WEALTH-TAX OFFICER v. KULDIP RAJ NARANG
[Citation -1985-LL-0524-2]

Citation 1985-LL-0524-2
Appellant Name WEALTH-TAX OFFICER
Respondent Name KULDIP RAJ NARANG
Court ITAT
Relevant Act Wealth-tax
Date of Order 24/05/1985
Assessment Year 1969-70 , 1978-79
Judgment View Judgment
Keyword Tags reference application • revenue authorities • rights of ownership • individual capacity • individual property • revocable transfer • compromise decree • actual transfer • common hotchpot • interest income • valuation date • net wealth • new ground • donee • karta
Bot Summary: 1975-76 the WTO was of the view that these assets had not been transferred to the HUF and there was no evidence regarding the gift having been given by the assessee. An alternative argument of the Departmental Representative was that assuming that there was a gift or a transfer as claimed by the assessee, such a transfer would be hit by the provisions of s. 4(1)(a)(iv) of the WT Act, 1957. The learned counsel for the assessee contended that in this case the affidavit was a clear evidence of the intention of the assessee to gift these shares and deposits to the HUF, and as the assessee was the Karta of an HUF, he has accepted the gift in his capacity as Karta. We have reproduced the affidavit above and it clearly speaks of the assessee having gifted away the shares, the fixed deposits and loans to the HUF and it also speaks of this gift having been accepted by the HUF. This is the basic document on which the assessee has relied. In his statement he had stated that according to his understanding it was not necessary to transfer the shares in the books of the company in the name of the HUF. The secretary of the company had also stated that he had paid separate dividends in respect of the shares which were gifted to the HUF and the shares which were retained by the assessee. On the above facts, we can only record that besides the affidavit no other material was brought on record by the assessee to show that there was a transfer of the assets to the HUF. The deposits and the loans were no actionable claims and could be transferred by an instrument in writing. If we proceed on the basis of the contention of the assessee that there was a gift as per this affidavit, we find another impediment in the way of the assessee.


K.C. SRIVASTAVA, A.M.: ORDER These are ten departmental appeals directed against orders passed by AAC in respect of WT assessments of assessee for asst. yrs. 1969-70 to 1978-79. main grounds in these appeals are common. All these appeals have been heard together and they are disposed of by this common order. 2. In order to understand issue involved in these appeals, we may take appeal for asst. yr. 1969-70 and then consider appeals for later years. In this year there is only one ground of appeal and it reads as under : " On facts and in circumstances of case, AAC, Range 'A', New Delhi was not justified in holding that wealth amounting to Rs. 2,10,640 should be excluded from wealth of assessee as property had been validly transferred to HUF in October 1978. " assessee is individual. While filing return for asst. yr. 1969- 70, assessee had explained that he had gifted certain shares belonging to him and certain deposits standing in various concerns, to HUF consisting of himself, his wife and his son. value of these shares and deposits was taken at Rs. 2,10,640 and in original assessment made by WTO, he had included it in wealth of assessee. That assessment has been set aside by AAC, who had directed that assessee should be given opportunity to substantiate his claim of alleged gift of certain shares and fixed deposits and loans, vide his declaration dt. 30th Oct., 1968. present assessment order for this year was passed as per directions of AAC in his set aside order. 3. assessee's claim of gift of above shares, deposits and loans in favour of HUF was based on affidavit which reads as under : " AFFIDAVIT I, Kuldip Raj Narang, son of Dr. Dev Raj Narang, resident of 5-Cavalry Lines, Delhi-7, take oath and solemnly affirm as under : 1. That shares of different companies and fixed deposits and loans more particularly described in schedule I annexed hereto are my personal properties. 2. That out of shares and 'fixed deposits and loans' mentioned in schedule II have today gifted away irrevocably shares, 'fixed deposits and loans' more particularly described in schedule II annexed hereto to HUF. This gift has been accepted by HUF. 3. That for next 10 (ten) years dividends income from such shares and interest on such fixed deposits shall be given to me by HUF and I shall be at liberty to use such sums in any manner I like. 4. That I have no right, title or interest in shares, fixed deposits and loans mentioned in schedule II annexed hereto except what has been mentioned in para 3 above. (DEPONENT) VERIFICATION I, deponent named above, hereby verify that contents of this affidavit are true to best of my knowledge and belief. dt 30th Oct., 1968. (DEPONENT)" This affidavit refers to schedule of shares and deposits belonging to assessee and schedule of shares and deposits and loans stated to have been gifted away to HUF. On basis of this affidavit assessee had excluded these assets from his own return, as according to him, they belong to HUF. 4. WTO referred to reasons given by him in assessment for asst. yr. 1975-76 where objections raised by assessee on this issue had been considered. In assessment order for asst. yr. 1975-76 WTO was of view that these assets had not been transferred to HUF and there was no evidence regarding gift having been given by assessee. In this connection, WTO referred to statements of secretaries of Basti Sugar Mills Co. Ltd., Jagatjit Sugar Mills Co. Ltd. and Saraswati Insurance Co. Ltd., who had been examined while making IT assessment for year 1971-72. In that assessment order it was mentioned that there were certain contradictions between affidavit of assessee and certificate given by two companies, namely, Basti Sugar Mills Co. Ltd. and Jagatjit Sugar Mills Co. Ltd. as number of shares did not tally. At this stage it may be mentioned that assets in shape of shares and deposits which were stated to have been gifted to HUF were as under : " SCHEDULE II a. SHARES IN COMPANIES Sl. No. of Name of company No. shares 199- 1. Basti Sugar Mills Co. Ltd. Ord. 263- 2. Jagatjit Sugar Mills Co. Ltd. Ord. 427- 3. Nawabganj Sugar Mills Co. Ltd. Ord. 600- 4. Saraswati Insurance Co. Ltd. Ord. 5. Narang Industries Ltd. 35-Pref 6. Narang Industries Ltd. 90-Ord. Vijoy Steel & General Mills Co. Ltd. 4,730- 7. (as per last year) Ord. 125- 8. Steel & General Mills Co. Ltd. Ord. b. FIXED DEPOSITS AND LOANS Particulars Amount Fixed deposit account with Vijoy Steel a. 5,000 & General Mills Co. Ltd. Loan to Vijoy Steel & General Mills b. 20,000 Co. Ltd. c. Loan to Mrs. Saloni Narang 38,950 d. Loan to Shri Piyara Lal Sarin 2,000 e. Loan to Shri Dipak Raj Narang 2,000 f. Loan to Steel & General Mills Co. Ltd. 11,700." This was stated to be schedule II attached with affidavit but ITO had held that schedules were not part of affidavit as they were not affirmed in same manner as affidavit itself. ITO had also referred that no action was taken either by companies concerned or by assessee to show that there had been actual gift of these shares to HUF. It was pointed out that intimation regarding this gift was only given on telephone orally and there was nothing in records of companies concerned to indicate transfer or gift. 5. Besides holding that there was no valid transfer of these assets to HUF, it was stated by ITO that such transfer could not be accepted as assessee had reserved to himself right to receive dividends and interest from HUF for period of ten years from date of transfer. He, therefore, found that HUF at no point of time exercised rights of ownership over these assets. It may be mentioned that in original assessment made WTO had also held that these proceedings, if any, were revocable transfers. assessee had, however, relied on certain case laws urging that it was open to member of HUF to throw his property into family hotchpot and for this purpose it was contended that affidavit was sufficient evidence. Regarding reservation in respect of income and dividend it was contended on behalf of assessee that there was no prohibition in law to make conditional gift or gift with reservation. WTO referred to finding given in asst. yr. 1971-72 in income tax proceedings and held that assets could not be taken to have been thrown into common hotchpot of HUF. Following above reasoning in asst. yr. 1969-70 also WTO included value of those assets which were taken to have been transferred to HUF by way of gift. 6 . When matter came before AAC, it was pointed out by assessee that there was no contradiction between statements of secretaries of companies and affidavit filed by assessee. It was also contended that as assessee in his individual capacity continued to be entitled to dividends and interest on shares and deposits for next ten years, it was not necessary to show any change in shareholdings and shares and deposits continued to be in name of assessee, though beneficial ownership was passed on to HUF. It was also pointed out that HUF cannot be as such registered shareholder of shares and shares can stand only in name of individual. It was also contended that as for next ten years income was to go to assessee as individual, there was no question of mixing up of individual funds with HUF's funds. According to assessee, it was not necessary to give any intimation in writing to companies for such gift and only what was necessary was intention of volition to transfer shares. assessee contended that there could be conditional gift and there was no invalidity in it. It should have been treated as gift with condition. AAC held that Hindu could impress property with character of HUF and, therefore, property should be taken to be thrown in common hotchpot. For this AAC considered affidavit to be sufficient. It was also held by AAC that there was no necessity of transferring names of shares and dividends and interest was to continue to be given to assessee as in past. According to AAC, there was no prohibition or conditional transfer and in view of this shares could be taken as being properly transferred to HUF and should be excluded from assessment of assessee. AAC, however, included value of right to receive income in next ten years as assets in hands of assessee. 7 . Departmental Representative submitted that AAC has not 7 . Departmental Representative submitted that AAC has not appreciated factual legal proposition correctly. He contended that claim of assessee was about gift of these assets in form of shares and deposits and it was only later on in course of arguments that assessee started showing that it should be taken as throwing of these properties into common hotchpot of HUF. In respect of claim of gift learned Departmental Representative submitted that firstly there was no gift as there was no material on basis of which it could be held that there was actual transfer of these shares and deposits to HUF. For this he relied on reasons given by ITO in his order for asst. yr. 1971-72 in income tax proceedings and in asst. yr. 1975-76 in wealth tax proceedings. He also submitted that schedules to affidavit could not be considered as part of affidavit as they were not separately sworn as assessee's affidavit. 8 . alternative argument of Departmental Representative was that assuming that there was gift or transfer as claimed by assessee, such transfer would be hit by provisions of s. 4(1)(a)(iv) of WT Act, 1957 ('the Act'). According to this provision, in computing net wealth of individual, there shall be included as belonging to that individual, value of assets which on valuation date are held by person or AOP to whom such assets shall be transferred by individual otherwise than under irrevocable transfer. In this connection, he referred to Explanation under s. 4 whereby in cl. (b) expression 'irrevocable transfer' has been defined to include transfer of assets which by terms of instrument effecting it is not revocable for period exceeding six years and under which transferor derives no direct or indirect benefit. It is further provided that irrevocable transfer does not include transfer of assets if such instrument in any way gives transferor right to resume power, directly or indirectly, over whole or any part of assets or income therefrom. It was contended by learned Departmental Representative that assuming transfer to be there it was not irrevocable as transferor derived direct benefit in instrument itself by providing that for period of ten years dividend and interest income could be given to assessee. He submitted that as far as companies were concerned, assessee continued to be owner of these shares and deposits. income was to continue to be given to assessee for period of ten years though provision was that income should be given by HUF to assessee. He, therefore, contended that it was clearly irrevocable transfer and this aspect has not been appreciated by AAC. 9 . learned counsel for assessee contended that in this case affidavit was clear evidence of intention of assessee to gift these shares and deposits to HUF, and as assessee was Karta of HUF, he has accepted gift in his capacity as Karta. He, therefore, submitted that gift was clear and unequivocal as well as valid. It was also contended that schedule II was part of affidavit and it was not necessary to separately get signature of assessee or Oath Commissioner on schedule also. In respect of transfer of shares, it was contended that there was no necessity in law to get any change made in companies' records or records of parties where deposits were made. For these ten years dividend and income was continued to be given to assessee and, therefore, there was no question of intimating to company or concerns that income should be given to HUF. 10. Regarding submission of Departmental Representative that transfer, if any, was revocable, it was submitted that transfer of shares and deposits was subject to condition that income would be given to assessee as individual and it was subject to this condition that gift had been made, and, therefore, gift could not be considered to be revocable gift even if such income was to be given for period of ten years. He relied on observations made by Supreme Court in case of Goli Eswariah vs. CGT (1970) 76 ITR 675 (SC). He submitted that after affidavit property belonged to HUF as intention of assessee was made clear. It was, therefore, contended that AAC was justified in excluding value of these assets from assessment of assessee. 1 1 . We have carefully considered, facts of case and rival arguments. There has been some confusion in some of orders under consideration as well as in some of grounds of appeal on question whether by affidavit of 30th Oct., 1968 assessee had gifted certain assets to HUF or he had impressed those assets with character of HUF. There is certainly shade of difference between two types of transactions. That there can be gift by individual to HUF cannot be doubted. Whereas act of impressing some individual assets with character of HUF is unilateral act, act of gift is not unilateral act and under general law it involves donor and donee and also requires acceptance of gift. It has been held that wherever person throws property into common hotchpot there is no transfer involved. On other hand, gift is basically transfer without consideration. It is necessary to determine nature of claim of assessee and what according to him has actually happened. Only then legal effects of that can be taken into consideration. We have reproduced affidavit above and it clearly speaks of assessee having gifted away shares, fixed deposits and loans to HUF and it also speaks of this gift having been accepted by HUF. This is basic document on which assessee has relied. assessee's case also has been that assets had been gifted away to HUF. For impressing individual property with HUF character there should be unequivocal declaration on part of individual. In this connection, it may be mentioned that s. 4(1)(a) was inserted in order to bring under wealth tax net, unilateral action of impressing individual property with HUF character. Later on it was also clarified that it applied to properties gifted to HUF. We are mentioning this to show that law has made distinction between act of throwing property into common hotchpot and act of gifting it away to HUF. assessee's letters have also claimed it to be gift. Thus, on basis of documents and intention as indicated in letters, it is clear that assessee had gifted shares and fixed deposits and loans to HUF. At least that was assessee's intention when that affidavit was sworn in. 1 2 . Having held that, according to assessee, there was gift and, therefore, transfer of assets from individual to HUF, we proceed to consider other aspects of question. objection raised by Departmental Representative to order of AAC is two-fold. Firstly, it is said that there was no transfer of assets at all. Secondly, it is said that even if there was transfer it was revocable transfer as affidavit by which this transfer was effected reserved benefit for transferor for period of ten years. We may consider these two arguments one by one. 13. On first question, it is admitted position that all what has taken place is swearing of this affidavit. According to assessee, no further action was required for completing gift. It was in this connection that Revenue authorities pointed out that shares and deposits have not been transferred. ITO had examined Shri Mohinder Pal Singh, who was secretary of Basti Sugar Mills Co. Ltd. on this question. In his statement he had stated that according to his understanding it was not necessary to transfer shares in books of company in name of HUF. secretary of company had also stated that he had paid separate dividends in respect of shares which were gifted to HUF and shares which were retained by assessee. He, however, clarified that dividends were paid on directions of assessee, who was director of company. He also said that there might have been irregularity in action of company. It was explained by secretary that shares continued in individual name of Shri Kuldip Raj Narang and as far as company was concerned it was never transferred in name of HUF. ITO had also examined Shri Kasturi Lal, who was secretary of Saraswati Insurance Co. Ltd. He had stated that in year 1968 there was no transfer or purchase of shares and only oral mention was made that some shares were to be transferred to HUF. However, when no formal request was made, transfer could not be effected. He also said that this was only talk on telephone and there was no formal request from assessee. It was also stated that this position continued till date of giving this statement and shares continued in name of assessee in his individual capacity. Considering that in respect of other shares also, position was same, ITO had concluded that there was no transfer of shares. Regarding deposits or loans also, no document was produced and it was stated that it was not necessary. 14 . For purpose of transferring of share from one person to another what is required is to give scrip along with transfer memo which may later on be registered. Even if registration takes place later, transfer can be effective from date of handing over of transfer memo. In this case nothing of this sort has taken place. In fact throughout WTO and ITO nothing of this sort has taken place. In fact throughout WTO and ITO have been contending that there has been no actual transfer. assessee has been stating that nothing was necessary as transferor was individual and transferee was himself in his capacity as Karta of HUF. There is not much discussion about deposits or loans. On above facts, we can only record that besides affidavit no other material was brought on record by assessee to show that there was transfer of assets to HUF. deposits and loans were no actionable claims and could be transferred by instrument in writing. parties to whom these loans were given could have been informed about it. Nothing of this sort has taken place. In these circumstances, there appears to be no material to support case of assessee on basic issue of transfer. 15. We may, however, take into consideration fact that donor and donee were closely connected and in fact donee had accepted gift in his capacity as Karta. If we proceed on basis of contention of assessee that there was gift as per this affidavit, we find another impediment in way of assessee. Paragraph No. 3 of affidavit clearly provided that for ten years dividend income and interest on such fixed deposits shall be given to individual by HUF and individual shall be at liberty to use such in any manner he likes. important thing to note is that this income from dividend and interest was to be paid to assessee by HUF. This, according to us, brings transaction of gift under definition of revocable transfer as conditions laid down for 'irrevocable transfer' have not been satisfied in this case. As already discussed above, law requires that instrument effecting transfer should not contain any provision under which transferor derives any direct or indirect benefit. Here it is clear that transferor was deriving direct benefit and whole of income arising from assets stated to have been transferred was reserved for use of transferor. On these facts, it has to be held that provisions of s. 4(1)(a)(iv) were clearly applicable and argument of learned Departmental Representative on this point has to be accepted. 16. In this connection, we may refer to argument advanced by learned counsel for assessee that conditional gifts or conditional transfers were not illegal. There is no question of illegality of such transfer, but to effect of such transfers. For purpose of this argument we are proceeding on ground that there has been transfer of these assets by assessee individual to HUF. other argument was that assets were gifted with condition of payment of income and, thus, what was gifted was value of assets minus value of right to income. This also is unacceptable contention. As already pointed out above, affidavit clearly provides that dividends and interest on these shares and fixed deposits will be given to assessee by HUF and it also provides that transferor will have no right, title or interest in those shares, fixed deposits and loans except deriving of this income from all assets for transfer. Thus, subject-matter of transfer was shares and fixed deposits and loans themselves. It is also clear that assessee reserves for himself direct benefit for period of ten years. We have no hesitation in holding that learned AAC has not appreciated this aspect of matter and has erred in holding that value of assets was to be excluded from assessment of assessee. 17. two aspects which have been considered above may appear to be contradictory but as arguments have been advanced before us, we have dealt with both aspects and we are of view that order of AAC should be reversed and order of WTO should be restored on this point. 1 8 . We may now come to other years' appeals where this point continues to appear and in addition there are some other issues as well. As far as this issue which does not differ from year to year, we have to decide in favour of Revenue though figures which appear in different years are different. We may also repeat that according to claim of assessee, assets had not been thrown in common hotchpot as suggested by grounds of appeal but had been gifted to HUF. first ground in asst. yr. 1970-71 is, therefore, decided in favour of Revenue. second ground in this year relates to allowance of liability of Rs. 10,000 o n account of loan from one Shri Jage Ram. In respect of this point, it was pointed out that matter was considered in income tax appeals relating to asst. yrs. 1971-72 to 1975-76 and it was held that loan was genuine and claim of interest was also allowed. In view of this finding of Tribunal on this matter, we decline to interfere with order of AAC. 19. This question also appears in several years and it is decided in same manner for all years concerned. We also hold that assessee's claim regarding liability for interest has also been rightly accepted by AAC. 20. In asst. yr. 1971-72 ground No. 2, which is new ground, relates to exclusion of value of 25,000 shares of Hindustan Garments Ltd. claim of assessee was that these shares were purchased on behalf of certain agriculturists from whom money had been received for this purpose. assessee had not shown value of these shares and had also not claimed liability in respect of money received from agriculturists. ITO had not accepted genuineness of these loans and matter had been considered in income tax proceedings. In those proceedings it was held that there were advances from agriculturists and shares in fact were purchased on their behalf or for their benefit in consideration of money received. additions made in income tax proceedings were deleted. matter was considered by order of Tribunal to which reference has been made earlier, and this question is considered in paragraph No. 18 onwards of Tribunal's order. It may also be mentioned that reference application on this question was also rejected. In this view of matter departmental ground relating to these shares in Hindustan Garments Ltd. has to be rejected. It may be mentioned that these grounds are common in asst. yrs. 1971-72 to 1978-79. Later on these shares have actually been transferred in name of those agriculturists through compromise decree before High Court. This will cover all grounds in all appeals concerned. Thus, on first issue matter is decided against assessee in all years whereas on other issues grounds taken by Department were rejected. 2 1 . In result, appeal in IT Appeal No. 1664 (Delhi) of 1983 is allowed and other appeals are allowed in part. *** WEALTH-TAX OFFICER v. KULDIP RAJ NARANG
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