COMMISSIONER OF WEALTH-TAX v. SMT. HASHMATUNNISA BEGUM

The Judgment of the Court was delivered by

VENKATACHALIAH, J. Civil Appeal No. 1118/NT/1975, by special leave, by the Commissioner of Wealth-tax, Andhra Pradesh, and CA Nos. 1226 & 1227/NT/1975, on a certificate, under Sec. 29(1) of the Wealth-tax Act, 1957, (Act) by the assessee raise a question as c to the proper construction of the proviso to Sec. 4(1)(a) of the Act, which provides for exemption respecting transferred assets which would otherwise be includible in the wealth of the assessee under sec. 4(1)(a) of the Act. D 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 1 chargeable under sec. 5 of the Gift-tax Act, 1958. The particular point .i... 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," E as understood by the Revenue or whether the gifts even made earlier .... would attract the benefit of the exemption as claimed by the assessees.

_}- 2. There appears a divergence of judicial opinion on the point in the High Courts. In C. W. T. v. Smt. Sara/a Debi Bir/a, 101 ITR 488 F (Cal.); T. SaraswathiAchiv. C.I.T., 104ITR 185 (Mad.); C.W.T. v. Seth Nand Lal Ganeriwala, 107 ITR 758 (Pun.); M.G. Kol/ankulam v. C.J. T., 115 ITR 160 (Kerala) Ma/ti Harseey v. C. W. T., 12 ITR 676 (MP) and C.W.T. v. Rasesh N. Mafatlal, 126 ITR 173 (Born) several High-Courts have construed the provision in the manner suggested by the Revenue. C. W. T. v. Hashmatunnisa Begum, 108 ITR 98 (AP) has G , taken the opposite view extending a wider benefit of the exemption. '1---· The opinion of the Calcutta High Court in 101 ITR 488, which is representative of the view in favour of Revenue, is under appeal in CA 1226 and 1227 of 1985 and the opinion of the Andhra Pradesh High C9urt in 108 ITR 98 which is favourable to the assessee is under appeal H

160 SUPREME COURT REPORTS 11989] 1 S.C.R.

No. CA 1118of1975 preferred by the Revenue. A

3Copy pinpoint3. In CA 1118 of 1975 the assessee Smt. Hashmatunnisa Begam, the legal representative of the late Nawab Zaheer 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 B 1.4.1964 should not be included in the net wealth of the Nawab as on the valuation dated 31.9.1966. The Nawab under three deeds of gift one dated 25.5.1962, in favour of Smt. Hashmatunnisa Begum, his first wife, and two other deeds dated 17 .8.1962 and 26.4.1962, in favour of Smt. Fareed Jehan Begum his second-wife, gifted in their favour cer- ~··· tain 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 c assessment year 1963-64. On behalf of the estate of the Nawab-who later dies on 16.12.1968-it was claimed in the proceedings for assess- >( ment to wealth for the Assessment Year 1967-68. That though the gifts were otherwise includible as belonging to the Nawab under sec. 4(I)(a)(i), as the transfers made to the spouses otherwise than for adequate consideration, however, as the gifts were chargeable to gift- tax, the proviso to sec. 4(I)(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 Asst. Com- _A_ missioner, 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 for the assessment year 1964-65 onwards. At the instance of the Revenue, the following ques- ~ tion of law was referred to the High Court for its opinion: \.- F "Whether, on the facts and in the circumstances of the case, the assessee was entitled to exclude, under the pro- viso to section 4(1)(a) of Wealth-Tax Act, 1957, the value of the assets gifted to his wives in the Wealth-tax assess- r·· ment for the assessment year 1967-68?" G 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 bas come up in appeal by special leave.

4Copy pinpoint4. In CA 1226 and 1227 of 1975 the assessment years concerned H are 1964-65 and 1965-66 corresponding to the valuation dates

COMMR. OFWEAL1H-TAX v. HASHMATIJNNISA [VENKATACHALIAH, J.] 161

J 31.3.1964 and 31.3.1965. On 7.10.1959 Smt. Sarladevi Birla, the asses- A see, made a gift of Rs.1,00 ,011, to her minor daughter Smt. Manju Rani Birla. The assets so transferred were included in the assessee's wealth for the two assessment years 1964-65 and 1965-66 under sec. 4(I)(a)(ii) of the Wealth-tax Act. The claim of the assessee that the proviso to sec. 4(I)(a) operated to exclude the asset from the net B _+- 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 asses- see's appeal before the Appellate Asst. Commissioner was unsuccess- .... J ful.

However, the Appellate Tribunal accepted the contention of the c assessee and by its appellate order dated 11.5.1970 allowed the as- 'f sessee's appeal holding that on a true construction of the proviso, so long as the gift was chargeable to or exempt under sec. 5 from gift-tax to that extent sec. 4(I)(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 31.3.1964. At the instance of the revenue, the Appellate Tribunal referred the following question of law for the opinion of the High court: 1 "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 (Amend- ment) Act, (Act 46) of 1964, the sum of Rs. l,00,011 gifted by the assessee to her minor daughter could be included in computing her net wealth"? J· The High Court of Calcutta in reversal of the view taken by the F Tribunal answered the question in the affirmative and against the assessee. The assessee has come up in appeal by certificate.

5Copy pinpoint5. We have heard Shri B.B. Ahuja, learned counsel for the revenue and Shri Harish Salve and Shri Subba Rao, for the assessees. G

The controversy generated on the point leading to the diverg- -+- ence of the judicial opinion on the point is attributable to the some- what inelegant and inappropriate phraseology of the provision. To appreciate the relevant contentions it is necessary to notice the words of the proviso: H

p. 162

"Provided that where the transfer of such assets or any part ··~ .. A 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 !st day of April, 1972), the value of such assets or part thereof, as the case B may be, shall not be included in computing the net wealth of the individual;" -+ The words "but before the !st day April 1972" was later introduced by the Financee (No. 2) Act 1971 with effect from 1.4.1972.

C This was introduced by the amending Act of 1964, but given effect to from 1.4.1965 by the notification. Under the various clauses of Sec. 4( l)(a) certain transfers of assets made by an individual in favour or for the benefit of the spouse or 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 belong- D ing to him. Section 4(1)(a) aims at foiling an individual's attempt to avoid 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.

E 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 sec. 5 of the Gift-tax Act. The controversy surrounds the question whether the expression "for any assessment year commencing after 3 lst day of March 1964'', occurring in the proviso should be read with the first part and as referring to the eligi- F bility of the gifts for exemption with reference to the point of time at which the gifts were made or whether that expression does not condi- tion the identity of the eligible gifts but only signifies the starting point for the exemption from wealth tax. 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 sec. 5,-whatever may be the year in which the gift was made,-the exemption from gift-tax must commences "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,

COMMR. OFWEALTil-TAX v. HASHMATUNNISA IVENKATACHAL!Afl,J.I 163

though chargeable to gift-tax would not attract the benefit of exemp- A tion. 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 the exemption from wealth-tax. The learned . ~- Judges of the High Court of Andhra Pradesh in the course of the B Judgment under appeal in CA 1118 of 1975 observed:

" ..... The words 'for any assessment year commenc~ ing 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 irres- pective of the fact whether the transferred asset was c chargeable to gift-tax or not chargeable to gift-tax. The proviso specifies the period of exemption upto 31st March,

1964. Irrespecive 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 D 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 upto the wealth-tax assessment year commencing after 31st day of March, 1964 ..... " E

7Copy pinpoint7. Sri Ahuja submitted that the words "for any assessment year commencing after the 31st day of 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 1.4.1965 by a notification which specified the commence- ment of the operation of the proviso and that, quite obviously, it F 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 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, G .J- which, by notification was specified as 1.4.1965 .

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 transfer- red under the Gifts would have the benefit of exemption from the H

164 SUPREME COURT REPORTS 11989] 1 S.C.R.

A operation of Section 4(1)(a). This was because the legislature took into consideration that from 1.4.1964 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 B the Act. As the proviso originally stood, gifts chargeable to gift-tax for any assessment year commencing after 31st March, 1964, attracted the benefit of exemption. The outer limit for the period of such eligible gifts was later fixed by the amendment made by Finance (No. 2) Act, 1971, w.e.f. 1.4.1972 which introduced the words 'but before the !st day of April, 1972'. Accordingly, Sri Ahuja contends that only that class of gifts that were chargeable to gift-tax for any assessment year c 1964-65 or thereafter (but subject to the limit fixed by the 1971 amend- ment) which would otherwise fall under Section 4(1)(a) were eligible x 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 resort could be had to any rules of construction which would denude the provision of its plain and ordinary meaning.

8Copy pinpoint8. 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 31st of March 1963 and one made the very next-day i.e. 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 I wealth of the assessee, in the latter case it is exempt for all time 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 sec. 5 that attract the exemption with the result that between two gifts which are both exempt under sec. 5 of the Gift-tax Act, one is for ever 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 31st March 1963 or thereafter. Here the criterion of classification of gifts on the basis of the exigibility for higher rates of tax, says Sri Salve, collapses and the cut-off date determining the difference in consequences in the two different class of cases become wholly arbitrary. Shri Salve submitted that a construction which promotes its constitutionality has to be pre-

COMMR. OFWEALIB-TAX v. HASHMATUNNISA IVENKATAc:HALiAH, J.) 165 x ferred to the orie which, if accepted, would expose the provision to the A. 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 B A· part of the proviso relating to gift-tax assessments but as part of the second part denoting the commencement of the operation of exemp- tion from wealth-tax.

~ ···~ '

9Copy pinpoint9. This, we are afraid, will imboggle itself in the quagmire of irreconcilable constructional contradictions. The amendment intro- ducirig the proviso was brought about by art aniending Act of 1964; but t ,. . 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 1.4.1965 would be wholly ignored by the construction suggested by ~ri Salve. Secondly, the introduction of the words "but before the 1st day of April, 1972" would, if the construction suggested D by Sri Salve is accepted, operate to take away the benefit of the exemption after 1.4.1972 and the exemption confined only to the as- sessment years between 1964-65 and 1972-73. On a reading of the plain , words of the proviso, the clause "for any assessment year commencing .A after 31st day of March, 1964" can only be read as relating to gift-tax assessments and not to the wealth-tax assessments. E ~

10Copy pinpoint10. But, Sri Salve contends that this literal construction would expose the provision to an attack on its constitutionality on "the ground thal it brings about a discriininatiori between two classes of assessees ' j on nothing more than an arbitrary cut off date. The cases of gifts exempted under sec. 5, he says, illustrate the point as according to Sri F Salve there could be no rational basis for discriminating between a gift exempted under sec. 5 made on 31.3.1963 on the one hand and 1.4.1963 on the other.

11Copy pinpoint11. One of the pillars of statutory interpretation viz., the literal- rule, demands that if the meaning of the Statutory Interpretation is G plain and the Courts must apply regardless of the result.

+ 12. The very concept of interpretation connotes the introduction _of elements which are necessarily extrinsic to the words in the statue. Though the words "interpretation" and "construction" are used inter- changeably, the idea is somewhat different. Dr. Patrick Devlin says: H

p. 166

A " A better word, I think, would be construction, because construction, although one often used it alterna- tively 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 B 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 Universiy Press- p. 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 c immutable emotional over-tones nor a permanent creation of infallible wisdom. It is a 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)).

D The observations of Lord Russel of Killowen in Attorney General v. Carlton Bank, [1899] 2 Q.B. 158 though an early pronouncement, is refreshing from its broad common-sense:

"I see no reason why special canons of construction A should be applied to any Act of Parliament, and I know of E no authority for saying that a 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 -l that intention is to be gathered from the language em- \.-. F ployed, 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 suscep- tible 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 tlie statutory language. If the words of the statute, on a proper construction, can be read only in a particular way, then it cannot be read in another way by a court of construction anxious to avoid its unconstitutionality. In a case, as here,

COMMR OF WEALTil-TAX v. HASHMATUNNISA [VENKATACHALIAH, J.] 167

a reference arises under 'Act', the question of the constitutionality of the 'Act' cannot be examined and pronounced upon. In State of Pun- jab v. Prem Sukhdas, [1977] 3 SCR 408 this Court made the point clear: " ..... 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 interpreta- tions, the interpretation which validates rather than one which may invalidate a prpvision 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." C [p. 410] . (Emphasis Supplied)

Even in regard to constitutionality of the classification, it is not possible to rule out arguments as to the validity of classification as D 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 31st of March 1972 and on 1st April, 1972 might also become bad. It is true that we are required to notice the E

- provision as it stood at the relevant time.

We, however, should not be understood to have pronounced on 'J the question of constitutionality. That is the task of the Court in judicial-review but the rule of preference of a particular construction F amongst the alternatives, in order to avoid unconstitutionality is unavailable here.

Accordingly, while Civil Appeal No. 1226 and 1227 of 1975 pre- ferred by the assessee are dismissed, CA No. 1118 of 1975 of the ' revenue is allowed and in reversal of the order dated 18.9.1974 of the Andhra Pradesh High Court the question reforred is answered in the G 4- negative and in favour of the revenue.

In the circumstances, the parties are left to bear and pay their own costs in these appeals. N.P.V. C.A. Nos. 1226 & 1227/75 are dismissed H C.A. No. 1118/75 is allowed.