SATYA NANO MUNJALversusCOMMISSIONER OF GIFT TAX

                        [2013] 1 S.C.R. 492

A                     SATYA NANO MUNJAL
                                  V.
                  COMMISSIONER OF GIFT TAX
                  (Civil Appeal No. 3914 of 2010)
                        JANUARY 22, 2013
B
            [D.K. JAIN AND MADAN B. LOKUR, JJ.)

        GIFT TAX ACT, 1958:

c      s. 4(1) (c) - Gift to include certain transfers - Revocable
  gift of equity shares made by assessee in February 1982,
  finally held to be a valid gift - Bonus shares received by
  transferee as holder of equity shares - Gift revoked in 1988
  within the window period - Re-assessment order seeking to
  tax the assessee treating bonus shares as gift by assessee
0
  - Upheld by High Court - Held: Since High Court has not
  noticed the provisions of s. 4 (1) (c), matter remanded to it
  for consideration afresh, keeping in view the provisions of s.
  4 (1) (c) as also the assessment order for Assessment year
E 1982-83.
       On 20.02.1982, the assessee executed a deed of
  revocable transfer of certain fully paid up equity shares
  in favour of the transferee, with a stipulation that the gift
  could be revoked on completion of 74 months but before
F expiry of 82 months from the date of transfer. In
  September, 1982 and May 1986, the company issued
  certain bonus shares to the transferee as holder of gifted
  equity shares. On 15.06.1988, the assessee revoked the
  gift of equity shares, which came back to the assessee,
G but the bonus shares continued with the transferee.
  Ultimately, the revocable gift .made by the assessee was
  held valid by the ITAT and the High Court, and assessee
  liable to pay gift tax on the value of the gift in terms of r.
  11 of the Gift Tax Rules, 1958. However, by reassessment
H                              492
SATYA NANO MUNJAL v. COMMISSIONER OF GIFT 493
                   TAX
order dated 24.03.1998, it was held that the assessee had      A
surrendered his right to get back the bonus shares and
the same were treated as gift by the assessee to the
transferee. The assessee was taxed accordingly. The
reassessment order was ultimately upheld by the High
Court. Aggrieved, the assessee filed the appeal.               B

    Allowing the appeals, the Court

    HELD: 1.1. It is quite clear that the assessee had
made a valid revocable gift of 6000 equity shares on
20.02.1982 to the transferee. This is a finding of fact        C
conclusively determined by the High Court in the
assessee's own case.* The only event that took place in
the previous year relevant to the Assessment Year 1989-
90 was the revocation of the gift by the assessee on
15.06.1988. The High Court did not even notice the             D
provision of s.4(1)(c) of the Act. [Para 24-25] [500-D-E-G]

    * Commissioner of Gift-tax v. Satya Nand Munjal, [2002]
256 ITR 516 - referred to.
     1.2. In the circumstances, this Court is not inclined     E
to decide the issue finally since the High Court has not
recorded its view on the interpretation of s. 4(1)(c) of the
Act. Nor has the High Court expressed its view on the
applicability or otherwise of the principle laid down in Mc
Dowell & Co. Accordingly, the order of the High Court is       F
set aside and the matter is remanded to it for de novo
consideration, keeping in mind the provisions of s. 4(1)(c)
of the Act as well as the orders passed in the case of the
assessee for the Assessment Year 1982-83. [Para 26, 28-
29] [501-A-B, D-E]                                             G
    McDowell & Co. v. Commercial Tax Officer [1985] 154
ITR 148; Escorts Farms (Ramgarh) Ltd. v. Commissioner of
Income Tax, [1996] 222 ITR 509 - referred to.
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    494      SUPREME COURT REPORTS              [2013] 1 S.C.R.


A                        Case Law Reference:

          [1985] 154 ITR 148      referred to          para 9

          [2002] 256 ITR 516      referred to          para 10

          [1996] 222 ITR 509      referred to          para 21
B
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    3914 of 2010.

        From the Judgment & Order dated 17.12.2008 of the High
c   Court of Punjab and Haryana at Chandigarh in GTA No. 3 of
    2001.

                                WITH

    C.A. Appeal No. 3915 of 2010.
D
        S. Ganesh, Satyen Sethi, Arta Trana Panda, Rameshwar
    Prasad Goyal for the Appellant.

        R.P. Bhatt, Arijit Prasad, Rahul Kaushik, Chandra Bhushan
E Prasad, Gargi Khanna, Reena Singh, Anil Katiyar, P.S. Parvar,
  Shaheen Parveen, Yatinder Chaudhary (for B.V. Balaram Das)
  for the Respondent.

          The Judgment of the Court was delivered by

F      MADAN B. LOKUR, J. 1. Civil Appeal No. 3914/2010
  (Assessee: Satya Nand Munjal) and Civil Appeal No. 3915/
  2010 (Assessee: Om Prakash Munjal) arise out of G.T.A. No.3/
  2001 and G.T.A. No. 2/2001 respectively both decided by the
  High Court of Punjab & Haryana on 17th December, 2008. The
G relev~nt Assessment Year is 1989-90.

         2. At the instance of the Revenue, the High Court was
    called upon to decide the following common substantial
    question of law:-

H         "Whether, on the facts and in the circumstances of the
 SATYA NANO MUNJAL v. COMMISSIONER OF GIFT 495
          TAX [MADAN B. LOKUR, J.]
     case, the ITAT was right in law in quashing the gift-tax        A
     assessment in the assessee's case."

      3. The High Court set aside the order of the Income Tax
Appellate Tribunal (the Tribunal) and held in favour of the
Commissioner of Gift Tax by upholding the assessment order.
                                                                     8
It is in these circumstances that the assessee is now before
us.

    4. For convenience, we refer to the facts in the case of
Satya Nand Munjal.
                                                                     c
The facts:

     5. On 20th February 1982 the assessee, being the
absolute owner of 6000 fully paid up equity shares of the face
value of Rs. 25 each of M/s Hero Cycles (P) Ltd. executed a
deed of revocable transfer in favour of M/s Yogesh Chandra           D
and Brothers Associates (the transferee). Under the deed, the
assessee could, on completion of 74 months from the date of
transfer but before the expiry of 82 months from the said date,
exercise the power of revoking the gift. In other words, the
assessee left a window of 8 months within which the gift could       E
be revoked.

     6. The deed of revocable transfer specifically stated that
the gift shall not include any bonus shares or right shares
received and/or accruing or coming to the transferee from Mis        F
Hero Cycles (P) Ltd. (the company) by virtue of ownership or
by virtue of the shares gifted by the assessee and standing in
the name of the transferee. Effectively, therefore, only a gift of
6000 equity shares was made by the assessee to the
transferee.                                                          G
      7. On 29th September 1982 the company issued bonus
shares and since the transferee was a holder of the gifted
equity shares, 4000 bonus shares of the said company were
allotted to the transferee. Similarly, on 31st May 1986 another
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    496      SUPREME COURT REPORTS                   [2013] 1 S.C.R.


A   10,000 bonus shares were allotted to the transferee by the
    company.

         8. Thereafter, during the window of eight months, the
    assessee revoked the gift on 15th June 1988 with the result
8   that the 6000 shares gifted to the transferee came back to the
    assessee. However, the 14,000 bonus shares allotted to the
    transferee while it was the holder of the equity shares of the
    company continued with the transferee.

    Assessment proceedings for AV 1982-83:
c
          9. For the Assessment Year 1982-83, the Gift Tax Officer
    passed an assessment order on 17th February 1987 in respect
    of the assessee. He held that the revocable transaction entered
    into by the assessee was only for the purpose of reducing the
o   tax liability. As such, it could not be accepted as a valid gift.
    For arriving at this conclusion, the assessing officer relied upon
    McDowell & Co. v. Commercial Tax Officer, [1985] 154 ITR
    148. Accordingly, the assessing officer, while holding the gift
    to be void, made the assessment on a protective basis.
E        10. Feeling a.ggrieved by the assessment order, the
    assessee preferred an appeal before the Commissioner of Gift
    Tax (Appeals) but found no success. The Commissioner of Gift
    Tax (Appeals), however, held that since the gift was void, a
    protective assessment could not be made.
F
       11. The assessee then preferred a further appeal to the
  Tribunal and by its order dated 23rd August 1991 allowing the
  appeal; the Tribunal held the revocable gift to be valid. It was
  noted that the concept of a revocable transfer by way of gift is
G recognized by Section 6(2) of the Gift Tax Act, 1958 (the Act).
  The value of the gift in such a case was to be calculated in
  terms of Rule 11 of the Gift Tax Rules, 1958.

         12. Although the decision was rendered by the Tribunal
    after the gift had been revoked by the assessee, it was held
H
 SATYA NANO MUNJAL v. COMMISSIONER OF GIFT 497
          TAX [MADAN B. LOKUR, J.]
that if the assessee "does not exercise an option to revoke the        A
gift within the provided for period of 82 months, then at that point
of time also, there will be a further valuation of the residuary
interest. ... ".

    13. Feeling aggrieved by the decision of Tribunal, the             B
Revenue took up the matter in appeal before the Punjab &
Haryana High Court. By its judgment and order in
Commissioner of Gift-tax v. Satya Nand Munjal, [2002] 256
ITR 516 the High Court dismissed the appeal and held:

     "It is a legitimate attempt on the part of the assessee to        C
     save money by following a legal method. If on account of
     a lacuna in the law or otherwise the assessee is able to
     avoid payment of tax within the letter of law, it cannot be
     said that the action is void because it is intended to save
     payment of tax. So long as the law exists in its present form,    D
     the taxpayer is entitled to take its advantage. We find no
     ground to accept the contention that merely because the
     gift was made with the purpose of saving on payment of
     wealth-tax, it needs to be ignored."
                                                                       E
      14. The position as it stood, therefore, was that the
revocable gift made by the assessee was held to be a valid
gift and the assessee was liable to pay gift tax on the value of
the gift as determined under Rule 11 of the Gift Tax Rules, 1958.

Assessment proceedings for AY 1989-90:                                 F

      15. All of a sudden, on 3oth January 1996 the Gift Tax
Officer issued a notice to the assessee under Section 16(1) of
the Act to the effect that for the Assessment Year 1989-90 the
gift made by the assessee was chargeable to gift tax and that          G
it had escaped assessment for that Assessment Year. The
assessee responded to the notice by simply stating that there
is no gift that had escaped assessment.

     16. On 24th March 1998 the assessing officer passed a
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    498     SUPREME COURT REPORTS                 [2013] 1 S.C.R.


A reassessment order for the Assessment Year 1989-90. While
  doing so, he framed two issues for consideration: firstly, whether
  the transferee becomes the owner of the bonus shares
  particularly because the shares have been received by it as a
  result of a revocable transfer; secondly, whether the bonus
B shares received by the transferee could be described as a
  benefit derived by the transferee from the transferred shares.

        17. The assessing officer held that the transferee does not
  become the owner of the gifted shares until the transfer is an
C irrevocable transfer. Proceeding on this basis, it was held that
  the 14,000 bonus shares allotted to the transferee were a part
  and parcel of the gifted shares and the assessee only took back
  6000 shares from the transferee pursuant to the revocable gift.
  Consequently, it was held that the assessee had surrendered
  his right to get back 14,000 bonus shares which were treated
D as a gift by the assessee to the transferee in view of the
  provisions of Section 4(1)(c) of the Act. The assessee was
  taxed accordingly.

       18. Feeling aggrieved by the reassessment order, the
E assessee preferred an appeal to the Commissioner of Gift Tax
  (Appeals). By his order dated 8th September 1998 the
  Commissioner held that since there was no regular transfer of
  the bonus shares, the transferee could not claim any ownership
  of the shares. In fact he was only a trustee of the assessee in
F respect of the bonus shares. The Commissioner also referred
  to McDowell & Co. and held that the assessee had carefully
  planned his affairs in such a manner as to deprive the Revenue
  of a substantial amount of gift tax. The reassessment order was
  accordingly upheld.

G      19. The assessee then took up the matter with the Tribunal
  which held in its order dated 23rd May 2000 that in view of the
  assessment to gift tax made in respect of the assessee for the
  Assessment Year 1982-83, the notice issued under Section
  16(1) of the Act was merely a change of opinion and, as such
H the reassessment proceedings could not have been taken up.
 SATYA NANO MUNJAL v. COMMISSIONER OF GIFT 499
          TAX [MADAN B. LOKUR, J.]
On the merits of the case, it was noted that neither the dividend A
income on the bonus shares nor their value had been taxed in
the hands of the assessee. Consequently, the assessee was
liable to succeed on the merits of the case also. The gift tax
reassessment was accordingly quashed by the Tribunal.
                                                                  B
      20. The Revenue then came up in appeal before the High
Court with the substantial question of law mentioned above.

     21. In the impugned order, the High Court held that the
assessee was liable to gift tax on the value of the bonus shares
which were a gift made by the assessee to the transferee. It was C
held that the bonus shares were income from the original shares
by relying upon Escorts Farms (Ramgarh) Ltd. v.
Commissioner of Income Tax, [1996] 222 /TR 509.
Accordingly, the order of the Tribunal was set aside and the
reassessment order upheld.                                       D

Discussion and conclusions:

     22. Although learned counsel for the assessee seriously
doubted the correctness of the impugned judgment and order
on several grounds, we find that it is not necessary for us to go E
into all the issues raised by him.

     23. The fundamental question before the High Court was
whether there was in fact a gift of 14,000 bonus shares made
by the assess to the transferee. The answer to this question lies   F
in the interpretation of Section 4( 1)(c) of the Act which reads
as follows :-

    "Gifts to include certain transfers.

     4.     (1) For the purposes of this Act,-                      G

                  (a) xxx

                  (b) xxx
                                                                    H
    500     SUPREME COURT REPORTS                   [2013] 1 S.C.R.


A                     (c) where there is a release, discharge,
                      surrender, forfeiture or abandonment of any
                      debt, contract or other actionable claim or of
                      any interest in property by any person, the
                      value of the release, discharge, surrender,
B                     forfeiture or abandonment to the extent to
                      which it has not been found to the
                      satisfaction of the Assessing Officer to have
                      been bona fide, shall be deemed to be a gift
                      made by the person responsible for the
c                     release, discharge, surrender, forfeiture or
                      abandonment;

                      (d) to (e) xxx"

       24. A perusal of the impugned judgment and order facially
D indicates that there has been no consideration of the provisions
  of Section 4(1)(c) of the Act. From the rather elaborate narration
  of facts, it is quite clear that the assessee had made a valid
  revocable gift of 6000 equity shares in the company on 20th
  February 1982 to the transferee. This is a finding of fact
E conclusively determined by the High Court in the assessee's
  own case.

       25. The only event that took place in the previous year
  relevant to the Assessment Year 1989-90 was the revocation
F of the gift by the assessee on 15th June 1988. Was this event
  enough for the Gift Tax Officer, in 1996, to re-open the
  assessment for the year 1989-90, while keeping in mind the
  fact that bonus shares were allotted to the transferee on 29th
  September 1982 and 31st May 1986? It is possible, on an
  interpretation of Section 4(1 )(c) of the Act to answer this
G question either way, but unfortunately the High Court did not
  even notice this provision of the Act. Of course, the submission
  of learned counsel for the assessee is that on an interpretation
  of Section 4(1 )(c) of the Act, it cannot be said by any stretch of
  imagination, that the assessee had made a gift of 14,000
H
 SATYA NANO MUNJAL v. COMMISSIONER OF GIFT 501
          TAX [MADAN B. LOKUR, J.]
bonus shares to the transferee in the previous year relevant to      A
the Assessment Year 1989-90.

     26. However, we are not inclined to decide this issue finally
since we do not have the view of the High Court on the
interpretation of Section 4(1)(c) of the Act. Nor do we have the     8
view of the High Court on the applicability or otherwise of the
principle laid down in McDowell & Co.

     27. As far as the applicability of Escorts Farms is
concerned, the question that arose for consideration in that case
was the determination of the cost of acquisition of the original     C
shares when bonus shares are subsequently issued. That is the
second part of Section 4(1)(c) of the Act and that question
would arise (if at all) only after a finding is given by the High
Court on the first part of Section 4(1 )(c) of the Act. But, as we
have noted above, the High Court has not considered the              D
interpretation of Section 4(1 )(c) of the Act.

      28. Under the circumstances we have no option but
 remand the matter for de novo consideration by the High Court
 keeping in mind the provisions of Section 4(1 )(c) of the Act as    E
 well as the orders passed in the case of the assessee for the
·Assessment Year 1982-83. We do so accordingly.

    29. In view of the above, both the Civil Appeals are allowed
and the impugned judgment and order of the High Court is set
aside but without any order as to costs.                             F

     30. We make it clear that the parties are entitled to raise
all contentions before the High Court and are at liberty to file
additional documents, if necessary.

RP.                                            Appeals allowed.
                                                                     G