):
"....The words 'for any assessment year commencing
after the 31st day of March, 1964' are referable to the assessment to be made
under the Wealth-tax Act. They render the provisions of section 4(1)(a)
inoperative irrespective of the fact whether the transferred asset was
chargeable to gift-tax or not chargeable to gift-tax. The proviso specifies the
period of exemption up to 31st March, 1964. Irrespective of the year of the
gifts when the assets were gifted, they will not be included in the computation
of the net wealth of the individual till the assessment year 1964-65. We are,
therefore, of the view that the intention of Parliament was to exempt transfers
made under clauses (i) to (iv) of section 4(1)(a) from being computed in the net
wealth of the individual up to the wealth-tax assessment year commencing after
31st day of March, 1964. . . "
Sri Ahuja submitted that the words "for any
assessment year commencing after the 31st day of March, 1964" could, in the
context, only refer to the gift and gift-tax assessments. The proviso, he said,
which was introduced by way of an amendment, was brought into force with effect
from April 1, 1965, by a notification which specified the commencement of the
operation of the proviso and that, quite obviously, it would be redundant to
read the clause under consideration as again referring to the commencement of
the operation of the proviso. While the clause under consideration related to
and qualified the gift and gift-tax assessments, the commencement of the
exemption of the subject-matter of the gifts for purposes of wealth-tax was
controlled and determined by the commencement of the operation of the proviso,
which by a notification, was specified as April 1, 1965.
Sri Ahuja submitted that the proviso was intended to
effectuate the legislative policy that in respect of certain gifts made in
favour of a spouse or a minor child, during a specified period, the assets
transferred under the gifts would have the benefit of exemption from the
operation of section 4(1)(a). This was because the legislature took into
consideration that from April 1, 1964, onwards, there was a sharp ascent in the
rates of gift-tax and that the assets which constituted the subject-matter of
such gifts attracting such high rates of gift-tax should not also be included in
the net wealth of the donor for wealth-tax purposes which would otherwise be the
consequence under section 4(1)(a) of the Act. As the proviso originally stood,
gifts chargeable to gift-tax for any assessment year commencing after March 31,
1964, attracted the benefit of exemption. The outer limit for the period of such
eligible gifts was later fixed by the amendment made by the Finance (No. 2) Act,
1971, with effect from April 1, 1972, which introduced the words "but
before the 1st day of April, 1972 ". Accordingly, Sri Ahuja contends that
only that class of gifts which were chargeable to gift-tax for any assessment
year 1964-65 or thereafter (but subject to the limit fixed by the 1971
amendment) which would otherwise fall under section 4(1)(a) were eligible for
the benefit of the exemption. According to Sri Ahuja, the plain words of the
proviso leave no room for doubt and where the enactment is clear and admits of
only one meaning and does not admit of two or more meanings, it would be the
plain meaning that should be given effect to. When the meaning is plain, says
counsel, no recourse could be had to any rules of construction which would
denude the provision of its plain and ordinary meaning.
Sri Harish Salve, presenting the case of the assessees,
sought to point out the intrinsic anomaly of the cases between a gift made, say,
on March 31, 1963, and one made the very next day, i.e., the 1st of April, 1963,
on the other, to show that while in the first case, even for the assessment year
1965-66, the transferred asset is includible in the wealth of the assessee, in
the latter case, it is exempt for all times to come thereafter. Learned counsel
pointed out that the criterion of higher rates of gift-tax as a justification
supporting the classification also fails in view of the fact that under the,
proviso, it is not only the gifts chargeable to tax but also those exempt under
section 5 that attract the exemption with the result that between two gifts
which are both exempt under section 5 of the Gift-tax Act, one is forever exempt
from wealth-tax in the hands of the donor while the other is includible in his
wealth for purposes of wealth-tax depending solely on the criterion of the date
of gift-whether the gift was made prior to March 31, 1963, or thereafter. Here,
the criterion of classification of gifts on the basis of the exigibility to
higher rates of tax, says Sri Salve, collapses and the cut-off date determining
the difference in consequences in the two different classes of cases becomes
wholly arbitrary. Sri Salve submitted that construction which promotes its
constitutionality has to be preferred to the one which, if accepted, would
expose the provision to the vice of discrimination and unconstitutionality.
The essential basis of Sri Salve's suggested construction
rests on the requirement that the words "for any assessment year commencing
after the 31st day of March, 1964", should not be read as part of the first
part of the proviso relating to gift-tax assessments but as part of the second
part denoting the commencement of the operation of exemption from wealthtax.
This, we are afraid, will embog itself in the quagmire of
irreconcilable constructional contradictions. The amendment introducing the
proviso was brought about by an amending Act of 1964 ; but the date of the
commencement of its operation was left to be fixed by a notification. The effect
of the notification issued bringing the proviso into effect from April 1, 1965,
would be wholly ignored by the construction suggested by Sri Salve. Secondly,
the introduction of the words "but before the 1st day of April, 1972",
would, if the construction suggested by Sri Salve is accepted, operate to take
away the benefit of the exemption after April 1, 1972, and the exemption would
be confined only to the assessment years between 1964-65 and 1972-73. On a
reading of the plain words of the proviso, the clause "for any assessment
year commencing after the 31st day of March, 1964", can only be read as
relating to gift-tax assessments and not to wealth-tax assessments.
But, Sri Salve contends that this literal construction
would expose the provision to an attack on its constitutionality on the ground
that it brings about a discrimination between two classes of assessees on
nothing more than an arbitrary cut-off date. The cases of gifts exempted under
section 5, he says, illustrate the point as, according to Sri Salve, there could
be no rational basis for discriminating between a gift exempted under section 5
made on March 31, 1963, on the one hand and on April 1, 1963, on the other.
One of the pillars of statutory interpretation, viz., the
literal rule, demands that, if the meaning of the statutory provision is plain,
the courts must apply it regardless of the result.
The very concept of interpretation connotes the
introduction of elements which are necessarily extrinsic to the words in the
statute. Though the words "interpretation" and
"construction" are used interchangeably, the idea is somewhat
different. Dr. Patrick Devlin says:
"... A better word, I think, would be construction,
because construction, although one often used it alternatively with
interpretation, suggests that something more is being got out in the elucidation
of the subject-matter than can be got by strict interpretation of the words
used. In the very full sense of the word 'construction', the judges have set
themselves in this branch of the law to try to frame the law as they would like
to have it..." [see Samples of Law Making (Oxford University Press), pp.
70-71.]
"A statute", says Max Radin, "is neither a
literary text nor a divine revelation. Its effect is, therefore, neither an
expression laid on immutable emotional overtones nor a permanent creation of
infallible wisdom. It is statement of situation or rather a group of possible
events within a situation and as such it is essentially ambiguous. [See
"Statutory Interpretation": 43 Har. L. R. 863 (868)].
The observations of Lord Russell of Killowen in
Attorney-General v. Carlton Bank [1899] 2 QB 158, 164, though an early
pronouncement, is refreshing for its broad common sense :
"I see no reason why special canons of construction
should be applied to any Act of Parliament, and I know of no authority for
saying that taxing Act is to be construed differently from any other Act. The
duty of the court is, in my opinion, in all cases the same, whether the Act to
be construed relates to taxation or to any other subject, namely, to give effect
to the intention of the Legislature, as that intention is to be gathered from
the language employed having regard to the context in connection with which it
is employed ... Courts have to give effect to what the Legislature has
said."
The rule of construction that if the statutory provision
is susceptible to, or admits of, two reasonably possible views, then the one
which would promote its constitutionality should be preferred on the ground that
the Legislature is presumed not to have intended an excess of its own
jurisdiction, is subject to the further rule that it applies only where two
views are reasonably possible on the statutory language. If the words of the
statute, on a proper construction, can be read only in a particular way, then
they cannot be read in another way by a court of construction anxious to avoid
unconstitutionality. In a case, where, as here, a reference arises under the
Act, the question of the constitutionality of the Act cannot be examined and
pronounced upon. In State of Punjab v. Prem Sukhdas [1977] 3 SCR 408, 410, this
court made the point clear (at page 1642 of AIR 1977 SC) :
"... This amounts to nothing short of legislation. We
think that the view is an impossible one. The principle that, where a provision
is capable of one of two interpretations, the interpretation which validates
rather than one which may invalidate a provision applies only where two views
are possible. It cannot be pushed so far as to alter the meanings of the clear
words used in an enactment and to, in effect, repeal statutory provisions by
making them useless without holding them to be void." (Emphasis supplied)
Even in regard to the constitutionality of the
classification, it is not possible to rule out arguments as to the validity of
the classification as wholly unstateable. In a taxing measure, the Legislature
enjoys a wider latitude and its dispensations are based on an interaction of
diverse economic, social and policy considerations. Further, if the proviso is
bad for discrimination, it would follow that the converse situation brought
about by the later amendment, a discrimination as between gifts made as between
the 31 St of March, 1972, and on I St April, 1972, might also become bad. It is
true that we are required to notice the provision as it stood at the relevant
time.
We, however, should not be understood to have pronounced
on the question of constitutionality. That is the task of the court in a
judicial review but the rule of preference of a particular construction amongst
alternatives, in order to avoid unconstitutionality is unavailable here.
Accordingly, while Civil Appeals Nos. 1226 and 1227 of
1975 preferred by the assessee are dismissed, Civil Appeal No. 1118 of 1975 of
the Revenue is allowed and in reversal of the order dated September 18, 1974, of
the Andhra Pradesh High Court, the question referred is answered in the negative
and in favour of the Revenue.
In the circumstances, the parties are left to bear and pay
their own costs in these appeals.
Civil Appeals Nos. 1226 and 1227 of 1975 dismissed.
Civil Appeal No. 1118 of 1975 allowed.
